Pricier Soccer Rights Slam BSkyB and Canal Plus, Lift BT

Just as former champion Arsenal has shaken up England’s Premier League this season, new European sports broadcasters are causing trouble for rivals that have long had a lock on televising soccer matches.

Pay-TV services from British Sky Broadcasting Group Plc to France’s Canal Plus risk being priced out of the sport they have ruled for more than a decade, with entrants such as BT Group Plc in the U.K. and Al Jazeera’s BeIn Sport in France bidding up rights contracts to as much as double their previous level.

At stake is one of the globe’s biggest live TV audiences. Some 173 million viewers across Europe and beyond watched Germany’s Bayern Munich and Borussia Dortmund square off in the UEFA Champions League final last season. As a new round of rights auctions approaches, more established broadcasters face giving up some of their most popular programming or shelling out far more for licenses. Either option poses a threat to profit.

“In the world of sports content, the only thing you can be sure of is there’s somebody who’s got a check that’s bigger than their business plan,” Sky Deutschland AG Chief Executive Officer Brian Sullivan said at a November media conference in Barcelona.

Surprise Leaders

BT’s acquisition of rights for this season’s Premier League, the top soccer competition in England, means BSkyB customers are missing out on some Arsenal games. After seeing its odds of winning the title lengthen to 22-1 last August, Arsenal has jumped to the top spot more than halfway through the season, boosting the chances that the league will be won by a squad other than Chelsea or one of the two Manchester teams for the first time since Arsenal prevailed in 2004.

For its BT Sport and ESPN channels, which went live in August, BT outbid British pay-TV market leader BSkyB for rights to the UEFA Champions League and UEFA Europa League. And the two companies are splitting rights to the Premier league, giving BT most of the biggest European competitions.

“BT is doing to Sky what Sky did to everyone else years ago when it used its cash to knock out competition,” said Ian Whittaker, a media analyst at Liberum Capital in London. “BT has more financial firepower than Sky.”

The phone company says the prices it’s paying make sense in the context of its business plan, and that the goal is to use sports programming to win users for its broadband service. Its sports channels will be available free for Internet customers, with the exception of a to-be-determined fee for European league games.

‘Too Expensive’

BT jumped 64 percent last year in London trading, the best annual performance in 14 years for the former telephone monopoly. BSkyB, which counts Rupert Murdoch as its biggest shareholder, gained 10 percent.

BT offered 897 million pounds ($1.47 billion) over three years for live UEFA league broadcasts starting in 2015. That’s more than twice what BSkyB and its partner ITV Plc paid for the previous three years, Sanford C. Bernstein estimates.

The company’s bids helped almost double the price for Premier League games when BT and BSkyB competed for 154 English matches in June 2012. BSkyB got 116 games while BT won 38 for the 2013-14 season. The auction raised 3.02 billion pounds versus 1.77 billion pounds the previous season, the league said.

“This aggressive pricing that BT was willing to pay for Champions concerns some investors,” said Claudio Aspesi, an analyst at Sanford C. Bernstein in London.

Breaking Exclusivity

While loyal fans are prepared to pay extra to watch top teams, if broadcasters raise subscriptions too much, customers may decamp to cheaper online services or illegal websites that offer unauthorized streams.

Sky Deutschland in 2012 won rights to broadcast Germany’s Bundesliga soccer matches, beating rivals including Deutsche Telekom AG, another former phone monopoly expanding to other services. In the auction, which included online and mobile rights for 2013-2017, the average annual income from the German rights soared 52 percent to a record 628 million euros.

In France, newcomer BeIn Sport, set up by Qatar broadcaster Al Jazeera, beat Vivendi SA’s Canal Plus to most of the rights for Champions League in the last round of bidding. And France’s rugby league this month said it’s breaking an exclusive deal with Canal Plus and auctioning the rights.

Player Salaries

“We don’t think they’re grabbing customers from us, but it’s definitely having an impact on programming costs,” Vivendi Chief Financial Officer Philippe Capron said at the Barcelona conference. Al Jazeera representatives didn’t respond to e-mails seeking comment.

The amount operators have to pay for broadcast rights will probably keep rising as pay-TV, now in about half of British homes, continues to expand, according to Dan Jones, a partner in the sports business group of consulting firm Deloitte LLP.

The biggest beneficiaries of the increase are soccer clubs, but if they use the windfall to boost player salaries and build stronger teams, it’s money well spent, Jones said.

“The only reason people buy tickets, T-shirts and TV subscriptions is because of what the guys are doing on the pitch,” he said. The clubs “deserve to reap the rewards.”

Before it's here, it's on the Bloomberg Terminal.