BT Sport/Discovery: a joint venture is more home draw than away win
Negotiations on the proposed deal may yet fail but it would have commercial logic
BT’s proposed joint venture delivers a partial exit from the pricey game of sports broadcasting. Retaining full ownership of the cash-guzzling business — at a time of hefty investment in broadband — was never an option. This is a halfway house signposting eventual full disposal: a 50/50 venture with Discovery, the US media group with which BT is now in exclusive talks.
A clean break would have been better. A sale would have removed uncertainty and pulled in maybe £600mn. But BT failed to agree terms with DAZN, the sports streaming company owned by billionaire Sir Leonard Blavatnik.
Launched in 2013, BT Sport was a vanity project championed by football-loving former boss Gavin Patterson. It bled money in the early years at an annual rate of about £400mn. Broadcasting rights for football and rugby games do not come cheap: three years’ worth for the Premier Leagues alone came to £885mn. The unit now breaks even, with revenues of about £1bn covering a similar magnitude of costs.
Bundling content with airtime is passe and sporting rights no longer dazzle BT investors. The group has emerged from a bruising period to become a stolid infrastructure play via broadband network subsidiary Openreach. It now needs to focus on efficiency, not least because French telecoms tycoon Patrick Drahi has bought an 18 per cent stake. Capital expenditure will rise from 13 per cent of sales in 2012 to about 23 per cent this year.
Investors, deprived of the windfall from a sale, should bear in mind that the game is not yet over. Terms of the proposed alliance with Discovery-owned Eurosport UK must still be hashed out. Some of the thorny issues that scuttled sale talks, such as revenue guarantees, still apply with joint ventures.
Negotiations may yet fail. But it would have commercial logic: a bigger range of sports coverage would boost the JV’s market share as it battled with UK rivals Sky and Virgin. That is a better bet than glomming football rights on to a legacy utility in hopes it will resemble a cool streaming business.