Suddenly, Premier League Soccer Matters to Disney and Comcast

(Bloomberg) -- With U.S. media giants 21st Century Fox Inc., Walt Disney Co. and Comcast Corp. all circling European broadcaster Sky Plc, the economics of English Premier League soccer have never been more important.

The sport has been a key tool for attracting subscribers to Sky’s service over the past 25 years. Now, its ability to retain rights until 2022 to show matches featuring Manchester United’s Paul Pogba and Tottenham Hotspur’s Harry Kane -- and at a reasonable price -- could have a major impact on the company’s worth in the eyes of its U.S. suitors.

The result of the latest auction is expected this week, following speculation that tech giants Amazon.com Inc. and Facebook Inc. could enter the fray for the first time. At the last round of bidding in 2015 when the TV packages were shared between Sky and BT Group Plc, the broadcasters paid 5.1 billion pounds ($7 billion), 70 percent more than the prior auction, contributing to a 6 percent drop in Sky’s operating profit in its 2017 financial year.

This time around, Sky’s fair value could rise or fall by as much as 20 percent, depending on the result of the Premier League bidding, analysts led by Matthew Walker at Credit Suisse said in a note to clients last month.

“The outcome of the auction is very important for valuation,” Walker said. “A significant acquisition by Amazon or another tech company could imply a lower multiple for pay TV assets.”

A representative for Sky declined to comment.

Rupert Murdoch’s Fox is seeking regulatory approval for an 11.7 billion-pound bid for the 61 percent of Sky it doesn’t already own, and has agreed to sell the broadcaster on to Disney as part of their $52.4 billion deal announced in December. Despite the Fox-Disney agreement, Comcast is also said to still have its eye on some of Fox’s film and TV assets after previously making an offer, driven by its interest in Sky.

Value Upside?

If Sky manages to keep the bulk of the Premier League rights it currently holds with only a moderate price increase -- say inflation of 20 percent or less on the 1.4 billion pounds per season it spends currently -- Sky shareholders could ask Fox to improve its 10.75 pounds-per-share bid, the Credit Suisse analysts said.

Such a scenario could arise if there is no serious competition from a tech giant, if BT is unwilling to invest and if Sky is able to win out with a cautious bid, they said.

“This could have a knock-on impact on what shareholders are willing to accept from Fox (or Disney) in terms of offer price,” they said.

Downside Risk

Sky shareholders will need to approve the takeover by Fox, should Fox win over U.K. regulators to proceed, and some have already agitated for a higher price, arguing Disney’s bid for Fox shows Sky is worth more.

Conversely, if Sky suffered a significant loss of rights or high cost inflation, it could affect Fox and Disney’s eagerness to continue their interest in the broadcaster, the analysts said.

“If the rights are lost this could impact the value of the 39 percent of Sky which Fox has committed to sell to Disney and so both Disney and Fox will be keen to ensure this stake holds its value,” they said.

To contact the reporter on this story: Joe Mayes in London at jmayes9@bloomberg.net.

To contact the editors responsible for this story: Rebecca Penty at rpenty@bloomberg.net, Ville Heiskanen

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