Sam Cooke – £113,000 a minute: The TV rights deal and what it means for football

premleague

Back in October we featured a story making predictions concerning the then forthcoming TV rights battle for the Premier League, as well as its history and its comparison with other leagues worldwide. Big numbers were being thrown around, and expert estimations were around the £4bn mark.

Last week, it was revealed that the finalised figure for the new deal is a staggering £5.14bn. This is for three seasons from the beginning of the 2016 season. Split between BT and Sky, these two will pay an average of £113,000 per minute of live coverage.

In part one of this two part article we break down what this means for the Premier League, as well as further afield and for the sport as a whole.

The details

In the October piece, we also analysed the inevitable battle between Sky Sports and BT. As expected it was a battle fought between these two broadcasters, though Sky acquired a larger chunk of pie than predicted. The full details of this new deal can be seen below:

Broadcaster Amount paid Packages (of seven in total) Increase in spending since the last deal
Sky £4.2bn Five +83%
BT £960m Two +18%

This means that BT will be paying £320m per season, compared to the £246m they currently pay for the privilege of broadcasting live games. The amount of games they will show per season will rise from 38 to 42, meaning their cost is £7.6m per game.

Sky meanwhile will shell out around £1.3bn per year, it will air 126 matches, an increase of 10 from their current figure, which means that the broadcaster’s cost per game is £11.07m.

The direct repercussions: winners and losers

chartFollowing the announcement shares in Manchester United rose by 5%, with investors evidently salivating over the prospect of a boosted income.

(Shares in Manchester United PLC. Courtesy of the New York Stock Exchange and BBC News Market Data)

BT stock prices also rose 12.4p (2.8%), a 14 year high for the company. It was not all happy camping though as share prices in Sky fell quite drastically by 40p (4.2%). Investors were evidently concerned that Sky had paid considerably over the odds for the five packages they obtained, which include the new Friday night slot.

Meanwhile in Europe..

Sky is a broadcaster which seems fixated on acquiring as many TV rights as it can, its sister companies in Germany and Italy have also been major players in the airing of Bundesliga and Serie A matches respectively. BSkyB announced late last year that it would be taking over both of these; Sky Deutschland and Sky Italia, with this double swoop thought to have cost in the region of £7.4bn.

Rupert Murdoch’s 21st Century Fox owned Sky Italia outright, whilst BSkyB have acquired the controlling stake in Sky Deutschland, of which Murdoch’s corporation owned 57%. To add some confusion to matters incidentally, Murdoch’s Fox own 39% of BSkyB itself, and as such were unable to vote in the shareholder meeting on this decision.

skysportIn 2012 Sky Deutschland acquired the rights to air all Bundesliga matches following a hotly contested bidding war with Deutsche Telekom. The deal was longer than the deals in place in the U.K., and will come to an end at the close of the 2016-17 season. To secure this deal, analysts at the time noted that the company paid over the odds at €485m (£358m) per season. This was a fantastic deal for the Bundesliga as a whole, as it meant that revenue was increased by over 50%, and that it would bring in €2.5bn (£1.8bn) over a four year period.

For the broadcaster however, there were mixed reviews as to the validity of the deal for their benefit. A Berlin daily paper, Berliner Zeitung, stated at the time: “The Bundesliga presented a sensational result for its pay-TV marketing. Instead of the current €250 million, Sky paid almost double to continue broadcasting Germany’s top football on pay TV. Deutsche Telekom also tried to win the rights, and, according to voluntary reports, ‘went to the limits of what was financially viable.”

The Bundesliga rights will come up for auction once again next year, and with the league increasingly popular following the success of the likes of Dortmund, Bayern, and the German national team, Sky can expect to pay an inflated fee once more should they wish to continue to broadcast live games.

In light of the increase in revenue for Premier League clubs, Bundesliga Chief Executive, Christian Seifert, discussed how the league would have to consider “unpopular options” to improve marketing opportunities, and ultimately maintain a competitive edge against English sides. Such options could include changing kick-off times, and extending the weekend to Monday night matches; this is all in the hope of increasing the vital income stream that is TV money.

mediasetThe current situation in Italy, wherein a ‘no single buyer clause’ exists, is that Sky Sport Italia share the spoils with RTI owned firm, Mediaset. The next battle for Serie A TV rights will be in 2017. The way in which packages are broken down in Italy differ from the U.K., in that they are split between satellite and digital terrestrial platforms, as well as specifically club-based.

The total cost for the last TV rights deal was €943m (£697m) per season. TV rights revenue is particularly important in Italy; a study by Deloitte in 2013 revealed that Italian clubs are the most reliant on this source of income, with it accounting for 59% of total club revenues on average.

bbcchartThe importance of being Premier

The unexpectedly huge leap in the TV rights deal in the Premier League has the clear benefit of making a place in the top twenty clubs in England an even more lucrative position.

Indeed, as BBC Sport’s table shows, since 2010 the revenue generated by TV rights has risen dramatically, and as such so has the financial value of being in the Premier League.

The current arrangement for the allocation of TV rights money in terms of how the clubs benefit, is that 50% of the amount is divided equally, 25% is awarded based on league finishing position, whilst the remaining 25% is dished out according to how many games they have aired.

The allocation of £5.1bn – the facts:

  • 50% is split equally –  £2.05bn between 20 clubs – around £100m per club
  • The 2016/17 champions will receive another £150m
  • The club who finishes bottom in 2016/17 will receive £99m
  • All of this is prior to the bonuses concerning teams which enjoy live coverage more than others

The Premier League is currently broadcast to 650m households in 175 countries, and the league has rapidly growing audiences in both the US and India – these markets of course have huge, vastly untapped potential. Indeed it is now the second richest sports league in the world, overtaking the NBA, and second only to the NFL in the States. Perhaps then its dominance financially over other leagues is less surprising, but is this a good thing for football in the UK and the sport as a whole?

It is now the case that every single Premiership club is in the top forty richest football clubs in the world, Southampton for example are 25th. This new TV rights money will only further strengthen these positions. A Senior Manager at Deloitte, Austin Houlihan, stated: “‘This is testament to the huge appeal of the Premier League globally and the equality of distribution the clubs enjoy relative to their European counterparts.”

This equality of distribution is of course a positive inclusion, but the fact remains that it is the Premier League, not English football as a whole which is the main benefactor. There are numerous concerns which have been voiced at various levels since the deal was announced, and these will be explored in the follow up piece to this article.

In part two of this article we analyse the complaints, issues and potential longer term repercussions of this deal, including the potential effect on consumers.

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