Likely competition from Amazon could force Sky to pay £600m more each year to retain its lion’s share of football fixtures

Sky could be forced to pay an extra £600m annually to retain the lion’s share of Premier League matches when the next rights auction launches this year, with Amazon emerging as a potential competitor for the biggest prize in UK sport broadcasting.

Google, Apple, Facebook and Netflix are other possible rivals for Britain’s most valuable sports rights, which are split between Sky and BT under the current three-year deal. The prospect of a heated auction involving deep-pocketed tech firms has led analysts to estimate that Sky might have to pay a premium of up to 45% on the near £4.2bn it paid last time. That means a further £1.8bn, or £600m annually, to keep Silicon Valley off the ball.

“We expect Sky to pay 40% to 45% more in the next Premier League rights auction,” said Thomas Singlehurst, an analyst at investment bank Citi, who has rounded up his peers’ forecasts. “The base case consensus [of Sky analysts] is that payments go up by £600m a year from the 2019-20 season.”

This year there has been significant inflation in the sports rights market: the UK rights to the Champions League rose by 32%, the England and Wales Cricket board nearly trebled its deal for the England cricket team, and the Football League is set to increase its next deal by more than 30%.



This month it emerged that Amazon has entered British sports broadcasting by outbidding Sky for the UK rights to ATP World Tour tennis, to go alongside its small deal with the NFL in the US. Amazon’s surprise move comes at a perfect time for the Premier League, which has been happily flagging the potential interest of tech groups and streaming powerhouses in a bid to ensure it tops the last auction, when Sky and BT bid £5.14bn for 168 matches per season over three years.

“It would be daft if we didn’t think about how different auctions play out,” said Andy Haworth, the managing director of content and strategy at BT. “The content market is always evolving with new players entering all the time.”

The value of Premier League rights has rocketed fivefold from what seemed a heady £1bn in 2004. It means that generating a profit from broadcasting top-flight football is no easy business even for global digital giants.

The £10m cost of a year of Amazon’s ATP tennis deal would buy it about 81 minutes of one match of the £11m per game Sky pays under its current deal.

The next auction will kick off before the year end with a tender that will outline how many matches are available, over what time period and in how many packages. Last time, Sky won five of the seven packages. The auction is expected to conclude early next year.

Citi’s Singlehurst said: “It is unlikely that a major digital player will bid for the main Premier League packages as they are incredibly expensive and UK only. As a standalone offer they would be a loss leader for Sky or BT, but they are able to cross-subsidise to make it work with broadband, TV, landline and mobile. None of these new competitors can cross-subsidise to the same level to make it work, even Amazon. And they tend to prefer global content deals to make it work across a much bigger base.”

Mike Darcey, a former top executive at Sky, believes the value of Premier League rights is close to the top of the market . He predicts inflation more in the range of 15% this time unless a new bidder emerges, which he also thinks unlikely.

“I’m not sure it is unsustainable [yet] but my instinct is that we are getting close to the point at which business plans are going to become pretty stretched,” he said. “I tend to think at the 2015 auction Sky was getting towards the point that beyond here you have to ask some pretty tough questions of whether you have to step away.”

So far, Sky has been able to absorb the spiralling costs of its most important piece of content. However, annual profits for its UK and Ireland operation fell 14% in the year to the end of June, primarily due to a huge one-off increase in Premier League costs.

The Sky chief executive, Jeremy Darroch, said this year he was getting tougher on price and has “walked away” from deals.

Darcey says Sky has plenty of options including looking at whether it still wants to hold five match packages – the most it was allowed to hold in the previous auction. .

“There are various levels you can retreat to if it gets stretched,” said Darcey. “Sky has got used to the idea they don’t need everything.”

In recent years Sky has poured billions of pounds into building a wider offering, such as deals with Game of Thrones maker HBO and making increasing numbers of original shows such as Riviera, which has reduced the proportion of sport subscribers from 80% to less than 50% of its 12 million-strong customer base.

Darcey says the biggest potential driver of inflation is BT. In the past two auctions a bidding war between BT and Sky has driven the costs up 70% each time, and at the last auction this forced Sky to pay 83% more to secure the prime games.

“BT is paying Sky-level prices for two packs that Sky can’t have anyway,” he says. “They have retained the Champions League, which was important to them, and they could save more than £100m a year if they play cleverly at the next Premier League auction. If they believe it is just them and Sky the amount they pay could go down if they just focus on two packs. It is wildly expensive to try and become the number one and is probably completely unnecessary for them.”

Earlier this year, the BT chief executive, Gavin Patterson, appeared to signal that he may not look to lodge a knock-out bid, saying he does not need to be “number one in the sports market, but we do need to be a viable number two”.

“We are clear whenever we approach any auction what we think it is worth and what what we can afford,” said BT’s Haworth. “We have not got carried away and we will continue to buy rights that we think will provide a good solid return for shareholders and that are good for customers.”

The dilemma for Sky is whether Amazon will be so cautious.



