Blind Auction to Determine Sky PLC Winner

SKY

There’s finally an end in sight in the transatlantic battle between 21st Century Fox and Comcast for British broadcaster Sky PLC. Back in August Comcast increased its offer, valuing the London based pay TV group at +/- $34 billion. Under British takeover rules, Fox (owns 39% of Sky PLC) has until September 22nd to top Comcast’s all-cash bid. It now appears as if Fox will have the opportunity to take down Sky, without another bid, before this week’s deadline. The U.K. Takeover Panel has announced a blind auction will determine the winner. Though a best-and-final offer can still be made before Saturday’s deadline, a “sealed bid will [probably] be the only way to decide the outcome.”

Howie Long-Short: Sky (SKYAY) is appealing to U.S. broadcasters because it gives them the rare opportunity to expand abroad. With primary broadcast rights to the English Premier League (through 2022), German Bundesliga (through 2021), and Italian Serie A (through 2021), the company is a market leader in the UK, Ireland, Germany, Austria, and Italy.

Generally speaking, European sports broadcast rights sell for +/- 30% less than those in the U.S, but that doesn’t mean Sky’s profitability hasn’t suffered amidst skyrocketing acquisitions costs. The company’s current rights deal with the EPL ($2.25 billion per season) resulted in operating profits for its the UK division declining -14.1% during FY16/17, the first year of new deal (cost cutting moves in ‘17/18 enabled the division to grow operating profits again). In Germany ($1.36 billion per season), the company posted a loss a $5.2 million loss for FY17-18, just one year after recording the division’s first positive result ($52.6 million under old contract). Sky has since conceded rights, so expect the divisions return to begin growing profits again in ‘18/19

Recent developments in Italy have been much more favorable. Thanks to a legal dispute between Serie A and the Barcelona-based MediaPro Group, Sky Italia – in a joint bid with DAZN – retained domestic rights with just a minimal cost increase (+3.2% to $1.13 billion per season); though, it must be noted that reaching subscription milestones could result in the fee increasing by as much as $116 million/season.

Sky PLC’s stock has nearly doubled since Fox first agreed to buy the remaining shares of London based broadcaster at a 35% premium back in December 2016. Shares closed at $83.34 on Wednesday, meaning investors still see +/- 6% upside from Comcast’s latest bid.

Fan Marino: Sky customers in the U.K. have been hurt by the increased competition for sports rights market as they’ll now need to pay for Amazon Prime and Eleven Sports too if they want Golf’s US Open, the Tennis PGA Championships, or the Spanish La Liga.

While Howie mentioned that Sky has dropped rights to lower their expenses in several markets, one place you won’t find Sky cutting costs is with domestic futbol rights – as they drive subscriptions. All three divisions reported subscriber growth during FY17/18 (UK: 13m; Germany/Austria: 5.2m; Italy: 4.8m) despite each carrying fewer games than under the terms of their previous deals.

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Author: John Wall Street

At the intersection of sports & finance.

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