Broadcaster's value slumps as shares fall 11%
BSkyB could be forced to pay an extra £1.2bn to secure the next set of Premier League broadcast rights after its shock loss to rival BT in an auction of live Champions League and Europa League football matches.
The predicted soaring cost of football rights, as well as the realisation that the sports pay television market may now have a serious second player, led to a stark reassessment of BSkyB's value, which slumped by £1.6bn on the stock exchange on Monday as its shares fell almost 11%.
The share price movement followed BT Sport's shock announcement of its exclusive £897m three-year deal with European governing body Uefa to broadcast 350 fixtures a season from 2015. BSkyB had been expected to retain most of its current rights to Europe's leading club tournament.
Matthew Walker, a media analyst with investment bank Nomura, wrote in a note to investors: "Regardless of whether BT can monetise [its Champions League] outlay, it shows that they are not content to be the number two sports service, which has big implications for the next Premier League auction in mid-2015. This is really a must-win for Sky and we raise our inflation assumption to 60% from 40% (up another £156m per annum). Sky cannot afford to be [financially] disciplined on this one."
Sky's current Premier League deal is worth about £2.3bn, which gives it rights to show 116 games a season until 2015-16 and is a 40% hike on what it paid at the previous auction. Nomura now predicts that the price will be nearer £3.5bn from the start of the 2016-17 season – a sum likely to intensify the debate over the finances of football and particularly the pay of players, who have been the chief beneficiaries of soaring broadcast rights costs.
BSkyB declined to predict what it might pay in future auctions, although the importance of English football to the channel is clear. The Champions League accounts for less than 3% of total viewing across Sky Sports, against 19% for the Premier League.
While the Premier League may gain indirectly from BT's move into Champions League, the loss of the rights is being seen as a major blow for BSkyB and ITV, which currently share the rights to the tournament. Sky said BT's bid for the deal was "far in excess" of its own, while ITV said it was "not prepared to pay over the odds". At £299m a year over the three years, BT is paying more than double the £400m BSkyB and ITV are paying for the current three-year Champions League contract.
The stock market viewed the developments differently, however. The fall in BSkyB shares cut the value of the company to £13.2bn, while shares in ITV edged down by 1.6%. But shares in BT Group, a newcomer to sports broadcasting after launching its limited Premier League service at the start of this season, rose slightly after initial losses amid fears that it had massively overpaid. BT's sports channels are available on its BT Vision TV service, on Virgin Media and on Sky.
Nick Dale-Lace, senior sales trader at CMC Markets, described it as "a huge blow to Sky and a monumental statement of intent from BT as it tries to grab a foothold in the UK television market". He added: "Both Sky and ITV, who have a number of years of experience to draw on, do not think the price represents value, but perhaps in the context of BT's plans it may be worth paying up."
BT Sport made its debut on 1 August, and the group said its financial outlook was unchanged despite the latest deal, adding that the rights would improve revenue and profit in its consumer division in the "medium term".
Announcing the deal on Saturday, the newly appointed BT chief executive, Gavin Patterson, hailed it as "giving sport back to the fans". He defended the amount paid, saying it injected "a welcome element of competition" into the market.
The head of BT's consumer division, John Petter, said: "These were the crown jewels properties for Sky. I'm sure they'll be kicking themselves today. I feel for them obviously, but they got it wrong."