A Premier League premium

A shade over £5bn now provides domestic broadcasters with the ability to show 168 Premier League games a season over three years.

For Sky, that’s more than £10m per game.

That’s £10m before they’ve paid Jamie Redknapp a penny, and £10m to ensure we’ll still see Gary Neville and Jamie Carragher trying desperately to hide the fact they really quite like each other.

BT will pay just under £8m per match, with the difference largely down to Sky winning the Super Sunday slot.

At the Premier League’s inception in 1992, TV companies paid £191.5m which covered five seasons.

What is beyond doubt, and commentators have (almost nauseatingly) extolled as much since, is that the Premier League itself has excelled in its commercial strategy, swelling the coffers of clubs and players alike.

There have also been positive, if less measurable, economic consequences for the towns and cities lucky enough to host a Premier League team.

As a Middlesbrough fan, I know anything I write here will have a direct influence on future results so I will leave any forecasts to your own conscience.

But has any value has been created for shareholders of the two current successful bidders – BT and Sky?

Share price movements were contrasting.

Sky initially fell five per cent; BT gained three per cent, an eight per cent deviation.

Such movements were expected, given the uncertainty surrounding a sealed bid auction for a premium product.

Analysts can produce their best forecasts but there will always be an element of imperfection.

It is near-impossible for the market to price in reliable expectations of prices paid and packages won in a sealed bid process.

The long term effects on each company’s fundamental health are clearer, for three years at least.

Investors have clarity over a significant capital expenditure and revenue source, so earnings per share (EPS) forecasts can be altered.

We see EPS growth for Sky as being held back from 2016, but the costs could be shared with recently integrated Sky Italia and Sky Deutschland subscribers.

Sky’s second most popular UK package is sports, and the retaining of their rights to show matches will boost new subscribers.

That said, I question Sky’s ability to meet its commitment to significantly offset two-thirds of the cost with reductions and efficiency plans for other parts of the business.

This is £2.8bn, which appears stretching, and the majority is likely to come from pricing changes.

BT will also see subscribers increase, and its financial controllers may also be mopping their brows at the relative underspend given the £12.5bn price it has agreed to pay to acquire mobile operator EE.

BT shares closed up more than four per cent on the day of the EE announcement, which when added to the reaction to the Premier League news, indicates that the market likes the cut of BT’s current strategic jib.

Underlying it all is a strong argument that the whole process is anti-competitive.

Sky won the maximum number of games attainable by any one broadcaster – 126.

The total number available was 168, so three quarters can, and did, go to one company.

Think of this in relation to the highly competitive food retail sector where heavy competition has been great for consumers as prices are driven down to absolute minimums.

This has been negative for investors as earnings and margins are squeezed. In contrast, the lack of football broadcaster choice means the heavy costs can be more readily passed on to consumers, and thus profits are protected.

The interests of investors and consumers aren’t necessarily aligned.

As the dust settles on the auction, BT and Sky will now look to make it pay.

Nick Williams is an assistant director at Brewin Dolphin and offers advice on a wide range of financial services to private clients, trusts, charities and pension funds. Past performance is not an indication of future performance. The value of any investment and any income can fall and you may get back less than you invested. No investment is suitable for all people and should you have any doubts you should consult an authorised financial adviser. The information contained in this article has been taken from public sources and is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin. No director, representative or employee of Brewin Dolphin accepts liability for any direct or consequential loss arising from the use of this document or its contents.