BT pays £1.2bn to retain European football broadcasting rights
Group sees off rival Sky for Champions League games after ‘knockout bid’
BT has paid a hefty premium to stay in the Champions League after spending £1.2bn to retain the exclusive rights to show European football in the UK.
BT paid £394m per season for the three-year deal that runs between 2018 and 2021 — a third higher than it paid in 2013 when it surprised the market by knocking Sky and ITV out of the running for live Champions League football.
The deal is the latest sign of hyperinflation in the value of football rights as media and telecoms companies battle for the most lucrative games. But it also shows that BT is not finished in its audacious attempt to turn itself into a heavyweight competitor in pay-TV.
BT was in a “no win situation”, according to one person with knowledge of the auction, given the need to maintain investment in a still fledgling TV operation in a market long dominated by arch rival Sky.
Yet BT will also need to justify the additional £100m annual outlay to shareholders already reeling from cuts to its free cash flow guidance following the accounting scandal in its Italian unit. The additional expenditure takes its annual sports spend to near £1bn, according to analysts at Raymond James.
John Petter, head of BT’s consumer operations, denied the company had overpaid for the rights, however. “You have to make a good business case,” he says, adding: “You have to be mindful of losing them but there are no blank cheques.”
Tenders for the rights were only lodged at the start of March and a vicious battle between Sky, BT and potentially other bidders was expected to ensue. Yet there was a distinct lack of fireworks in what was described as a “clean” auction. People involved said that only two rounds of bidding took place, with Sky stepping back from the fight after BT lodged a “knockout bid” that matched the expectations of Uefa, the European football body.
Jerry Dellis, an analyst with Jefferies, noted that BT faced limited opposition from Sky but still shouldered a hefty rise in the cost of the rights. “BT shareholders might, therefore, question how necessary it was for their company to meet Uefa’s price expectations in full. Moreover, we wonder what this implies for BT’s negotiating leverage in future Uefa rights auctions,” he said in a note.
Other analysts questioned whether the payout for Champions League might hinder its ability in any future auction of Premier League football rights, in which its British customers base may have greater interest.
However, BT executives make it clear that they see the price as justified. BT Sports has become a growth driver for the company, with its TV customer base rising to 1.7m from 1m in the 10 quarters since it started showing Champions League games, initially as a free service for its broadband customers.
Sport also acts as a counterweight for broadband customers defecting to Sky for cheaper broadband deals — protecting BT’s core market. The 2013 auction win triggered a turnround in its consumer arm, which returned to revenue growth in 2014 for the first time in almost five years partly as a result of its push into premium sports.
BT argues that it has got more bang for its buck with the new deal. The new European football rights package contains 35 per cent more broadcasting slots, including a 6pm and 8pm “double header” that analysts said would be good for pubs and clubs revenue when games are shown back to back.
There were concerns that Uefa has been unhappy with ratings on BT’s pay-TV sports channels given the limited reach of the BT Sports product compared to free-to-air television.
BT has dismissed that notion in the past, and Uefa’s decision to sell the entire rights package — including highlights and clips packages previously owned by ITV and News UK, the publisher of The Sun and The Times newspapers — undermines that argument. There is no requirement for BT to show any games on free-to-air channels for the new rights although it could choose to wholesale games to ITV.
BT is also able to show the games to a wider base having acquired EE, the UK’s largest mobile network, in 2015.
The exclusive rights for football clips could work well on Twitter and was highlighted by BT’s Mr Petter, who says that social media “is where the audience is”. He points to deals signed by the National Football League to live stream games over Twitter and Snapchat as a sign of the way broadcasting sport has evolved.
“You can reach a younger, broader audience through social media,” he says. Chasing viewers on those platforms could help to offset the decline in traditional TV ratings for football matches.
Mr Petter would not rule out raising prices to offset the higher cost of the Champions League rights but says that consumers are “very conscious of value for money” in the broadband market. He says BT has an opportunity to increase its take on pubs and clubs revenue and wholesale deals with more games. “There are a lot of sources of value,” he says.