How far will the money go – Udo Onwere

Partner Udo Onwere examines the whether the current levels of spending, in relation to sports broadcasting rights, are sustainable as viewing numbers of conventional sports channels begin to fall.

Sky Sports is playing a speculative game. Given the eye-watering sums spent on football rights and players, the pay-TV giant recently overhauled its sports packages offering. Numbered sports channels are to be replaced by focused offerings dedicated to specific sports – principally football, golf and cricket – giving customers flexible subscriptions to individual channel packages, rather than paying for comprehensive sports coverage. The new format will drop from £49.50 to £18 for the cheapest available package.

This bold strategy was kick-started by Sky’s average viewing figures – down by a dramatic 14 per cent last season for broadcast football matches. Two factors are in play.  Cheaper streaming services like Netflix and Amazon, with subscriptions starting at £8 a month, have created a consumer expectation that pay-TV should be cheaper. Second, and more significant, is younger more tech savvy sports fans who access their sport online through illegal streaming sites for live sport (although the Premier League recently won a High Court Order which blocks servers hosting illegal streams of matches).

Simultaneously, sports rights costs have spiralled. Sky paid £4.2bn for exclusivity in its most recent Premier League TV contract: 83% above the previous deal, and nearly £11m per game. In the last two transfer seasons, this helped to fund the extraordinary fees now being paid for players in addition to their equally extraordinary salaries.

Economists might point to an unrelenting wage-price spiral in which the business model becomes unsustainable. The bar has been raised again by Neymar’s recent move from Barcelona to Paris St-Germain for a world record fee of £198m and a salary of almost £28m: costs that can never be recouped from traditional merchandising or other revenue streams. Add to that Sky’s dramatic cut in subscription costs, intended to increase demand, and the numbers also do not appear to add up for the digital broadcaster.

It seems that sports’ governing bodies are powerless to act – they can only watch from the sidelines. Yet at some point, the football bubble appears set to burst. How, when and with what consequences is hard to predict. It’s a game we will all be watching.