BT Go Sky High


November 12, 2013

On Saturday, it was announced that British Telecom (BT) had won the exclusive rights to show 350 live Champions League (CL) and Europa League (EL) matches in the UK for three seasons from the 2015-16 season. Since then £1.5bn has been wiped off BSkyB’s (Sky) stock market value.

Actual MoneyballThe Basics

BT have paid a reported £900m to UEFA for the live rights. Previously, Sky and ITV who are the current incumbents paid just under £400m. This deal is different to past agreements with UEFA who had previously split the exclusive rights between two broadcasters. This time, BT has won all the available packages with the consequence that for the first time, no live CL or EL action will be available on terrestrial TV. It has been reported however that each UK club, once a season, will be screened free of charge on the BT platform including both CL and EL finals too.

The Consequences

Below is a short analysis of the consequences of the deal for the broadcasters, clubs and consumers plus comment from a Financial Fair Play (FFP) perspective and some potential competition law areas of concern for UEFA.

1. Broadcasters

BT have continued their trend of paying significant sums to acquire high profile football rights to compete with Sky. Sky believes that BT has substantially overpaid for the rights. What is clear is that the pay-TV market is becoming significantly intertwined with each company’s ‘triple play’ offering (phone, internet and pay-TV). Many speculated that one of BT’s major objectives in entering the market was to safeguard its broadband customers against a tide of customers taking Sky’s broadband, phone and pay-TV offering. This counter offensive by BT positions the company at the heart of the UK’s live sports market with live Premier League (PL) and UEFA CL and EL action to add to its other sports rights acquisitions. BT broadband subscribers at present get the BT Sports channels for free. The revenue litmus test will be however if, and when, BT starts charging its own broadband customers for access to its BT Sports channels.

Whilst Sky and BT will continue to compete in this pay-TV/broadband space, ITV has lost its one free-to-air CL game per game week. ITV will have no live club football as they recently lost the FA Cup rights to BT and BBC too. Whether they retain a highlights package remains to be seen.

Live football rights in the UK

Competition Broadcaster
Premier League Sky Sports and BT Sport until 2016
Champions League Sky Sports and ITV until 2015
FA Cup ITV and BT Sport until 2014. BBC and BT Sport 2014-18
Football League Sky Sports until 2018
England Internationals ITV until 2018

2. Clubs

This is obviously very good news for UK clubs. From the huge PL broadcasting deal uplift which may well mean a £30m increase from this current season for every PL club, UK clubs participating in the CL for example will reap the rewards of a larger TV revenue pool. For the forensic detail of the TV pool calculations see this excellent blog from Swiss Ramble. The basics are that the CL prize money is split between a fixed amount for set performance thresholds (as set out in the below table) and a TV pool allocation.

Fixed Amount Distribution for 2012/13 season

Performance Thresholds Prize Money
Qualifying for the CL group stages €8.6m
For each victory in the group stage €1m
Each draw in the group stage €0.5m
Last 16 €3.5m
quarter-final €3.9m
semi-final €4.9m
final €6.5m
winners €10.5m
Total €37.4m

The second part of the revenue distribution is the important part for the new BT deal. In addition to the above fixed amounts, the clubs who qualify for the CL receive a proportion of the TV money paid by the winning national broadcaster(s). Therefore the size of the revenue pool is linked to the value of the country’s TV market.

The revenue pool distribution is split between where a club finished in its previous season and how far it gets in the competition. With the increased BT deal, UK clubs qualifying for CL competition will share in the increase of the TV pool money. It is not inconceivable that UEFA’s distribution could touch the £75m+ figure if the PL champions in the 2014-15 season then win the CL competition in the following season and the other PL clubs (who qualified for the CL) fail to make the later rounds.

3.  Consumers

Not having CL football on terrestrial television is a big loss for a vast majority of the population who may not be able to afford pay-TV. It may bring people into the pub during the week but there is little doubt consumers will be disappointed that a terrestrial broadcast partner was not included in any deal. The CL or EL competitions are not at present deemed ‘crown jewels’ events that can be protected under EU legislation.

Nonetheless, many believe that Sky Sports and BT Sport may currently be classed as complementary products. If a consumer wishes to watch live PL and CL football from the 2015-16 season they will need both subscriptions. If however BT are successful in winning the majority of the live PL rights in the next auction then some football fans may consider switching off Sky altogether.

4. Financial Fair Play Compliance

For UK clubs, the BT deal gives it a relative competitive advantage in relation to the UEFA TV pool distributions. This is because it will be extremely unlikely that any other broadcaster is going to better the value of the BT broadcasting deal in other UEFA countries. For FFP compliance, these revenues for the top clubs will count in their 2015-16 accounts which will not help them for a few more seasons to break-even. Nonetheless, such revenues will also be of value for clubs adhering to the new PL wage cost and sustainability regulations which came into force in time for the current season.

5. Competition Law

As mentioned above, BT has won the CL and EL rights on an exclusive basis. In the past, exclusivity has been viewed as potentially detrimental to competition when only one broadcaster wins the rights. This led to the European Commission entering into a commitments agreement with the PL to ensure more than one broadcaster could win the live PL rights by having a number of packages. This is to ensure among other things that new entrants can bid against established incumbents and have the chance of winning one of the various packages that may be cheaper to buy than one giant billion pound package that will be inaccessible to most broadcasters due to the cost.

The European Commission entered into commitments with UEFA too. As UEFA had previously provided live rights to ITV and Sky, absolute exclusivity was not an issue for the UK market. Now however, with the BT deal, there may be question marks raised of the UEFA tender document especially as the European Commission press release on the original commitments package with UEFA stated that UEFA’s new joint selling arrangements “will be split into two separate rights packages (the Gold and Silver packages) giving the winning broadcasters the right to pick the two best matches.”

Note the word ‘broadcasters’ (plural) which presumably envisages more than one broadcaster winning the rights. It may even start the process of a complaint to the European Commission. Nonetheless, UEFA may have convinced the European Commission that by BT showing a number of games on free-to-air plus other concessions that have not yet been made public that consumers are not being disadvantaged by the new deal.

Conclusion

What is certain is that BT outbid one of its fiercest rivals for one of the premium live sports competitions. The ultimate aim is to attract paying consumers to their channels to recoup their huge investment. Sky’s slogan as the “home of football” may be tested in the coming years.