BT Sport Champions League deal changes game

The weekend’s announcement that telecoms giant BT is spending over €1bn on a three-year exclusive deal with UEFA to screen all Champions and Europa League football in the UK has sent shockwaves through the industry.

Monday morning and the ripples from the deal, which saw BT Sport pay a grand total of €1,075,981,484 for the rights over three seasons, reverberated out across the industry. It had been strongly rumoured the week before, but Saturday’s announcement caught everyone by surprise. Not least, you would imagine, majority rights holder BSkyB, which saw its shares tumble 11% as a result, wiping close to £1.5bn off its valuation.

It might not have the longevity of some of the more dramatic sports rights deals that have been struck with US broadcasters in recent years, but the sheer amount of money involved – £299m per season for a total of 350 matches – the direction it has come from (telecoms) and the fact that it has delivered a massive blow to the 800lb gorilla that is Sky Sports all adds up to a hugely dramatic story that has implications for the entire industry.

Not only is the inflationary pressure, which has effectively seen the value of the package double since it was last won in a joint bid by Sky and UK commercial broadcaster ITV  extreme, but it also shows that telecoms companies are more than willing to go head to head with broadcasters in the battle for viewers as long as they have the right infrastructure in place.

This time round, ITV is thought to have offered close to £190m and Sky is estimated to have upped its offer to around £500m in a bid for exclusivity. BT’s bid just blew the others out of the water. Speaking in the Financial Times, Claudio Aspesi, an analyst at Sanford C. Bernstein, commented: “It’s at the high end of any number that anyone had ever considered. This is the first time that [Sky] finds itself priced out.”

From 2015, ITV’s live football will now be limited to England internationals, although it will undoubtedly look to reinvest a significant proportion of the £190m or so it had earmarked for Champions League in other content. Sky might be doing the same, having already stated that it’s seeking to ramp up its spend on original (non-sports) programming to around £600m next year.

In a statement, Sky said: “We bid with a clear view of what the rights are worth to us. It seems BT chose to pay far in excess of our valuation… If we thought it was worth more, we’d have paid more.

“Nothing changes until 2015 and we look forward to 18 more months of live Champions League on Sky Sports. We will now re-deploy resources and continue to bring customers the best choice of TV across our offering.”

For a traditional broadcaster, the rights represent something of a gamble, as there are no guarantees of a home team making the final and the difference in viewing figures is marked (indeed, ITV scored its lowest Saturday night viewing figures for three years with this year’s all-German final). For a channel looking primarily to add subscribers, however, that’s less of an issue, and BT is happy to point out that, over the course of a season the Champions League pulls in 30m unique viewers on average, or around half of the UK population.

BT is now estimated to have spent £2bn on sports rights alone in its setting up of BT Sport. As a result it has so far signed up 2m customers from an installed broadband user base of 7m to its BT Sport channels (available via IPTV and carriage deals with the likes of Sky itself), which is impressive seeing that it only launched in August this year, but at a rate of £1000 per viewer seems slightly expensive even by modern broadcast standards.

Nevertheless, it seems that it can afford it. According to the company it can pay for three years of Champions League coverage without changing its current financial outlook – and the stock markets seem to agree. While Sky’s share price fell, BT’s price was marginally up at time of writing.

It certainly strengthens the fledgling broadcaster’s offering, which till now has largely been confined to the weekend. And what’s more, the channel is planning to use the rights as a shop window, stating that the Final and a selection of matches from earlier rounds will be free to air. “Fans will also be delighted to know that each participating British team will feature for free at least once each season,” runs a statement.

This sort of free weekend is fairly common and both broadcasters have mounted them this season alone (though rugby seems to have been the favoured focus – BT pinched the Aviva Premiership from then-incumbents Sky and ESPN in an exclusive deal that heralded its serious intentions in the market way before launch in 2012). To do so with such a valuable commodity as the Champions League, though, is close to unprecedented and can only really be assumed to be a further raising of stakes ahead of the main event: the next auction for the EPL rights in 2015 (and, as an aside, BT has also agreed to broadcast European Rugby’s new Champions Cup, which is being positioned as a replacement to the Heineken Cup that many leading clubs want to abandon).

But it is the prospect, once thought unthinkable, of losing the EPL that is is making Sky’s share price wobble. Champions League coverage accounts for a meagre 3% of Sky viewing, whereas the EPL represents a massive 19%. And while Sky has a free cashflow of – for a broadcaster – a fairly astonishing £1bn, BT’s is more than double that and (barring the ever-present ghost of pension fund calamities for an ex-state-owned institution) this figure is confidently projected to rise.

Industry figures consistently credit football with much of Sky’s success in the UK and, while it still has the rights to two thirds of all EPL games, BT already has the rest and seems to be voraciously interested in more. It had been forecast that the next round of rights negotiations in 2015 would see prices rise by anything up to 20%, taking the total to an astonishing £2.8bn. If anything, that now seems a conservative estimate. Some analysts are already predicting a 40% and even a 60% hike…

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