English Soccer Rights Auction: Will Amazon Bid, and What to Expect From Sky and BT?

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English Premier League

Reduced viewing, in part driven by live-streaming piracy, means that the English Premier League rights’ "fundamental value is falling, not rising," says one analyst.

The English Premier League, the most-watched soccer league in the world that features such teams as Manchester City, Manchester United, London clubs Chelsea, Arsenal and Tottenham, as well as Liverpool, is about to kick off its latest U.K. TV rights auction, which is expected to set a new all-time record for the price paid for its matches.

But observers expect a smaller increase for the latest three-year rights deals starting with the 2019-20 season after the last two rights deals boosted the overall price tag by 70 percent. And new suitors, led by Amazon, are understood to have been considering competing for some of the rights in the auction that is set to kick off this week. 

Longtime rights holder Sky, which currently has five of seven TV rights packages, or 126 games, worth $6.37 billion at the time of the last rights deal, and BT, formerly known as British Telecom, which controls the other two packages, or 42 games, worth $1.46 billion, are known to be ready to bid again.

But they have in recent weeks signaled they won't overpay. "The Premier League has remained fantastic," Sky CEO Jeremy Darroch said last month. "It’s important, but it’s critically only one part of the [content] mix." He also reminded investors that "you have seen us walk away" from a couple of other sports rights auctions "because we can just see a better way to deploy the capital." And Marc Allera, CEO of BT’s consumer brands, said earlier this month: "We’ll be very disciplined."

Discovery Communications and its Eurosport network were also believed to have been in the running for the rights last time around.

BT in the last auction retained two packages with 42 matches per season for $1.46 billion, while Sky got the rights to 126 games per season for $6.37 billion. That made the overall deal worth more than $7.8 billion (5.14 billion pounds), at the time.

This time, the Premier League is expecting another increase, but analysts expect the bidders to stick to being cautious what they offer to pay. "The loss-making nature of both Sky and BT’s sports businesses makes it difficult for them to justify expansion or further hyperinflation," said Enders Analyis analyst James Barford. "Indeed, reduced viewing figures, in part driven by growing live-streaming piracy, means that the Premier League rights’ fundamental value is falling, not rising."

More competition for the rights could boost the overall price target. Amazon could provide that as it has reportedly sounded out experts ahead of the rights auction. But observers say it isn't clear how much the Internet giant would be willing to shell out and predict the company could simply test viewer interest in U.K. soccer on its platform by going for one package this time around. 

Last year, Amazon paid a modest 80 million pounds, or $113 million under current exchange rates, for the U.K. rights to tennis’ U.S. Open and ATP World Tour in five-year deals. A representative said the online giant hasn't commented on its interest in the English soccer rights.

If Amazon remains focused on disciplined investments in sports, that could give Sky and BT an edge in the bidding process for the English soccer rights. They have also started being less competitive and antagonistic in their dealings with each other. In December, they signed a deal that will allow them to sell each other's channels starting next year, which analysts took as a sign that they wouldn't be willing to pay a substantial price increase in the soccer rights auction.

"With a multi-year cross-wholesale agreement in place, there is a much-reduced strategic platform advantage in being the exclusive rights holder, which means that there is...no reason to bid up Premier League rights beyond a rational stand-alone value level," said Barford.

BT has been facing "multiple challenges to its bottom line and cash flow, and so has an ambition to scale back its costs considerably," he argued. "However, it cannot completely withdraw from the PL to achieve this, for fear of a collapse in its BT Sport subscriber base, which does generate considerable direct revenue."

Sky, for its part, "has already had to make sacrifices to — roughly — maintain profitability after the last auction, and under-investing in non-sports content (or any other part of its platform) is a dangerous game given the rise of Netflix and Amazon," Barford said. "The prospect of its eventual acquisition by Disney would only reinforce this, with Disney’s ESPN backing away from Premier League rights in 2012, and the rise of the streamers being a major part of the deal rationale."

So the analyst suggested that both BT and Sky drop an English Premier League package each or at least be prepared to do so. If not enough suitors make strong enough offers in the first round, that could force the league to give Sky and BT another shot at those packages they didn't bid for at lower prices. Said Barford: "[If] there are no other viable bidders at anything close to the previous auction prices and that the Premier League will want to ensure that all packages are sold, no-bidding on certain packages will likely force a reduction in the opening round price."

Liberum Capital analyst Ian Whittaker recently reduced his projection for the cost increase for Sky in this year's soccer rights auction from 15 to 5 percent. "In our view, there are clear signs, most noticeably the recent BT-Sky content deal, suggesting the days of big price inflation for the U.K. domestic rights is over," he said. "With a traditional pay TV market that is probably stagnating and a broadband market that is saturated, it seems like both companies have realized that an aggressive all-out war for rights is not in their best interests."

And the Premier League "recognizes that the U.K. domestic rights market has probably neared its peak," he added. "Instead, there seems to be a greater focus on growing the value of the international rights, where the Premier League believes there is still substantial upside to go."

With some wondering whether Amazon, Facebook, Google/YouTube or Netflix could bid for the rights, Whittaker argued he does "not believe the big digital giants will enter the fray, although we do think there is logic to Amazon buying one of the smaller packages and wrapping it into its Prime service" with the "aim of significantly boosting take-up of Prime as Prime customers not only pay a subscription but also buy considerably more products."

As far as other digital powerhouses' possible interest goes, the analyst said: "For the most part, we think this talk is overdone, and probably promoted by the Premier League to try to push up the price. It is hard to see the economics working from an advertising standpoint and we do not think Google or Facebook would want to go down a mass subscription model. For Netflix, paying so much money for what would be just U.K. domestic rights would not make sense."