Sky EPL: Banks shocked at cost

A damning series of banker reports suggests that just about the only winners in the  award of Premier League television rights will be the football-playing residents of Cheshire (famously where North-western football stars hang out) and Chigwell (home to plenty of London -based players)!

One report, from Berenberg Bank, stated bluntly that its own ‘top’ forecast of 60 per cent price inflation was far too cautious, given that Sky paid 83 per cent more for its slice of EPL rights. The bank admitted that Sky this time gets 26 ‘top picks’ versus the 20 it currently holds. However, the bank adds: “We would place more emphasis on this point if it were not for the fact that when Sky lost the second choice of top picks to BT in the previous auction, management indicated that BT’s top picks were not that valuable anyway, because they were second choice top picks. On which basis, Sky has not transformed its Premier League offer as it claims in its press releases.”

Sky also stated in its release that it has “savings” to pay for the content which the market was not aware of. Berenberg asks: “If [the market’s] 2016 consensus is not going to change, this implies that all the savings will suddenly come through in 2017 in time to offset the increased Premier League inflation. That seems unlikely. In fact, these efficiencies helped to offset the 2014 increase in Premier League costs, and would have been a counter to increased original programming investment in the future. Has Sky forgotten it already needed these savings to offset other cost increases?”

Exane BNP-Paribas is even tougher, saying that BT Sport “has got away with it, while Sky is likely to be under pressure”. Its note continues: “BT has paid more for less matches, less top picks, and arguably worse slots but will probably claim that Champions League (from 2015/16) bridges the gap. In relative terms BT has shown some discipline and landed a sucker punch on SKY in terms of driving up the cost of rights. SKY will be looking for a means to retaliate.”

“In contrast SKY has improved its rights but at almost double the cash cost compared to 3 years ago. The company is suggesting that there is no need to change numbers as cost reduction and price increases can make good the GBP300m spend vs. consensus….. but I’m not sure anyone will believe them. Worth noting that every GBP100m off EBIT takes c6% off EPS.”

Investment banker Jefferies adds to Sky’s woes, stating that the payments while “reassuring for BT” are “sobering for Sky” adding “SKY is well-positioned in the developing UK quad-play arena (loyal customers, differentiated product), but this is a challenging outcome to explain. SKY appears to have admitted that a dominance in EPL rights is pivotal to its UK business. Investors may also question whether it was necessary to pay so much when neither BT (nor anyone else) seems to have been bidding ambitiously for more than 2 packages.”

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