Sky is limited by future of football

Football is the cornerstone of Sky’s success, but public feeling, OFT rulings and the Premier League’s realisation of its true value could all undermine the strength of the broadcaster’s grip on the airwaves.

A couple of years ago The Mirror compiled a list of the 50 most powerful people in the UK sports industry. Top of the list came the portly Sam Chisholm, then managing director and chief executive of BSkyB. Few quibbled with this result.

Chisholm has gone, but his replacement Mark Booth has not automatically inherited the pre-eminence his predecessor enjoyed.

On the face of it, it would be hard to find a more successful operation than BSkyB. Its last reported figures for the nine months up to March 30 this year show a 21 per cent increase in pre-tax profits to 215m. The broadcaster’s subscribers totalled an impressive 6.2 million.

However, when one looks at the TV landscape, which in cash terms distils down to sport, and further distils into football, the future becomes a lot less rosy.

This is because the balance of power in football is changing.

Ian Barton, a football analyst at Deloitte & Touche, states the case: “The big clubs like Manchester or Newcastle United have the upper hand now. The interesting thing is that it was Sky which gave them the opportunity to do this when it showed the amount of money the sport could attract. The big clubs have seen this and are beginning to exploit it.”

By way of example, ITV paid 5m to screen Premier League football in the mid-Eighties, while Sky and the BBC have paid 670m to broadcast live and recorded Premiership highlights until 2001.

This influx of money into the sport spawned all kinds of related leisure operations. The multimillion pound developments at mega-clubs like Manchester United, Newcastle, Chelsea and Leeds are examples of this. These clubs are introducing new sports, opening hotels, and promoting enormous expansion in merchandising.

It was only a matter of time before clubs became keenly interested in taking more direct control of probably the most lucrative area of all, TV rights.

Evidence of this thinking came to light last week when a report commissioned by the Premier League suggested the league was undervalued by approximately half. It said the 20 clubs could command 1.6bn for their TV rights.

Barton says: “When Sky renegotiated its agreement with the

Premier League 18 months ago, everyone thought it had paid way over the odds. But now this is seen as a shrewd deal.”

Jason Holden, a football analyst for NatWest Markets, adds: “The bottom line for Sky is that it cannot afford to lose Premier League football. It must have it if it is to keep its prominence.”

One football chairman estimates that Sky would lose about 24 per cent of its subscribers if it failed to keep the Premier League.

Chris Akers, chairman of Caspian, which owns Leeds United, says that, after the Sky deal expires, one option would be to float the League on the Stock Exchange. He thinks this could raise between 3bn and 4bn.

Opinion among analysts and those in the game is divided as to whether this is the right way to go.

An insider at the Premier League says: “We do not actually have many rights to sell. The Football Association holds the FA Cup and the Football League holds the League Cup. We can only sell our TV rights collectively and we do that already anyway. It doesn’t make a lot of sense to me.”

However, Barton disagrees. “I am sure football chairmen are looking at the Formula One float. It is a viable idea simply because it would give it an awful lot of capital to play with,” he says.

But there are other forces at work which could unsettle the Sky Premiership deal, or at least give Sky a hard time securing a new one in the next millennium.

The Office of Fair Trading (OFT) has conducted a running battle with Sky and the Premier League for the past 18 months, since it referred the deal to the Restrictive Practices Court. OFT director general John Bridgeman, who has labelled the relationship a “cartel”, tried to get the court to speed up this lengthy process, but to little avail. A decision by the court is not expected until next year.

He says: “The current system of collective and exclusive selling has resulted in severe restrictions on the number of Premier League matches shown on television, and in artificially high prices for those that are televised.”

Clearly Bridgeman wants to break the deal. Most observers have no idea what the court may decide. However, most, including the OFT, agree that if Sky does lose the case it will appeal and it could be years before a final decision is reached in court, by which time the deal would be close to its end.

Sky could also come under fire from the public. Last week a CIA MediaLab survey revealed 81 per cent of its respondents were against the idea of satellite or cable stations broadcasting a major sporting event live and exclusively (MW July 3). Interestingly, attitudes have hardened on this issue. When CIA first researched the subject in 1995, only 69 per cent of people felt this way. Admittedly the sample of 500 is small, but if replicated on a larger scale these figures ought to worry Sky executives.

In addition, Heritage Secretary Chris Smith has hinted that he might want to extend the current list of protected sports. These are: the Wimbledon tennis championships, the FA Cup final, the Scottish FA Cup final, the Grand National, the Derby, the Olympic Games, cricket test matches in England, and FIFA World Cup finals.

Smith has not given any indication of exactly which sports he has in mind, but it is highly unlikely that he will list the Premier League. Rather, he will chip away at Sky’s coverage of rugby or perhaps England cricket abroad.

Over the next four years Sky will do everything it can to ensure it holds on to Premier League football, despite a formidable array of opposing interests. It will be disadvantaged by the fact that Booth, who will be fighting that battle, is not quite the charismatic figure in sports that his predecessor was. Such a description better suits chairmen like Martin Edwards at Manchester United or Sir John Hall at Newcastle United.

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