Sky's German Soccer Rights Deal Gets Mixed Reviews From Analysts

Germany's Bundesliga

While it keeps popular content on Sky Deutschland, the higher cost "brings into question the long-term profitability of Sky," says one observer.

Analysts and investors have given mixed reviews to an expensive deal allowing the company to keep showing matches of Germany's top soccer division, the Bundesliga, on its Sky Deutschland.

The league nearly doubled its revenue with a new series of rights deals worth more than €4.67 billion ($5.30 billion) over the next four seasons, which was announced late last week.

Sky, in which 21st Century Fox owns a 39 percent stake, is sharing rights with German public broadcasters ARD and ZDF and, for the first time, Discovery Networks' Eurosport channel and new online streaming platform Perform. The rights packages average out to a total of $1.3 billion a season, compared to $710.8 million a season under the previous deal period, a 85 percent revenue hike. Sky alone is paying $987 million per year, up from $549 million, up 80 percent.

Sky's stock closed higher on Thursday following news of the deal.

The market is "happy overall that the outcome is now resolved" and that the company gets to continue showing popular content, Peel Hunt analyst Alex DeGroote tells The Hollywood Reporter. "Interestingly, Sky’s ‘partner’ in this German rights package is Discovery/Eurosport, unlike in the U.K., where the ‘partner’ is BT, a well-capitalized telco. This suggests Sky’s competitive position in the immature German pay TV market is less under threat than perhaps feared."

But he adds: "The cost of the new rights package yet again highlights the rampant price inflation in live premium sport. ... This is probably more than was anticipated. Unless, Sky can find some cost savings in the group, these increased programming costs will almost [certainly] lead to profit downgrades."

Liberum Capital analyst Ian Whittaker, who has a "sell" rating on Sky's stock, also highlighted the big cost increase underlying the new deal. "This is above consensus estimates of an average increase of 50 percent-60 percent per season," he wrote in a report. "This further brings into question the long-term profitability of Sky, as we believe competition dynamics will undermine their ability to fully pass through these cost increases to customers."

Whittaker summarized the agreement as "another consensus-busting" deal.