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Market Insight

BT's deal for Euro football is make or break

November 11, 2013

Tim Westcott Tim Westcott Director – Research and Analysis, Programming, IHS Markit

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In a coup which is likely to make or break BT’s venture in the UK pay TV market, the telco has snatched exclusive three-year UK rights to the UEFA Champions League and Europa League for the next cycle starting in 2015, paying £299 million ($479 million) a year. The deal is a significant defeat for BSkyB, which currently owns most rights to the Champions League, and ITV, which airs free-to-air matches from both competitions.

The agreement will also be the first time a single broadcaster has owned rights to both competitions. BT’s haul includes 145 live Champions League matches plus the UEFA Super Cup and 205 Europa League matches each season. Both deals include highlights and mobile rights.  The exact payment is €1.075 billion over three years. BT said it will pay a deposit of £60 million this month followed by six-monthly instalments starting in July 2015.

BT said it expected the rights to generate additional growth in BT Consumer revenue and profits and that its financial outlook is unchanged. BT first entered the sports rights market by buying two packages of rights to the Premier League from the 2013/14 season and launched its three-channel BT Sport service in August this year. BT reported that it's sports channels already reach four million customers.

BSkyB, which is understood to be paying £80 million a year for its Champions League deal, said that BT 'chose to pay far in excess of our valuation'. ITV pays £53 million a season for rights to one Champions League match and two Europa League matches a week free to air. The remainder of the Europa League is aired by BT.

The scale of BT's bid indicates that it is prepared to stake even more money on premium pay sports service than it had already committed with bids for the Premier League, Premiership rugby, the rights previously held by ESPN and other events like Moto GP and ATP women's tennis. It seems likely that BT budgeted more than the £246 million a season it splashed out on Premier League rights, but the additional money it will spend for UEFA rights suggests that it has made a decision to take its challenge for the UK pay TV market up a notch.

The deal for the next cycle of UEFA's football competitions was the first big rights deal to come up following the launch of BT Sport in August. The service already has more than two million direct customers and another two million receiving the three channels via a wholesale deal with cable operator Virgin Media. However, BT's decision to charge BT broadband customers no additional fee for BT Sport indicated that its main focus is on defending and increasing its share of the broadband market rather than targeting BSkyB's customer base of an estimated five million Sky Sports subscribers. The addition of around 350 European football matches a year from August 2015 suggests that BT may want to go further with its pay TV strategy.

The attraction of the UEFA leagues is the breadth of coverage, with matches airing in prime time on three nights a week - Tuesdays, Wednesdays and Thursdays. With five British clubs involved in the Champions League (four English, one Scottish) and six in the Europa League (three English and three Scottish), there is a guarantee of domestic interest far into the competition, which starts its league phase in August and culminates in May.

BSkyB will be left with a hole in its schedules from 2015/16 with no obvious substitute. More worringly for BSkyB, the willingness of BT to pay so lavishly for European rights means it is certain to challenge to get a bigger share of Premier League rights in the next auction for rights. By the time the new UEFA deal comes into effect, BSkyB and BT will be in the last year of the current Premier League contract and a new deal starting from 2016/17 will have already been agreed.

If BSkyB is unable to maintain most of the rights for the Premier League, the balance of power will shift and Sky Sports will simply no longer be the most appealing pay TV sports offering in the market. According to BSkyB, BT has exceeded its valuation of what the Champions League rights are worth which implies that BSkyB also has a limitation on how far it can go to secure Premier League rights from 2016/17. BT already forced BSkyB to hike its Premier League spend by 70% under the current contract.

The new deal does not kick in for three more seasons (including the one currently underway), there is time for the market to evolve, and for BSkyB and other competitors to react. At present, BT Sport is offered for no extra charge to BT broadband customers and for £12 a month (£15 for HD) to others. But with additional cost of the new UEFA contract, BT may rethink that model given its relatively low TV revenue stream (Sky Sports costs £22 a month). Around half of BSkyB's 10 million DTH subscribers are believed to take the sports package.

The question is whether BT is prepared to dig even deeper into its coffers to secure even more premium content by bidding for other sports. With English domestic cricket and Formula One both locked up in long term contracts with BSkyB (both ending in 2017), the most attractive targets would be: Spain's Primera Liga (on BSkyB until 2015), England international rugby (BSkyB's deal runs to 2015), and men's tennis Grand Slams.

The other aspect of the new deal is that for the first time, live Champions League and Europa League will not be on UK free TV. BT could sub-license rights to some matches - such as the finals - to free-to-air broadcasters. Alternatively, the telco could air matches free itself, using the DTT capacity it leases (originally taken to provide Sky Sports channels via BT Vision).

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