Sky (SKY) fended off rival bidder BT (BT.A) to retain its current share of the live UK broadcasting rights to the Premier League for three seasons from 2016 to 2018. But the pay-TV titan won't be celebrating the outcome, having agreed to pay nearly £1.4bn a season - an 83 per cent rise - for five packages comprising 126 matches.
Shares in Sky dipped 3 per cent on the news, as analysts expected a price hike closer to 30 per cent. Meanwhile, BT's shares climbed 3 per cent as it snapped up two packages that amount to 42 games - four more than its current allotment - at a comparatively modest price tag of £320m a year, a 30 per cent rise. Sky is paying just over £11m per match - a sizeable premium to BT's £7.6m a game.
Investors may forgive Sky for the hefty bill. Failure to maintain its current Premier League match coverage would risk subscribers ditching it for BT, whose broadband users have free access to its BT Sport television channel. Moreover, BT previously nabbed the rights to top-flight European football matches. But the outcome creates a problem for Sky: passing on its inflated content costs to its subscriber base - which now spans Germany and Italy - could provoke a mass decampment to BT. It therefore plans to offset two-thirds of the £330m extra it paid through cost savings and greater efficiency, leaving its subscribers to foot the balance. Liberum analysts think total cost savings from Sky's Italian and German operations could amount to £250m in 2017 and £450m in 2018. However, they doubt whether Sky can recoup funds from its main profit sources: pubs and clubs - which have been historically resistant to higher prices - as well as wholesale channels and advertising.
Broker Numis forecasts full-year pre-tax profit of £1.17bn, giving EPS of 53.5p, rising to £1.35bn and 61.4p in 2016.
