Competition for football rights set to eat into Sky's profits

Alys Key
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Manchester City v Chelsea - Premier League
A contract to show the Premier League cost Sky £4.2bn (Source: Getty)

Sky is set to report a 10 per cent drop in profits on Thursday, according to a forecast by investment firm UBS.

The broadcaster is expected to announce a fall in pre-tax profits to £673m in the six months to December, due to the increased costs of its Premier League coverage.

However, the UBS report also predicted strong growth from Sky, with underlying revenue growth set to be up 5.5 per cent in the first half to £13bn.

UK business is set to grow by five per cent, Italy up by 3.5 per cent, and jump of nine per cent in Germany.

This will be the first set of results to be released since Rupert Murdoch’s 21st Century Fox confirmed a takeover bid valuing Sky at £18.5bn.

Fox requires 75 per cent of Sky’s independent shareholders to accept the deal. The UBS report suggested that investors will be comforted by evidence of Sky’s growing momentum.

The analysis, which was put together by UBS’s head of telecoms research, also described Fox’s bid as a “floor rather than a ceiling”.

It suggested Fox might raise its bid if Sky continued to improve operating momentum.

The predicted drop in profits was mainly accounted for by the increasingly intense rivalry between BT and Sky for sports broadcasting rights.

Sky paid £4.2bn for a three-year deal for Premier League rights last year, up from the previous price of £2.3bn.

The two sports broadcasting giants will go head-to-head again in the next few weeks. UEFA released an invitation to tender last week, and bids will be expected in March.

BT currently holds the live broadcasting rights for all European club football, having paid £897m in 2013. UBS suggested that Sky and BT could split the rights to the Champions League at the upcoming auction.

Other factors which contributed to the predicted fall in profits included the launch of Sky Mobile and investment in Germany and Italy.

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