Will Amazon Flood the Premier League with Cash?

With the start of the World Cup, attention has understandably turned to football!

Whilst for England, starting off with a couple of wins has for once raised hopes and taken the limelight away from the Premier League, preparations continue for the coming domestic season and recent events that have received relatively little media attention are to have huge ramifications for English domestic football in the years to come.

Key Points:

• Amazon have started a new era for broadcasting of football by buying rights to stage live Premier League games
• Despite competition increasing from 2 to 3 main broadcasters (Sky, BT and Amazon) and more content being put up for sale than ever before, overall domestic rights revenue has fallen for the first time since 2006
• BT pre-tax profits fell 22% and they have axed 13,000 jobs amid claims they took a big hit from football and sports-related broadcasting rights deals
• Sky is paying 16% less per game under the 2019-22 bid
• 2 of 7 broadcasting packages were left unsold for months
• Richard Scudamore resigns as executive chairman of the EPL on the same day as selling final packages to Amazon and BT
• Signs that the money train into the Premier League might be starting to slow

What has happened?

Earlier this month, Amazon became the first tech giant to enter the market for live broadcasting rights to English Premier League (“EPL”) games when it bought 1 of the 7 packages put up for auction by the EPL. The single package entitles Amazon to broadcast 20 live games per season for the 3 seasons from 2019 to 2022.  It is a relatively small number compared to the 128 prime time games per season acquired by Sky, but it could be a monumental toe dipping in the water for the future of live sport broadcasting in the UK.

So is this the start of the next super-charged burst of cash into the EPL?

Amazon – More of a Gentle Stream(ing) than a Raging River?

Whilst the entry to the market of live streaming services provided by the likes of Amazon Prime has been anticipated for some time and is good news for the EPL, it has been a much more low key affair than when BT entered the market over 6 years ago, which they did with a bang.

At that time, the EPL were the grateful beneficiary of a fierce bidding war between Sky and BT fuelled by new technology.  On 13^th June 2012, the EPL announced that BT had bid for all 7 packages on offer and had been successful in winning 2 of them at a cost of £738M, including some first pick fixtures.  BT Sport was to be given away free to its broadband customers in an attempt to counter Sky’s move into internet services and telephony.  Whilst BT only secured 2 out of the 7 packages, it was a huge statement not only due to the size of their bid, but the financial strength of the BT Group.  Previously, the Setanta administration had raised questions over whether anyone could put together a viable business to be able to challenge Sky.  BT did away with this as they had the financial muscle to cause concern for Sky.  What followed in the next auction process for the 2016-19 rights was a chest-beating show of strength by Sky.  Sky bid £4.18bn, an 83% increase on their previous deal, to retain its lion’s share of premium content.  BT in contrast bid £960M for the packages it wanted and appeared to accept second place.  Nevertheless, the EPL still made huge gains in revenue from this competitive bidding process.

The Amazon entry to the market has been a much more modest affair by comparison.  Firstly, Amazon and Sky/BT operate in slightly different markets.  Whereas Sky and BT had a direct war over media subscriptions for broadband, fibre, telephony and TV, and needed the content to keep customers, Amazon’s business operates a different model.  Where they overlap with subscription TV, Amazon Prime’s offering is not a direct comparison to Sky bundles, for example.  BT had to enter the market to preserve valuable broadband subscribers.  Amazon on the other hand do not need sports rights as a loss leader to support its business model and therefore will not overpay for these rights as Sky and BT may have done in the past.  This is evident by the fact that Amazon did not meet the reserve asking price set by the EPL back in February.

Where the Sky/BT battle resulted in deal on deal 70% plus revenue hikes, another bumper pay day was hoped for from a mega bidding war between 3 major content providers: Sky, BT and one of the US tech giants.  They did attract Amazon to the party, but the overall outcome was not as positive as was hoped.  Sky and BT did their own private content sharing deal back in December, which allowed BT firmly to take a step back into second place; and Amazon made a tactically astute purchase of a single package (no official announcement on the price paid).  The purchase was made in circumstances where the package had not met the reserve price at the first round of bidding.  The other remaining 20 game package was snapped up by BT at the same time for a cut price  of £90M.  It is obvious to see why concern could be raised by the fact that in these circumstances domestic rights revenue actually fell from £5.14bn for the 2016-19 deal to £4.55bn for the 2019-22 deal (an 11.5% drop).  This is the first time since Sky’s monopoly over broadcasting rights was broken by the entrance of Setanta to the market in 2006 that revenue has fallen from the sale of domestic rights.  Since then, Setanta, ESPN and most recently BT have provided successive challenges to Sky, which has maintained an upward pressure on the value of live broadcasting rights.

Revenue for domestic broadcasting rights rose at a staggering rate from £1.02bn for the 2004-07 deal to £5.14bn for the 2016-19 deal, which represented more than a 500% increase in revenue from the sale of these rights for the EPL in just over a decade.  In some regards, it was inevitable that this pace of growth could not continue.  However, the rate at which this has occured should be noted.  Sky have swung from an 83% increase in their payment under the 2016-19 deal, to a 16% decrease in their comparative cost per game for the 2019-22 deal.  If this were commentary on the FTSE 100 or housing market, economists would be going crazy!

Domestic FA Premier League TV Broadcasting Rights Auction

The noughties saw unprecedented growth in the sale of broadcasting rights which brought with it commensurate revenue increases for the clubs. But since the birth of the EPL in 1992, there had only really been one dominant player in the live football TV broadcasting market, namely BSkyB.

The EPL gave a Commitment to the European Commission for the sale of media rights for the start of the 2007/8 season, which guaranteed that no single broadcaster would be able to buy all rights packages.  The system has undoubtedly benefited the EPL and the quality of its product but it has not been an easy ride.  Ever since then, the bidding process has resembled rutting season with the old, established Sky guard fending off new and younger rivals.

Firstly, the EPL had to terminate its contract with Setanta in 2009 after they defaulted on their payment obligations to the EPL.  At the time, Setanta owned 2 of 6 packages (46 live games in total per season) to showcase live EPL games.  Setanta subsequently entered administration with the EPL left with a potential shortfall in its projected cash flow.  Luckily for them ESPN stepped in by buying up the remainder of Setanta’s packages.

After fulfilling Setanta’s broadcasting packages, ESPN were only involved in one auction process for the 2010-13 rights where they secured a single package of matches before their UK and Ireland channels were taken over by BT in 2013.  Up to that point there was a clear question as to whether there was space in the market for 2 major broadcasters.  But the arrival of BT was a marked change from past competitors.  Nevertheless, by their own admission BT have been muscled out by Sky.  After the 2016-19 auction, Delia Bushell, managing director of BT TV commented: “I think, if we’re honest, it reflects the fact that it’s extremely difficult for anybody to outbid Sky for sports rights if they are determined to keep those rights because the size and scale of their pay-TV base, and their exisiting revenue streams, make it very difficult for anybody to come up with the business model to surpass them”. The new contender Amazon appears to have taken heed and are stepping carefully into the arena.

2019-22 Auction

The latest auction is summarised below:

• 200 live games per season split into 7 packages (listed A to G)
• No single bidder could win more than 5 packages
• Sky bought 4 packages which entitles them to broadcast 128 games per season for £3.579bn
• BT bought 2 packages (a 32 game and a 20 game package) which entitles them to broadcast 52 games per season for £975M
• Amazon bought 1 package for an undisclosed amount which gives them rights to broadcast 20 live games per season.

A comparison between the 2019-22 and 2016-19 deals is set out below:

Warning Signs

In addition to the drop in revenue as discussed above, there are further warning signs for the football sector that may give cause for clubs to consider future expectations of revenue from the central contract.

In May, BT announced that it was to slash 13,000 jobs in an effort to save £1.5bn in costs as part of its strategy to invest in fibre and 5G.  Whilst the business undoubtedly has a major investment project to undertake, some in the media have questioned whether the cuts are linked to the fact that back in November of last year BT confirmed that it had taken a hit from deals for football and sports rights as pre-tax profits fell 22%.  Despite these claims, BT have in the last few months made back-to-back announcements that they have secured exclusive rights to broadcast live matches from the UEFA Champions League and UEFA Europa League for 2018-21, in addition to their EPL investment.  The combined outlay for these 3-year broadcasting packages was £2.155bn.  With this level of investment, no one is suggesting that BT are pulling out of football anytime soon.  However, statements coming from BT clearly show a change in tune.  BT Sport’s official line following the 2019-22 auction is that their bidding strategy was “financially responsible”.  Sky made a similar statement saying they had taken “a disciplined approach”.  This is in stark contrast to the statements issued following the 2016-19 auction.  These statements, taken alongside falling profits at one of the two dominant TV sports broadcasters, should be of concern to football as an industry. Is it a sign of reaching an equilibrium in the market?  Is it the start of a change in the tidal flood of money coming into broadcasting rights in recent years?  Should football as a sector start to tighten its purse strings?

English domestic league football has not seen an insolvency event in the last 5 years.  To emphasise the monumental turnaround in domestic club finances and management, the 5 years prior to that suffered 20 English football insolvencies.  This has been for a number of reasons, from changes in the Football Regulatory rules, Financial Fair Play, tighter HMRC reporting, to better management.  Notwithstanding this, whilst there is still willingness and appetite to invest, the level of that investment has dropped off.  Will it continue to fall in future? We don’t know, and whilst the sale of international rights may well compensate for the drop in domestic revenue, clubs would be well advised to be conservative with their expectations for TV revenue.