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Sky: Bundesliga “Bogeyman” will be expensive

Sky’s solid financial results pleased the market, but the likely costs of winning the impending German Bundesliga football TV rights, coming up for the final stages of auction at the end of May/early June, is scaring some analysts.

For example, equity analysts at Exane/BNP-Paribas, are not just worried by the Bundesliga costs, but are fearful of the impact a high premium surcharge will have on the English Premier League when they come around for auction.

Laurie Davison, media equity analyst at Deutsche Bank devotes some 30 pages in a major examination of the impact soccer is likely to have on Sky, especially in Germany.  He advises investors to ‘BUY’ shares in Sky despite the threat of the “Bundesliga Bogeyman” and saying that Germany’s Cartel office rules and regulations mean there will be some protection for Sky even if it doesn’t win all its target games.

Deutsche Bank expects the price of German football to rise 40-60 per cent, but it could be more – even approaching Premier League uplift of 80 per cent, and perhaps as high as 90 per cent. Indeed, Deutsch Bank uses 80 per cent as its ‘base case’.

The options for would-be buyers (and Eurosport/Discovery, Deutsche Telekom, Vodafone and Perform Group are all said to be in the bidding process) are complex.  “While SkyD cannot take all rights, its ability to retain the most and the key games are key. As seen with Sky UK, losing a minority of rights has not seen significant churn or obvious loss in pricing power. BT won 2 of the 6 live TV packages for the UK Premier League for the 2013/14-2015-16 deal (and has retained for the next 3 year deal also). During this time SkyUK has seen accelerating revenue growth and churn remaining in the historic 9-11 per cent range,” states the bank.

”Discovery, which now owns Eurosport, we expect to be primarily interested in international rights to leverage across its global Eurosport channels. Its Eurosport strategy has been a focus on international rights, most notably with the Olympics deal with the IOC in June last year, which saw it acquire pan-European TV, online and mobile rights,” adds Davison.

“This leaves DT and Vodafone as the primary rivals to Sky. DT was reported to have registered for the rights auction (Bloomberg, February 25th). Vodafone is now the second largest broadband provider and third largest pay-TV operator following the KDG acquisition in 2013. So both look the most likely winners of either the packages left by Sky from A-E, or the release of the OTT package.”

“Our view on DT and Vodafone is that while both regard themselves as network operators primarily, rather than content owners, we would expect interest in rights if attractively valued. Exceptional levels of inflation could be prohibitive, but we expect them to represent a credible threat to SkyD. Unity has not been mentioned in press reports and has the painful loss-making precedent of Arena from 2007-09, but could be a bid partner or reseller to DT or VoD.”

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