Sky shares fall as market weighs English football rights gamble
By Kate Holton and Paul Sandle
LONDON (Reuters) - Britain's dominant pay-TV firm Sky was counting the cost on Wednesday of its record bid to retain the rights for top-flight English football, with a falling share price reflecting the challenge of funding the deal.
Despite protests to the contrary, Sky's willingness to pay 4.2 billion pounds ($6.4 billion) over three years for English Premier League rights shows how the company founded by Rupert Murdoch remains dependent on the sport that helped it to win its way into 10 million homes.
Having lost the rights to Europe's top-tier games to rival BT , Sky went all out in the three-day auction to win the maximum number of domestic games, vowing to cut costs in the rest of the business and raise prices to afford the deal.
Analysts warned, however, that a sharp price increase could prompt some customers to cancel, adding uncertainty to the previously robust earnings power of the FTSE 100 group.
With an 83 percent jump in the total price paid by Sky, the auction also showed the continued power of exclusive football coverage which, unlike movies, is available on only a few platforms and can attract customers and advertisers alike.
Shares in Sky, which is paying 11 million pounds on average per game, opened down nearly 5 percent as the total price rise was more than double that expected by analysts.
In contrast, BT agreed a 30 percent increase to 960 million pounds, or 7.6 million pounds a match, leaving it to boast of its financial discipline.
By 1515 GMT, Sky shares were down 2.5 percent and BT was up 3.3 percent.
Both firms have transformed their businesses in recent years, using premium sports as the main draw to customers who can then take additional services such as broadband and home phones from one provider. As consumers increasingly want to watch programming on the go, both sides are also moving into mobile services.
The biggest winner has been the Premier League, as both media giants fight to grab the big games.
Sky's new package includes the prized Sunday afternoon slot that features leading teams each week like Chelsea and Manchester City, boasting international stars such as Diego Costa and Sergio Aguero.
Analysts were split between those who said Sky had been forced by BT to pay too much, and those who believe the rights are so valuable it had done the right thing.
"Ultimately we think this will be taken well when investors consider the alternatives," Citi analysts said.
Citi rates Sky shares as a "buy".
Sky, 39 percent-owned by Murdoch's 21st Century Fox and synonymous with top-level English football, said it would pay for the new contract by finding savings elsewhere and setting limited price rises for customers.
That may prove harder this time around, with Sky set to lose the European Champions League matches showing the likes of Barcelona versus Chelsea to its rival BT from August.
It gave no indication of the size of any price increases, but added that it aimed to minimise the impact on customers.
The group had largely been able to absorb previous jumps in football rights costs with modest price rises, helped by improved offerings in other sports such as cricket and golf.
Espirito Santo analyst Andrew Hogley said that given the size of the cost increase, he was sceptical that the company would be able to get football customers to pay a sufficient premium, and therefore he expected consensus earnings forecasts to fall.
(Additional reporting by Keith Weir; Editing by Mark Trevelyan and David Stamp)