City pundits gave a mixed response to the big increase in the cost of German football for Sky PLC (LON:SKY) from next year.
Sky Deutschland has paid €3.5bln to secure the rights to screen top-flight German football matches through to the 2020/21 season.
That averages €876mln a year for the rights to screen 572 live matches per season from German football’s top two divisions – the Bundesliga and Bundesliga 2.
The new deal represents an 80% increase from its current one, which comes in at €486mln per annum.
“This is an important step to building our business in Germany and maximizing the significant opportunity for growth,” said group chief executive Jeremy Darroch.
The share price reacted positively to the announcement, but brokers were less certain about the agreement.
“This further brings into question the long term profitability of Sky, as we believe competition dynamics will undermine their ability to fully pass through these cost increases to customers,” said Liberum in a note today.
The broker issued a ‘Sell’ recommendation and a target price of 530p, almost half of the current share price.
At the other end of the spectrum, broker Shore Capital reiterated a ‘Buy’ recommendation, insisting that Sky’s “track record of driving revenue growth”, and the potential in the German market more than justifies the increased costs.
Previously, Sky had exclusive rights to German football matches, but regulators said in April that no single buyer would be able to acquire all of the rights.
As a result, Eurosport bought up the rights to Friday night Bundesliga matches, although Sky will still show 93% of the Bundesliga’s live games.
At a combined value of €1.16bln a year, this new deal still lags way behind the €2bn a year that Sky and BT pay for the rights to broadcast English Premier League matches.
The meteoric rise of football TV rights
In recent years, the money paid for exclusive rights to show football live on TV has gone through the roof.
Last year, Sky and BT paid a record £5.136bln for live Premier League TV rights for three seasons, a 70% increase on the previous three-year deal.
To put these numbers into perspective, the cost of screening the first 19 games of the upcoming 2016/17 season will be the same as what Sky paid for all live Premier League fixtures between 1992 and 1997.
The meteoric rise isn’t limited to domestic football either.
BT (LON:BT.A) recently bought the rights to screen Champions League football in the UK for £299mln, double what Sky and ITV (LON:ITV) paid for the previous contract.
Shares were up 1.5p, or 0.16%, to 956.5p.
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