Sports rights inflation pushing up prices

football-walcottThe moment two or more bidders start offering huge payments for exclusive sports rights is the moment when the rights holder starts jumping for joy. A report from Berenberg Bank on the current amounts being handed over by BSkyB or BT for football rights says that costs are rising dramatically.

The bank’s note says that the costs for covering FA Cup games have risen some 40 per cent for pay and ‘free’ TV coverage. “We understand that the pay-TV element of the rights increased by around 60 per cent, due to the competition between BT Sport and BSkyB,” As one sports rights expert to whom we spoke said: “That’s a lot of money for rights that do not drive subscribers.”

The bank says that similar rights to cover lower-rated Football League (i.e. not the Premier League) football matches rose by one-third.

“The next big renewal, so far as we are aware, will be the Champions League,” says the bank. “We understand that negotiations could begin as early as September of this year. The Champions League rights are far more valuable, in our view, and we suspect that these are “a must-retain” for BSkyB. We believe, though, that BT is keen to buy these rights. Given that the Champions League rights were renewed with zero cost inflation (no opposing bids) on the last deal, implying that the price will have been flat for six years, we believe that there will be substantial cost inflation on these rights. Indeed, we would not be surprised to see them double (as Premier League rights have done over the last two negotiation cycles). This could add circa £85m to BSkyB’s cost base from fiscal 2016, with no obvious offset (particularly if there are other rights costs inflating as well.)”

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