BSkyB may be forced to bid higher for football

BSkyB may be forced to pay more to retain the rights to live Premiership football if the European Commission insists on the deal being put out to tender in several packages, according to a City report.

Analysts at UBS Warburg argue that if the key Premier League rights contract is split up, Sky would have to bid aggressively for each individual tranche, sending its total bill higher, or risk seeing its exclusivity – the aspect that is so important to the group – being broken.

The BBC and ITV are thought to be preparing to compete hard for parts of the deal, if it is unbundled.

The broker's "worse-case" scenario sees the value of live rights topping £440m a year or £1.3bn over the three years of the contract, compared with the £390m a year for the current deal.

This goes against indications from the company and the mainstream view in the City, which is looking for the price to fall by some 10 to 15 per cent.

"BSkyB is likely to want to retain exclusivity and, therefore, most likely would bid high in all auctions to avoid the risk of losing one of the packages if one of the free-to-air players has concentrated its firepower," UBS said.

Without regulatory intervention, it is considered a foregone conclusion that Sky will easily outbid other broadcasters but the terrestrial players may be able to afford parcels of rights, which could go for about £70m a year.

The Commission is investigating the bundling of football rights by the Premier League, which got £1.1bn for the three years from 2001. This gave Sky exclusive coverage of the top games – leaving just the highlights to the terrestrial broadcaster, ITV. Football has been a major driver of subscription for the satellite broadcaster, which now has more than 6.5 million customers.

"BSkyB has in the past applied a strategic premium to football rights and we believe should it lose exclusivity, it is likely to suffer a minimum negative sentiment towards its share price," UBS said.

The broker said that the loss of exclusivity could result in customer desertions and the possibility that Sky would have to lower its subscription rates. It would also endanger the £100m it earns from pubs and clubs each year for showing Sky's sports content.

Negotiations between the Premiership and television companies are due to start in April, with the next deal running from the beginning of the 2004-05 season.

UBS said: "We believe there is a material possibility that Brussels forces a split rights contract ... this could bring live Premiership into the grasp of free-to-air players for the first time in 10 years."

The Premier League will respond to the Commission early next month and will argue that it must be able to offer exclusivity, as a "key driver of value", according to a football source. Brussels, which sent a "statement of objections" to the league in December, is also investigating why the football authorities offer the broadcast rights to only 25 per cent of games. The league contends that the auction of the rights is a competitive enough process.