China's Big Soccer Bet Isn't as Good as It Looks

(Bloomberg Opinion) -- France looks as if it has managed to buck a trend in Europe.

While prices for the rights to broadcast both England’s Premier League and Italy’s Serie A have flatlined, France's Ligue 1 has knocked it into the back of the net. Its latest deal with a Chinese-backed bidder is worth 1.2 billion euros ($1.4 billion) a year, a stunning 60 percent increase on the previous round.

Other leagues hoping that this will herald an influx of Chinese cash should temper their optimism — especially those in England, where attempts to rope in broadcasting cash from Silicon Valley's giants as domestic broadcasters tighten their belts have foundered.

Vivendi SA, whose Canal Plus operation has broadcast Ligue 1 since 1984, may have been outbid, but, in opting not to overpay, it has made the right decision.

The French media giant was outbid for most of the broadcasting rights from 2020 to 2024 by Mediapro, a Spanish production company. Hontai Orient, a subsidiary of China’s Orient Securities Co. Ltd., acquired a 54 percent stake in Mediapro’s parent for 900 million euros earlier this year.

Orient doesn't appear to be a financial giant on the scale of Alibaba Group Holding Ltd. or Tencent Holdings Ltd., both of which are investing in other forms of content like movies.

The investment vehicle, whose backers include state-backed utilities, generated a mere $1.5 billion of revenue last year. Its efforts to secure the broadcast rights to Italy's Serie A already appear to be foundering.

Mediapro's move may be a bet that, by pumping more money into the French league, it will attract better players and improve, attracting more viewers. But that's a gamble, and one that looks unattractive based on the game's current economics.

Mediapro would need to attract six million subscribers paying 15 euros a month to break even, according to Raymond James analysts Stephane Beyazian and Thibault de Coincy. That's a big ask given that even the audience for the biggest game in the country, the French Cup Final, peaks at that number.

Mediapro could — as it has done in Spain — resell the rights it acquires to several others, such as Canal Plus or Altice NV's SFR. They might pay 200 million euros annually apiece, allowing Mediapro to at best break even, according to Raymond James.

That may still allow Vivendi to broadcast some if not all of the matches — and have money left to invest in other content, reducing its dependence on football.

Vivendi currently pays about 540 million euros a year to Ligue 1, according to Berenberg. That's more than half what HBO, the standard to which Canal Plus aspires in terms of quality, spends on original content each year. That Mediapro won, rather than a rival broadcaster which could cut Vivendi out completely, should be a relief.

For Ligue 1's fans and viewers, the new way to watch football will look much like the old. But to get an even larger increase in money, the leagues will need to wait for a bigger player than China to make their debut on the pitch: Silicon Valley.

©2018 Bloomberg L.P.

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