Having consolidated the remarkable gains of the last two cycles, even if it has thus far failed to sell all its live rights, the Premier League’s management deserves congratulations from its clubs
Stephen Nuttall
Variously referred to as a guru, pioneer or veteran, Stephen Nuttall previously worked for Sky and YouTube and is now a media and sports industry consultant for sports including the 36th America’s Cup.
Premier League: has a 20-year bubble burst?
15th February 2018, 16:08
The Premier League’s award of domestic live rights for the next cycle, 2019-20 to 2021-22, has been largely completed, with the incumbents, Sky and BT Sport, acquiring five of the seven packages on offer. Now that the initial rush of headlines that followed the league’s ‘UK live broadcasting rights update’ has passed, what conclusions can we draw from the results and what happens next?

The facts

BT:
• Won package A, paying £295 million ($414 million) per season (overall cost reduction of £25m per annum);
• Secured 32 games (down from 42 including 12 first picks currently) on Saturday lunchtimes (with 20 second picks and 12 fifth picks); and,
• Rights fee per match has increased 15 per cent, from just under £8 million to £9.2 million.

Sky:
• Awarded packages B, C, D and E paying £1.193 billion per season (overall cost reduction of £199 million per annum);
• Can show 128 games (up from 126) on Sunday afternoons, Monday, Friday and Saturday evenings including all the first-pick games; and,
• Sky’s rights fee per match has fallen 16 per cent from £11.1 million to £9.3 million.

Two packages are as yet unawarded - F (all 20 matches from one Bank Holiday and one mid-week fixture programme), and G (all 20 matches from two mid-week fixture programmes); and,

The aggregate amount realised so far is £4.5 billion, which is 88 per cent of the amount realised from all UK live rights under the current contract. With little remaining to sell, there will be a cycle-on-cycle reduction.

The live rights to broadcast the Premier League in the UK are Britain's most valuable sports rights and competition between pay-TV platforms (as opposed to pay-TV channels) has driven huge increases in their value. In the 2010-11 cycle, the rights were worth £594 million per season, which rose to £1.712 billion under the current round. The Premier League has consolidated this gain through to 2021-22, which equates to a 10-per-cent CAGR (compound annual growth rate) for more than a decade. That’s a remarkable success story.

That the Premier League succeeded in consolidating the extraordinary gains of last time is all the more remarkable considering that Sky and BT substantially reduced the incentive for platform competition by agreeing to the cross-supply of their TV channels. This contract, unheralded at the time and announced a few days after the Premier League launched its ITT, meant that both businesses could bid knowing that whatever the outcome of the process, they would each have access to their own and the other’s Premier League content.

The auction design

The Premier League operates under regulatory constraints in how it builds the packages to be sold. In 2016, it agreed with Ofcom that at least 190 matches (up from 168) would be shown live from the start of the 2019-20 season and at least 42 matches (including 30 at weekends) would be reserved for a second buyer.

The Premier League elected to create five packs of 32 games and two of 20, the latter consisting of simultaneous games each across two fixture programmes. The simultaneous games, whilst cleverly communicated as giving fans extra choice and control, were rather forced on the Premier League by the combined constraints of the regulatory settlement and the fixture schedule. No doubt alarmed by an emerging lack of platform competition and alert to the risk of a tepid auction, the Premier League in effect reduced the number of packages to five (of 32 games) and parked 40 games in two small packages.

Consequently, the second buyer, or buyers, have to secure either two of the larger, 32-game packages or a 32-game package and one of the smaller, 20-game packages. Therefore, the second-winner rule has not been satisfied by the awards made thus far.

The smaller, 20-game packages were no doubt designed to be significantly cheaper than the others, possibly as a way for the Premier League to encourage new bidders such as an ad-funded online platform (Facebook or YouTube) or a new subscription entrant eager to test and learn (Amazon). If we assume that the games in these packages can be stretched across a fixture schedule, F’s simultaneous matches could be spread across eight slots. while G could stretch across four slots. Taking the new benchmark of £9 million per match but applying it to slots rather than games, on the basis that viewers only watch one match, the Premier League might have expected F and G to generate around £36 million to 72 million per season each.  

Under an alternative packaging of 190 games, the Premier League could have created five packages of 38 games (including some simultaneous matches) but this would have required the second bidder to win at least 76 games, rather far from the Ofcom agreed minimum threshold. This would have perhaps been a too daunting target for a new entrant and for BT, an established bidder willing to be ‘a strong number two’. Similar concerns would have applied to six or seven packages of, respectively, 32 or 28 games.


I wonder if, with hindsight, the Premier League wishes it had created five packages of 42 matches (some of which would have been simultaneous) even if this would have expanded the total matches broadcast to 210?

I wonder if, with hindsight, the Premier League wishes it had created five packages of 42 matches (some of which would have been simultaneous) even if this would have expanded the total matches broadcast to 210?

The outcome

Both winning bidders claim to have adopted a “financially disciplined” approach, but only one should be happy.

Sky held its nerve through what we can assume were several rounds of bidding over a five-day auction and has secured a welcome outcome: more games, best picks, less money. Whether by design or not, Sky ended up with a clear, evening game proposition to communicate. No doubt Sky might have wanted to secure a greater price reduction, but getting one at all is notable and it must have been convinced of the risk from other bidders not to have driven a harder bargain.

Finally, Sky avoided what would have been a bad outcome: namely winning three 32-game packs and one of the smaller packs of simultaneous games. This would have meant, in effect, a significant reduction in the number of games on Sky Sports. One can only assume that Sky simply didn’t offer a determined bid for the two smaller packs, and its statement seems to imply that it has secured all that it need from UK live rights packages.  Sky is the happy winner.

BT, meanwhile, seems to have ended up at this mid-point of the process by swinging for the fences to win the Saturday lunch-time package of 32 games with a £295-million bid. This equates to a 15 per cent higher per-game price than BT pays now but for a less strong combination of picks and slots, and means that BT has offered the same per game as Sky on average, despite Sky securing a better selection of slots and picks. BT has stated that its bid was a meaningful offer that compared well with its current £320-million-per-season spend and it reiterated its ongoing interest in the process.

I infer from the above that BT did offer a bid for one of the smaller packs, probably for £25 million per season (since spending more on Premier League was presumably a financially-disciplined red line), and believed that it would split the small packs with Sky. BT executives will be scratching their heads in surprise at the outcome. They now have to choose between paying more than previously or banking a saving but at the cost of a smaller and weaker match line-up.

According to the Premier League, notwithstanding “multiple bidders,” no one has offered enough for the two smaller packs and so these are not going to be awarded yet. Having consolidated the remarkable gains of the last two cycles, even if it has thus far failed to sell all its live rights, the Premier League’s management deserves congratulations from its clubs.

The next stage

Some commentators have asked whether this is the bursting of a bubble. I think not: rather, it’s a solid consolidation of prior success; proof that platform rivalries (or the absence thereof) drive rights prices; and, evidence of how blind bidding can be made to work in a thin market. We’ll no doubt see the same auction dynamics play out in the international rights sales process with results varying by territory. Observers inclined to criticise the Premier League might care to compare and contrast its process and outcomes with that of Serie A, also faced by a lack of platform competition, which has not yet got a broadcast solution in Italy for next season.


The Premier League will not be happy to have live rights unawarded and should only allow itself to be cautiously content;

 

However, the Premier League will not be happy to have live rights unawarded and should only allow itself to be cautiously content: the clubs are demanding shareholders, and the remaining two small packages, which on their own look forlorn and don’t amount to a Premier League OTT service, need to be sold. The Premier League also has other UK business to conclude, namely for the ancillary clip rights, where demand will also be uncertain. It could elect to use the unsold live game packages to garner more interest in those remaining packs.

The outcome in this week’s update indicates that BT and Sky must have believed there was a rival bidder, otherwise, armed with a cross-supply arrangement and mutual financial discipline, they could have secured a greater reduction. Whether there was such a bidder, only a small number of insiders at Connaught Place will ever know. But, to compete for the larger packages, that putative bidder would have had to be a subscription-funded new entrant and seems to have shared Sky’s and BT’s financial discipline.

Whilst not impossible, it seems doubtful that such a rational new entrant would be enticed to pick up merely one or both of the smaller packages. Perhaps the season-long clips packages and 40 (albeit simultaneous) live matches would be a strong enough proposition for, say, Amazon and Discovery? But perhaps the other bidder, or “multiple bidders,” will no longer be there… if they ever were.

Alternatively, YouTube and Facebook, eager to demonstrate to advertisers that they have high quality content, might be swayed to bid for the short clips package if it came with access to some live games. This market remains fast-changing, with online players growing viewing and revenue strongly, making apparent statements of intent via high-profile hiring announcements, becoming more serious financial competitors and actually securing rights.

While being on high alert to conclude quickly when one of the “multiple bidders” offers enough, a pause in the UK sales process, maybe for the rest of the year, could work in the Premier League’s favour. To pre-empt that risk, per its statement, BT will be minded to re-engage proactively. However, having played its cards well in this process, with a strong track record of success, and absent compelling offers for the smaller packs, I think the Premier League can afford to play the remainder of the UK live broadcast process long and focus on international sales.

Sportcal