The newcomers are paying £6.5m an hour – even art house Hollywood movies are made for less
Whoever thought showing Stoke City versus Wigan Athletic could be worth so much? Sky is to pay the Premier League £760m a year to continue showing 116 Premier League games a year from 2013 – up from the £541m it pays out currently. That is an increase in cost from £4.7m a game to £6.6m, or to put it another way – up 40%. At more than £3m an hour, Premier League football is now easily the most expensive show on television; even art house Hollywood movies are made for less.
Many thought the value of Premier League TV rights had peaked. That they had not done so is due to unexpectedly aggressive bidding – not least from BT, previously better known as a phone company, which has snatched the rights to air the remaining games from ESPN. Even BT, new to the football business, is paying £246m a season – £6.5m a game. As a result Sky and BT are contributing another £415m a year to the top flight.
When the first round of bids landed on Friday lunchtime, the Premier League was only in a position to award one package of games to Sky and one to BT. That was unfamiliar territory for the satellite broadcaster, which normally scooped up the lion's share of packages at the first time of asking – three years ago Sky walked away with four of six, and seized a fifth as ESPN looked to keep its costs down. Sky had bid aggressively too, but the arrival of a highly competitive BT forced everybody to up the ante in the second and final round on Tuesday lunchtime.
Setanta and ITV Digital may have gone bust living the dream, but there is little doubt that both Sky and BT, both large corporations, can pay these eye-watering sums. Sky's operating profits are £1.2bn a year and careful pruning of its sports-rights portfolio means that its overall sports bill will only increase by 4% a year for the next three years.
BT, the newcomer, said it would take a £100m hit in profits when the new deal kicks in during the 2013–14 season – but with the company generating telephone-number cash returns of about £2.5bn a year, it can easily pay its way.
Those who believe that the cost of buying the rights to broadcast Premier League games has reached bubble territory are missing the point. The market price for the matches is no longer in line with the commercial value of the games, but instead in line with the value of keeping other cash rich broadcasters like the Disney-backed ESPN out.
Ultimately the price will be paid by second- and third-tier sports, where Sky, in particular, will be keen to manage down the costs for the likes of cricket or rugby.
There has been speculation for more than a decade that it was inevitable BT would enter the TV business as television and the internet converge, but until now the phone company has been cautious.
BT fought hard to win the right to carry Sky Sports 1 and Sky Sports 2 on its own modest TV subscription service, BT Vision, which has 707,000 customers against Sky's 10.3m. But the phone company realised that if it was to build its own television ambitions – and, equally critically, defend its historic heartland of telephone and broadband connections against the incursions (ironically) of Sky, it had to have its own piece of football. Rupert Murdoch, of course, had known this all along: in the digital era, content is king.
There is no doubt that the risks for BT are greater. The company will have to sign up presenters, chase customers, and set up a channel. BT promises its service will be available on Freeview, Virgin and Sky, and although no pricing has been outlined, costs are likely to start at about £10 a month – with fans having to fork out for both.
Setanta Sports, which had a similar model, struggled to sign up 1.2m, about 700,000 short of the number it needed to break even – and the Irish broadcaster was paying only £2.8m a game, far below BT's £6.5m. ESPN, incidentally, paid £2.3m a game.
The crucial difference, though, lies in what BT has paid for. Critics said that BT's decision to buy the Saturday afternoon matches – traditionally the least watched matches – is high risk. Viewing at 12.45pm on Saturday was 1.2m on Sky last season, compared to 2m for its marquee slot on Sundays at 4pm. But the game-changer for BT is that it has bought the first pick for 18 of the 40 weeks a season, meaning that it will have a healthy share of the Manchester United versus Chelsea or Arsenal or Manchester City matches that have eluded predecessors.
Football may not have needed BT, but it has turned out that phone giant needed football. Its arrival has hiked up the prices for a league that until Wednesday nobody thought could get richer. Read More
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