The English Premier League is an old hand at this process and knows that if there is no competition, some needs to be created. It needs ‘a monster under the bed’ to keep BT and Sky honest
David MurrayDavid Murray, formerly BBC Head of Sports Rights, is Director of rights consultancy Fozmuz. He consults for law firm Shoosmiths on sport broadcasting and negotiation, and teaches at Salford University and The Better People Organisation.
It’s that time of the rights cycle when it’s time to buckle up and hold on for the ride. Yes, the English Premier League tender is coming back to town.
No UK sports rights - and few international ones - come anywhere close to the importance and unpredictability of the EPL. If you want to build a pay sport proposition, these rights are must-have.
It’s the heavyweight title fight of the sports rights world, and this year is no exception. I have been involved in the last seven EPL auctions, and there is no doubt that how it plays out will benchmark the next three years in the sports rights industry.
Much like a major title fight, it is the pre-fight sparring and publicity that sets the scene. The manoeuvring of the players offers clues as to how the main event will pan out. So it’s worth exploring what the main potential bidders are doing, and what the EPL is saying.
The EPL tender is a well-oiled machine that works brilliantly at extracting maximum value from the participants. Its multi-stage, sealed-bid approach is designed to fuel the paranoia of incumbent broadcasters. The EPL knows that it is competition, or the perception of competition, that drives rights inflation.
The strategic value of the rights is such that they have long passed the point of being profitable on a stand-alone basis
The strategic value of the rights is such that they have long passed the point of being profitable on a stand-alone basis. For incumbent broadcasters Sky and BT, their value is in bundling them with other services. And the risk is the impact to company value should they lose the rights.
Back-to-back 70-per-cent rights fee increases have hurt both Sky and BT, with the combined rights fee over three years now at £5.1 billion ($6.8 billion). Sky paid most of the increase last time - 80 per cent more for its packages - off the back of losing the Uefa Champions League rights to BT.
But its spend on sport has limits. Sky has become more strategic in its rights acquisitions, with a number of sports such as tennis and rugby absent from its new channel structure. Having made sizeable investments in cricket and F1, Sky will be nervous about paying much more for EPL football, particularly when average audience is falling for the first time, and its appetite for another package is likely to be low.
Sky will have noticed BT’s emphasis is shifting away from sport, as poor group results put pressure on costs, and the integration of the telecoms giant’s £12.5-billion acquisition of EE mobile takes priority. While BT bid aggressively to retain the Champions League, it did not attack the ECB (English cricket) or EFL (second-tier English soccer) rights with the vigour anticipated.
With the loss of key executives, is sport as important to BT as it once was? Given its Champions League commitment to 2021, it is unlikely to walk away. The bean counters will be tempted, however, to reduce the amount it pays if there is no perceived competitor for its two packages.
The EPL’s risk is that neither Sky nor BT is feeling any competitive pressure. From the perspective of its bid room, a sizeable increase seems unlikely, and a reduction is possible
The EPL’s risk is that neither Sky nor BT is feeling any competitive pressure. From the perspective of its bid room, a sizeable increase seems unlikely, and a reduction is possible.
But the EPL is an old hand at this process and knows that if there is no competition, some needs to be created. It needs ‘a monster under the bed’ to keep BT and Sky honest. It will make clear that if their opening bids do not meet its expectations, there will not be a second round should the ‘monster’ outbid them.
So what luck for the EPL that Amazon acquired the UK ATP tennis rights a few months ago, followed up this month by the US Open rights! Here was a ready-made ‘monster’, with the bonus of firing up a frenzy of media and industry speculation.
Nevertheless, although Amazon is ambitious, I struggle to believe it will bid for the live UK rights this time around for a number of reasons:
1. Why would it announce its entry to the market and remove the element of surprise?
2. To secure a meaningful package of rights would require a significant premium on existing values - is £2 billion to £3 billion a strategically-good spending of money, even for Amazon?
3. Amazon would need to totally change its business model - selling millions of high-value subscription packages for hundreds of pounds is a world away from Amazon Prime.
4. Could the UK’s broadband infrastructure cope with millions of simultaneous live streams? Problems with streaming would damage the Amazon brand, its most important asset.
5. Tennis is ready-produced and cheap enough to use as an experiment. The tennis audience is very different to football, potentially a better Amazon target demographic for selling parcels.
Meanwhile, the EPL has another card to play. As reported by Sportcal, it has announced an increase in the number of live matches to be broadcast from 168 to a minimum of 190 a season, and potentially as many as 210.
More content could help Sky and/or BT justify paying more than last time. The more games over 190 the EPL offers, the more it is looking to shake up the status quo. It has the option to move from seven to eight packages. A new package raises the chances of a new entrant and a dilution of Sky and BT’s overall market share, unless they put more money into the pot.
Mixing things up helps create uncertainty, and in BT and particularly Sky HQs, uncertainty tends to add hard cash to the bid value
Mixing things up helps create uncertainty, and in BT and particularly Sky HQs, uncertainty tends to add hard cash to the bid value.
Will Sky and BT be brave and hold their overall investment in EPL rights, as ultimately their value is driven by the number of subscribers, rather than the number of games? Or will the EPL play another blinder?
My gut feel is we will end up somewhere in between, given the risk to Sky (and to a lesser extent BT) if they lose rights, not to mention the risk to 21st Century Fox’s acquisition of Sky. If City stockbrokers have already anticipated a 50-per-cent uplift, a 20-30-per-cent increase with extra content should be favourably received by shareholders.
And ultimately that is what this game is now all about.