News Corp.'s Sky Deutschland, Deutsche Telekom Face Off on Bundesliga Soccer Deal

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COLOGNE, Germany – News Corp.’s Sky Deutschland and telco giant Deutsche Telekom (DT) face off Tuesday for one of the most valuable trophies in televised sports: the rights to Germany’s premiere soccer circuit, the Bundesliga.

Tuesday is when the German soccer league, the DFL, will announce the winners of the bidding war for rights to the 2013-2017 Bundesliga seasons.

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The DFL currently earns more than $500 million per season of the Bundesliga, with Sky Deutschland paying the bulk -- around $330 million (€250 million) -- for German pay-TV rights. Telekom currently pays a fraction -- €25 million -- for Internet and mobile streaming rights to Bundesliga games. This time around, however, DT has grander plans. The group is bidding for pay-TV rights as well, a move that, if successful, could transform the German television market and potentially knock Sky offside.

"Bundesliga rights are critical for Sky Deutschland," said UBS analyst Polo Tang said in a recent research report on the soccer auction, concluding the rights bid was a “high risk but high reward” option for the News Corp-controlled company. "Should Sky lose the rights, we believe the shares are worth only 44 cents per share," he said. On Monday, Sky Deutschland stock closed down slightly at €2.01.

If Sky were to beat Telekom and keep the Bundesliga rights for between around $350 million -- $450 million (€300 million - €350 million) a season, or between $1.4 billion -- $1.8 billion for the whole 4-year rights package, Tang believes “(Sky) shares would quickly trade back up to €2.35 (more than 30 percent upside).”

Sky shares had been on an upswing this year, with investors welcoming stronger subscriber numbers (Sky passed the 3 million subscriber mark late last year) and bullish about CEO Brian Sullivan’s forecast that the company would move into profit by 2013.

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Worries about the Bundesliga bid have dampened their enthusiasm. Sky shares are down more than 10 per cent this past month, though they are still nearly 40 per cent up on the start of the year.

German soccer, along with Hollywood films and TV series, forms the core of Sky’s pay-TV offering. The last time a competitor won the Bundesliga auction -- back in 2005 -- the pay-TV group, then called Premiere, saw subscriber figures plunge and losses skyrocket. But things didn’t end well for the auction winner that year either. Cable group UnityMedia, which acquired the rights for its pay channel Arena, was unable to turn a profit with the Bundesliga and ended up sub-licensing the matches to Premiere.

This time around, Deutsche Telekom says it has no intention of directly competing with Sky but wants to act as a wholesaler, packaging Bundesliga rights for various TV, mobile and online outlets.

“We want to let the Bundesliga off the leash,” a Telekom spokesperson told German tabloid Das Bild. “We think we can do things better than they are being done at the moment,” he added, suggesting there is a lot more money to be made selling live matches and highlights to German soccer fans on mobile and digital platforms.

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A successful bid by DT could create legal problems, however. Many media rights observers question whether Telekom, which is still 30 per cent owned by the German state, should even be allowed to bid for pay-TV rights to the Bundesliga, effectively driving up the price for purely commercial operators like Sky.

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