After launching just 3 months ago, BT Sport has pulled off what some are calling a “coup” in the world of soccer media by beating out broadcasting giant BSkyB for the rights to all of the UEFA Champions League and Europa League matches, beginning with the 2015-16 season, according to Soccerex.
If you have lost it the first thing you say is they have paid over the odds. – BT Chief Executive, Gavin Patterson
This was Patterson’s response to comments from BSkyB and ITV, the two main competitors for the UEFA bid, claiming that BT “overpaid for the rights”. The broadband communications company bid double what BSkyB was willing to offer up for the deal, winning the rights for a reported $1.4 billion over 3 seasons. This would be an increase of approximately 13.8% in annual capital expenditures for the BT Group during those 3 seasons, according to the company’s 2013 annual report. These numbers of course are not inclusive of any other capital expenditures tied to BT Sport, as they were reported prior to BT Group launching the new arm in August of this year. BT issued a statement on November 9th saying that it did not intend to alter its financial plans in order to accommodate the additional £299 million ($477.6 million) estimated in annual costs as a result of the UEFA rights deal. CFO, Tony Chanmugam, said in an interview with Bloomberg Television,
We think we can do this and it will make commercial sense for us. It’s not going to change our financial guidance for this year or next year or the year after.
BT has not only pushed out BSkyB, the largest pay-TV provider in the U.K., but with this deal they become the first ever U.K. broadcaster to hold exclusive rights for all 350 UEFA Champions League and Europa League matches. This deal represents a very strong statement from BT Sport to BSkyB, ITV, and the rest of the sports media world. When a company puts down that kind of an investment into an asset, and pays double what the next competitor is willing to bid, either they had a team of valuators that are soon to be out of a job, or they were looking to send a message.
Given that BT Sport is looking to tap into a near-monopolistic market owned by BSkyB, the latter is perhaps more likely. Somewhere along the way, someone thought it would be a good idea to try and challenge BSkyB in the U.K. sports TV broadcasting market. When you are the newcomer to an all-but-monopolistic market you really have one of 3 options: 1)offer up a product that is so innovative and differentiated that it stands a chance against the tried and true offering of the monopoly, 2)outspend the competition to the point that they can no longer go after key targets, or 3)buy out the competition.
Option number 1 was a little out of the question, as the nature of the broadcasting industry itself did not lend itself to such drastic innovation, at least at this point in time. Option number 3 was not necessarily a feasible option either, and would have been far more expensive than the $1.4 billion over 3 years BT chose to spend by employing strategic option number 2 in the list above.
Though BSkyB is the largest pay-TV provider in the U.K., the BT Group has a broader portfolio of companies that collectively brought in a little more than 2.5 times the revenue. If nothing else, this means that BT had a little more room to work with when considering its bid for the UEFA match rights given its advantage in total company scale. That said, however, the analysts at BT certainly did their homework to figure out what exactly the broader company could afford to spend to help get its newest branch a foothold in the marketplace.
Now that BT has won the deal, they need to figure out how to ensure that they capitalize on their investment. To get more penetration in the TV market, the company is trying to leverage its other strengths for cross-promotional opportunities. For example, BT is offering up its 3 sport channels for free to all of its broadband internet subscribers in order to drive trial and hopefully additional customers, almost like another form of “bundling” as it has become known in some parts of the world. BT can lean on its other companies during the start-up time for BT Sport if it needs to, but they have a little less than 2 years to formulate a media plan for the first UEFA Champions League and Europa League campaigns in the deal in order to best maximize the ROI for this bold and loud investment.