Can BT win BSkyB’s football prizes?

A report from banker Berenberg asks whether BT Sport can win BSkyB’s glittering prize, the upcoming auction for the English Premier League. “BT,” says the bank, “in buying exclusivity to UEFA’s Champions League and Europa League football coverage, has made a statement. While it is publicly happy to be seen as number two in the UK sports content arena, its actions suggest it has far loftier ambitions, which will have implications for the cost of rights in the next Premier League auction.”

The bank says: “We have looked at what being the main sports aggregator in the UK could mean for BT in terms of revenues. We calculate that up to £580 million per annum could be generated from wholesale, pubs and clubs and advertising, with some conservatism built into these estimates. But the real revenue opportunity is through subscriptions and subscriber wins: as the number one in sport, BT could drive close to an incremental £1.3 billion in net revenue per annum – and this is without ascribing any long-term benefits to churn. If we deduct from this the £300 million/£200 million per annum paid for the Champions League/ potential additional sports content/production costs, it would imply that BT can wash its face on £1.15 billion for Sky’s portion of the Premier League – equivalent to 50 per cent inflation on the £760 million per annum Sky currently pays for the rights.”

Last week, BSkyB’s CEO Jeremy Darroch hinted that sport was not the only attraction in Sky’s portfolio of attractions. The bank takes a different view, saying: “We believe that sports rights are crucial for the company. Whereas films are now ubiquitous, BSkyB’s exclusive sports rights render a subscription to Sky unavoidable for many sports fans. Were key rights to be lost, that ‘must-have’ quality would come under serious pressure. We note that BSkyB reportedly bid £500 million to maintain its Champions League rights, representing inflation of c100 per cent. This suggests it was very keen to keep the rights. We estimate that if BSkyB was to lose the bulk of its Premier League matches and become the second player in the market, its profitability would drop by 50 per cent versus our current estimates. We continue to believe that BSkyB will remain under considerable pressure from BT, both near- and long-term, and so we retain our Sell recommendation.”

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