Business

Sky shares fall after Premier League TV rights deal

Manchester United v West Ham Image copyright Reuters

Sky's shares ended the day 2.2% lower after the company agreed to pay £4.1bn to show live Premier League football between 2016 and 2019.

Sky won five of the seven TV packages on offer, but paid 83% more than it did in the last auction three years ago.

However, shares in BT rose 3.65% after it paid £960m for two of the TV packages, 30% more than last time.

Analysts at Jefferies said the outcome had been "sobering" for Sky, but "reassuring" for BT.

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Sky and BT paid a combined £5.136bn for the live TV rights deal - far in excess of what had been expected.

Jefferies said the deal would be "challenging to explain" to Sky shareholders.

"For Sky, a sobering result," Jefferies said. "Even with some claw back on costs/pricing, we expect [analyst] forecasts to move lower," it said.

The price Sky paid per year was about £330m more than City analysts had predicted.

Jefferies estimated that Sky would try to claw back about £200m a year through cost-cutting and £100m through incremental price rises.

Analysts estimate that Sky Sports has about five million subscribers, out of a total TV subscriber base of between 10.5 and 11 million people.

The BBC understands Sky plans to mainly fund its bid by taking costs out of its non-programming budget.

Sports and entertainment programming will not be affected, but areas such as customer services will find efficiencies by moving more online rather than being focused on call centres, for example.

Sky will also try to reduce the need for service visits by increasing the reliability of its set-top boxes, which are currently around 85% reliable, the BBC understands.

Subscribers are also likely to face some price rises, analysts believe.

Richard Hunter, head of equities at Hargreaves Lansdown, said BT appeared to have got the better deal.

"Sky has paid dearly and is going to have to squeeze costs and customers to keep its finances on track," he said.

"BT has ended up with a good hand - Premiership, Champions League, FA Cup and European leagues, all for a fraction of the annual cost that Sky is paying for its Premiership position," he added.

Image copyright BBC Sport

'Entertainment industry'

Premier League chief executive Richard Scudamore told the BBC Radio 4 Today programme that clubs reinvest TV rights money, "making sure the show stays as compelling and as interesting as it is".

He said that money ultimately gets "redistributed right down through grass-roots football".

Although only about 5% of Premier League funds eventually filter down to grass-roots level, Mr Scudamore said he was not in a position to guarantee that the 70% rise in the price of TV rights would be reflected in funding for grass-roots football.

He said it did not make him uncomfortable that Premier League footballers earn up to £500,000 per week, or that clubs employed some staff on the minimum wage.

"The reality is, just like in the film industry, just like in any talent industry, just like in the pop music industry, the talent, the absolute talent... gets paid a disproportionately high amount compared with other people that work in the business."

"We're in the entertainment industry," he added. "The stars that grace the fields of football in the Premier League are world stars, it's a world market, and I don't set that market rate. It's set by the entire world market, and we, and the fans, want the best talent to come and play in the Premier League."

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