Warner Bros. Discovery and BT finalize sport joint venture
Warner Bros. Discovery, the multinational media and entertainment giant, and UK telecoms powerhouse BT Group have today (May 12) announced that they have agreed terms to form a 50/50 joint venture (JV) company to create a new premium sport offering for the UK and Ireland.
As part of the agreement, the telecoms firm will transfer the operating businesses of its BT Sport pay-television business and become a wholly-owned subsidiary of Warner Bros. Discovery.
The JV will bring together the sports content offering of both BT Sport and pan-European sports broadcaster Eurosport.
Between them, the respective networks have an extensive portfolio of premium sport rights, including the Olympic Games, English soccer’s Premier League, Europe’s elite UEFA Champions League, secondary UEFA Europa League, cycling’s grand tours, tennis’ major grand slams, and Premiership Rugby.
Discovery entered the global sports media business with its acquisition of Eurosport in 2014.
Its tie-up with BT Sport will now provide significant competition to Sky, which has been the dominant player in the UK broadcasting market for decades.
Discovery stepped in after protracted negotiations between BT and global sports streaming service DAZN broke down earlier this year.
DAZN had been in advanced talks with BT for several months over a deal to acquire BT Sport but failed to conclude an agreement.
BT will receive £93 million ($115 million) from Warner Bros. Discovery and up to approximately £540 million by way of an earn-out from the JV, subject to certain conditions being met.
The UK telecoms giant will retain a 50% interest in the JV, and Warner Bros. Discovery will be granted a ‘call option’ over BT’s interest, exercisable at specified points in the first four years of the tie-up and is subject to certain conditions and arrangements.
The transaction is subject to customary closing conditions, including approvals by the relevant regulatory bodies, and is expected to complete by the end of 2022.
Both BT Sport and Eurosport UK will initially retain their separate brands and product propositions in the market before being brought together under a single brand in the future.
BT Group and Warner Bros. Discovery will enter into distribution agreements with the JV under which they will distribute the combined sports content to new and existing customers on their respective platforms and apps.
BT will also enter into a distribution agreement with Warner Bros. Discovery to provide Discovery+, the streaming service which is home to Eurosport’s live and on-demand streaming offer in the UK and Ireland, to its direct BT TV and BT Sport customers as part of existing subscriptions.
The board of directors of the JV will be equally represented between appointees of BT and Warner Bros. Discovery.
The chairperson of the board will be a board director nominated by each shareholder on a rotating basis. The first will be Marc Allera, chief executive of BT’s consumer division.
Lazard is acting as exclusive financial adviser to BT, while CMS Cameron McKenna is acting as legal adviser to the company. DLA Piper is acting as legal adviser to Warner Bros. Discovery.
Allera said: “As a global sports and entertainment broadcaster, Warner Bros. Discovery is the perfect partner to work with us to take BT Sport to the next stage of its growth.
“We’re excited to be joining forces to bring the best of BT Sport together with Eurosport UK to create a fantastic new sports offer alongside all the entertainment that discovery+ has to offer BT customers.
“We look forward to working with Eurosport UK to realize the opportunities that this next stage will bring both our team and our viewers.”
Andrew Georgiou, president and managing director of Warner Bros. Discovery Sports Europe, added: “We are excited to bring fans a new premium sport offering that brings together everything they love from BT Sport and Eurosport UK.
“Combining this with our growing portfolio of premium entertainment content promises to deliver consumers a richer and deeper content proposition, not only providing greater value from their subscriptions but bringing sport to a wider entertainment audience."
In terms of the call option, Warner Bros. Discovery will have the right, but not the obligation, to exercise this to acquire the entire shareholding of BT in the JV.
The price payable for 50% of the JV under the call option will be at a price to be determined at the time the option is exercised, plus any remaining consideration and earn-out that BT will be entitled to at that time (subject to certain conditions).
If the call option is not exercised by Warner Bros. Discovery, BT will have the ability to exit its stake in the JV either through a sale or IPO.
The earn-out period will end at the earliest of i) four years post completion of the transaction, ii) the exercise by Warner Bros. Discovery of the call option, and iii) if the earn-out reaches the agreed cap.
In addition, certain ancillary agreements and undertakings will be entered into between BT and Warner Bros. Discovery, and between BT, Warner Bros. Discovery, and the JV, “including those necessary to ensure continuity of service to customers, and relevant transitional arrangements”.
Under the transaction, BT and Warner Bros. Discovery will each enter into distribution agreements with the JV to become the official UK distributor of the JV’s sports channels across both sets of platforms.
BT’s agreement with the JV will extend beyond 2030, and for the first four years, includes a minimum revenue guarantee of approximately £500 million per annum, after which the agreement will change to a fully variable arrangement.
The JV will also enter into a new agreement with Sky extending beyond 2030 to provide for its distribution of the JV’s combined sports content.
According to the latest accounts, as of March 31, 2022, the value of the gross assets of the BT Sport business to be contributed to the JV and the operating businesses of BT Sport was £339 million and it had an operating loss for the year of £222 million.
Meanwhile, the value of the gross assets of Eurosport UK’s rights and distribution agreements contributed directly to the JV was £12 million and it had an operating profit for the year of £16 million.
Discovery's acquisition of WarnerMedia, the content business of the AT&T telecoms firm, led to the combination of WarnerMedia and Discovery and the creation of the new Warner Bros. Discovery global media and entertainment firm.
Warner Bros. Discovery’s sports business now operates in over 200 markets outside the US.
As well as Eurosport, the media heavyweight’s consumer brands include Global Cycling Network (GCN), Global Mountain Bike Network (GMBN), Golf Digest, and GOLFTV.
The company also distributes content on the Discovery+ platform and free-to-air TV networks in Europe.
Commenting on how the deal will impact sports media rights, Conrad Wiacek, head of sport analysis at GlobalData, said: “The landscape for sports media rights and sports broadcasting in the largest media rights market on earth, the United Kingdom, is changing significantly.
"With organizations such as Disney and Comcast consolidating their market position through mergers and acquisitions, as well as bidding astronomical amounts for sports content, the owner of the global rights for the Olympic Games is now targeting the UK thanks to this takeover and challenging the UK’s dominant sports provider, Comcast-owned Sky.
"With sports content at the forefront of the OTT revolution, Discovery Warner Media will disrupt the sports rights market in the UK and likely provide a significant challenge to Sky when the next round of domestic Premier League rights go to market, as well as in the United States.”