If BT snatches Premier League rights, BSkyB could no longer credibly claim to be the home of live televised football in the UK
BSkyB has been very successful over the years in squashing upstart competitors in football and sports broadcasting. The company, however, has never faced a rival like an invigorated BT. In a battle of chequebooks, the key statistic to bear in mind is that BSkyB currently generates free cash flow of about £1bn a year whereas BT, utterly transformed over the past five years, throws off about £2.3bn. This is a new game. Or, as Bernstein's analysts put it, "the end of peaceful co-existence in the UK telecom and TV worlds".
For the time being, BSkyB can console itself that Champions League football accounts for only 3% of viewing across its sports channels. BT's expensively-acquired three-year rights for European competitions also kick in only from the 2015-16 season, which leaves BSkyB time to assess the damage. It is in the fortunate position of having 85% of its sports rights secured for the next three years.
But the soul-searching can't last for very long. The open question is what happens when bidding opens for the next set of Premier League rights, probably in mid-2015. Sky currently has the bigger and better package by far. But if BT were to overpay in similar style for Premier League leadership, BSkyB, for the first time in its history, could no longer credibly claim to be the home of live televised football in the UK.
Would its sport offer still be big enough and broad enough to overcome the blow? It would be a brave management that took that gamble. Monday's 11% fall in BSkyB's share price reflects what's at stake in 2015: BSkyB may have to pay a truly colossal sum to defend its Premier League status. And it is reasonable to assume that, at the very least, BT would not want to take a backwards step on Premier League rights in 2015.
So should BSkyB chief executive Jeremy Darroch preserve cash now with the aim of fighting and winning comprehensively in 2015? Or does he invest elsewhere in sports to manage, and reduce, the risk of a further loss to BT? Tricky.
From BT's point of view, it can make a fair argument that the cost of an entry ticket to the top tier of sports broadcasting is a reasonable investment. It has 7m broadband subscribers, versus BSkyB's 5m, and the management would be receiving flak if the gap closed much further. There may be easy ways to recoup some of the £900m outlay on Uefa rights via wholesaling deals; and the purchase looks a sensible way to fill the gaping hole in BT Sports' current midweek schedule. As long as BT can maintain the pledge that its financial outlook is unchanged shareholders should be reassured.
That said, BT's shareholders should not celebrate too wildly a victory in a "six pointer", as chief executive Gavin Patterson described it. There will be a response from BSkyB.
Does the discovery of "accounting irregularities" during a routine internal audit offer evidence that an insurer is able to detect problems as a matter of course? Or, when the irregularities are so serious that they cause a £70m hit to profits, does it mean problems should have been spotted earlier?
In the case of RSA, which revealed the £70m hole in its claims reserves in Ireland late on Friday, a definitive answer will have to wait until accountants PwC have completed their work. That could take until the new year.
In the meantime, investors know one thing about RSA: it is a company that seems to deliver only bad news. The dividend was cut earlier this year and Friday's shocker, which sent the shares down 10% on Monday, was the second profits warning in a week. Last Tuesday's version was an extended grumble about storm damage and unrelated whiplash claims in Ireland.
In theory, the new Irish issue is a one-off, but, as Oliver Steel at Deutsche Bank put it: "Oscar Wilde's Lady Bracknell would possibly have something to say about the frequency."
RSA chief executive Simon Lee says he is "comfortable" with the City's forecasts that the dividend can be maintained at the reduced level. But comfortable is not a description one would apply to the dividend cover itself. On Deutsche's forecast, RSA would be distributing 6.4p a share to investors from earnings of 6.8p. There is no room there for any more "one-offs".
Lee's position seems safe for now. But he needs a full and glowing endorsement of the robustness of RSA's controls.