Sky shares fall as market weighs English soccer rights gamble

Britain's dominant pay-TV firm Sky is counting the cost of its record bid to retain the rights for top-flight English soccer, with a falling share price reflecting the challenge of funding the deal. Sky will pay £4.2 billion over three years for English Premier League rights.

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.

Shares in Sky, which is paying an average £11 million a game, opened down nearly 5 per cent as the total price rise was more than double that expected by analysts.

In contrast, BT agreed a 30 per cent increase to £960 million, or £7.6 million a match, leaving it to boast of its financial discipline. By mid-afternoon, Sky shares were down 2.5 per cent and BT was up 3.3 per cent.

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.

Analysts were split between those who said Sky had been forced by BT to pay too much and those who said the rights were so valuable that 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 per cent owned by Murdoch’s 21st Century Fox and synonymous with top-level 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 to its rival BT from August. It gave no indication of the size of any price increases, but said it aimed to minimise the impact on customers.

The group had largely been able to absorb previous jumps in soccer 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.