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 English top-flight soccer, 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 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, paying an average of 11 million pounds per match.

The total price tag marked an 83 percent increase on its previous deal, more than double the rise expected by analysts, leaving investors wincing and sending Sky shares down nearly 5 percent at the open.

In contrast, BT agreed to pay a 30 percent increase to 960 million pounds, or 7.6 million pounds a match, leaving it to boast of its financial discipline.

By 12:50 p.m., Sky shares were down 2.2 percent and BT was 2.9 percent higher.

Both firms have transformed their businesses in recent years, using premium sports to draw customers onto platforms combining pay-TV, broadband, home phones and, soon, mobile. The biggest winner of that battle has been the Premier League, as both 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 top international stars such as Diego Costa and Sergio Aguero.

Analysts at Citi said the headline figure it paid would likely concern investors, but the company had done well to retain the lion’s share of matches.

“Ultimately we think this will be taken well when investors consider the alternatives,” they said.

Citi rates Sky shares as a “buy”.

Sky, 39 percent-owned by Rupert Murdoch’s 21st Century Fox and synonymous with top-flight English soccer, 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.

Analysts at Raymond James said Sky would now need to consider radical decisions to counter the increased costs. That could mean raising prices to such a degree that some customers might leave, and halting the discounts it offers on its broadband package.

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 like cricket and golf.

Espirito Santo analyst Andrew Hogley said that given the magnitude 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)

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Sky shares fall as market weighs English football rights gamble