BSkyB loses Champion status
BSkyB pleaded with European football officials for three days to reopen negotiations for the live television rights to Champions League matches after BT entered exclusive discussions.
The satellite broadcaster, 39 per cent owned by Rupert Murdoch's 21st Century Fox, had more than £1.3 billion ($2.22 billion) wiped off its market value on Monday after it lost out in the auction. BSkyB has tried to play down the impact of BT's win, but behind closed doors executives were rattled.
After learning it had been knocked out of the bidding process at the first round of sealed bids, it lobbied UEFA to see if there was a way to revive discussions, but was unable to do so. BSkyB ended up not making a second bid for the rights, which went to BT for £900 million.
BT's successful strategy is understood to have been heavily influenced by Tony Ball, a non-executive director at the telecoms company who used to be chief executive at BSkyB. He is understood to have advised BT's bidding team to table a large bid at the outset, amid fears BSkyB would find a way to secure the rights otherwise. BT also took lessons from its bruising experience bidding for Premier League rights last year.
The telecoms company had wanted to secure five out of the seven packages in which Premier League rights are sold - the most that can go to any single broadcaster. It outbid BSkyB but did not offer quite enough money to ensure the satellite broadcaster could not come back for a second-round bid. In the end, BSkyB took five of the Premier League rights, while BT had to settle for paying £738 million for the remaining two.
On Monday, BT shares closed slightly up, despite concern over the size of its bet on the rights to broadcast European football for three years. Analysts had expected intensifying rivalry over sports rights to push the price up around 50 per cent, but BT agreed to pay almost double what BSkyB and ITV pay under the previous deal.
Meanwhile, BSkyB shares ended down 10.9 per cent, amid fears its 20-year stranglehold on live football broadcasting was loosening. BT's heavy investment and BSkyB's pummelling on the markets raise the stakes for the next auction of Premier League rights in 2015.
BSkyB has used its control of domestic top-flight football as the foundation of its expansion for the past two decades and has swatted away competitors such as Setanta and ESPN. BT's defeat of BSkyB prompted warnings from analysts, who said further inflation of sports rights was inevitable and predicted increased intensification of an already fierce rivalry.
Investec described the loss of the Champions League as a "worst-case scenario" for BSkyB.
UBS said the company "must respond" and "all UK telcos will suffer if Sky cuts broadband costs".
Euan Stirling, of Standard Life, a top-10 shareholder in BT and top-20 shareholder in BSkyB, said the record-breaking auction would put pressure on both companies.
He said: "I suspect BT's shares will fall in the short term to reflect the risk of the gamble that they are taking. I would expect Sky shares to actually come under pressure, too, although they save the cost of this content. It will spark fear of customer losses in the medium term in Sky's business and also the fear that the other content costs that Sky faces will rise in the same way."