Telefonica tries to turn back tide of football rights inflation

The party may not be over for European premium football rights but there are signs that leading pay TV operators are ganging up against the rampant inflation of the last few bidding cycles. The recent auction for English Premier League (EPL) rights, still hanging in the air with two packages unsold, gave a strong hint that operators are no longer willing to beat each other up over rights prices while the leagues stand by cheering them on to bid ever higher.

It is true there were rumors in the air of the big Internet technology players, certainly Google, Facebook or Amazon, bidding, but the cost and profile of a national EPL package do not really fit their business model and they too have no desire to stoke a bidding frenzy. Meanwhile Sky and BT Sport, the two existing EPL rights holders, had struck a truce by agreeing to show each other’s matches on their service. This took the sting out of the auction since neither party had so much to gain from outbidding the other, while financial reality had imposed itself via the balance sheet. In the event average rights costs fell a little, with BT paying 21% more per match than currently but more than offset by Sky with more packages paying 16% less at £9.3 million per game.

In Spain the irony was the auction for La Liga, the premier division, is being run almost a year early to strike while it looked like the iron was hot. Therefore bids have been invited around now just two years after the last three year packages were sold in 2016, when Telefonica was forced by the regulator to give up its monopoly over all La Liga matches as a condition for allowing it to take over Spain’s leading DTH platform Canal Plus in 2014. This let in Vodafone and Orange to gain rights to matches for their mobile and video platforms.

In Spain media group Mediapro is the intermediary rights owner negotiating on behalf of La Liga to sell national rights but retains the international rights. As a side plot, Chinese investment fund Orient Hontai Capital took control of Mediapro in February 2018 by buying a majority 53.5% stake, attracted partly by those international La Liga rights.

However the new owner will be less pleased to have heard just a week or so after completing the deal that Telefonica had declined to bid for the domestic La Liga rights, joined by Vodafone and Orange. Telefonica was quite bullish about it, arguing that it had overpaid last time round and had no intention of doing so again, because it could not extract enough from its subscribers to cover the cost, even in a football mad country.

Telefonica has confirmed that it is still interested in the rights but wants to negotiate the price down from what it paid last time. It is not hard to see why by considering that at present Telefonica’s Movistar service is paying over €1 billion a season for all the football, equating to about €87.5 million a month. It would need to raise about €23.50 a month per subscriber just for the football, which is difficult given average annual incomes there around €20,000 and much less among the under 35s, while there are no matches in July and August.

Vodafone Spain has now upped the ante itself with its CEO Antonio Coimbra announcing at the Mobile World Congress in Barcelona that Vodafone has been unable to recoup the €250 million a year it pays for the mobile rights because it cannot attract more than 400,000 new customers for the football, even when discounting to as little as €5 a month.

Coimbra suggested that a new variable cost model would have to be adopted to keep Spain’s operators on board, where in this case Vodafone would pay a fee to Mediapro per subscriber, so that the rights owner would share or even shoulder the risk.

With rights bidding scheduled for April Mediapro is unlikely to concede to such an offer as yet, but its hopes that Amazon and Facebook will join in may be in vain in light of the UK experience.