The English Premier League will increase the total number of matches that can be broadcast live in the UK as it seeks a rise in TV revenues to 2022, giving a lift to its economic strength and potentially boosting the valuations of teams that have been subject to takeover speculation in recent weeks, such as Liverpool FC.
In October, The National revealed that the American owners of Liverpool FC turned down a deal worth up to £1.5 billion to sell the club to an investment consortium led by Dubai financier Amanda Staveley. There is a suggestion from a source close to Liverpool that this valuation was well short of the club's own, which is closer to £2bn, given the positive economic outlook for the Premier League and Liverpool's improved chances of on-the-field success this season. A sale of Liverpool by Fenway Sports Group, who also own the Boston Red Sox, could perhaps go through if a buyer that was willing to pay this higher amount were to emerge in the future.
The latest auction round for TV rights will lend strength to the view that the Staveley offer was short of the club’s true worth.
Andrea Sartori, a Partner and Global Head of Sports at KPMG, says that Liverpool is a “fantastic brand” with the potential of further growing its profitability.
He compared it to AC Milan in terms of history and global brand recognition, but also in terms of needing to win on the pitch to revitalise the strong brand acknowledgment internationally. Mr Sartori says that with all major sport clubs, not only in football, there is a need to win trophies from time to time in order to create the media exposure and fan engagement needed to generate commercial revenues which in turn can be invested in the club to increase chances of further sport success.
AC Milan was recently sold for €740 million to Chinese investors, a premium compared to KPMG’s midpoint enterprise valuation of €547m, according to KPMG's research earlier this year.
“There is a difference between value and price. The latter often reflecting upsides and synergies exclusively applicable to a specific buyer. This might have been the case with the AC Milan acquisition and might also happen with any other club to be transacted in the future, including Liverpool,” said Mr Sartori.
Liverpool has a €1.2bn enterprise value, according to KPMG’s research in May. KPMG’s methodology includes taking into account broadcast rights and its algorithm captures current TV deals. In 2015, the 20 top English clubs secured £5.136 billion for the UK rights alone, with overseas rights taking that figure beyond £8bn for the 2016-2019 period.
On Thursday, the Premier League issued a tender document for the sale of the rights to air its matches for the 2019-2022 seasons which includes making 32 more games available for live broadcast in the UK, according to the Daily Telegraph.
Analysts at Citibank, led by Thomas Singlehurst, say that the Premier League’s ability to increase the number of games broadcast, from a relatively lower base compared to other competitions, means that it can “inject volume growth/value into the offering at each auction…which is often used as a justification for higher pricing”.
Last month, Citi anticipated “decent inflation” and forecast that UK broadcasters Sky and BT would pay 43 per cent and 25 per cent more, respectively, for the domestic rights for 2019-2022 compared to the previous deal but that estimate was made based on an increase to 190 games on offer from 168 rather than the 200 that will reportedly be auctioned by the Premier League this time. The league is also allowing, for the first time, entire rounds of matches to be broadcast live. There has also been some speculation that digital media companies including Facebook and Amazon could enter the competition for the rights to broadcast live Premier League matches on their platforms, marking a step-change for the English top flight and creating even more pressure on traditional broadcasters to pay more to maintain their hold on what has become a critical part of their business models.
However, Citi is not convinced of the likely significance of digital players in this auction round.
“The point with all of this is that for such a ‘big ticket’ outlay one would presume a new online player would want the rights to be transformative to their offering and truly disruptive to how the market would consume content. This seems unlikely given the current auction structure,” the bank’s analysts say.
Mr Singlehurst does concede that “looking at the track record of the market in terms of predicting rights costs trends, the fact is that sell side analysts, including ourselves, have not been wildly successful in the past”. In 2012, the consensus for inflation in the rights costs was 15 per cent but the eventual outcome was 40 per cent and in 2015, the forecast of a 35 per cent rise was outstripped by the eventual outcome of 83 per cent.
A continuation of this inflationary trend for broadcast revenues will support the growth of the overall earnings for the Premier League which, according to Deloitte, hit a record £3.6bn for the 2015-2016 season. Broadcast accounted for half of that revenue figure for the period and it is worth noting that the vastly more lucrative TV deal that runs until 2019 only kicked-in the following season.
It is also worth remembering that John Henry, the owner of Liverpool, via his company FSG, called the Premier League the biggest sport in the world in terms of TV audience back when he acquired the club in 2010. At the time he also acknowledged that those running English football were not the “best and brightest” and that there was plenty of opportunity to be had from the game given its global appeal.
It looks like the Premier League is now working hard to ensure it seizes as much of that opportunity as possible and with this latest auction round of TV rights could yet again confound the expectations of analysts and team owners alike.