On the eve of the Euro 2016 football tournament pay-TV broadcaster Sky (SKY) announced it will pay €3.5 billion to secure the bulk of TV rights to German Bundesliga matches.

A key investor concern relates to Sky’s ability to pass on the rising cost of sports rights (in particular football) to its customers.

Sport is highly prized as one of the few forms of broadcast content which still commands a significant live audience. This has driven up the cost of sporting rights at a time when Sky is also facing unprecedented competition for content.

Liberum analyst Ian Whittaker, a long-term bear of Sky with a sell recommendation and 530p price target, comments: ‘Sky have seen a circa 80% increase in average cost per season, for the next four seasons they will pay an average of €876 million per season (vs an average of € 486 million per season for the previous deal). This is above consensus estimates of an average increase of 50-60% per season.

‘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.’

Issue Date: 10 Jun 2016