REPORT LISTED EVENTS: MARKET IMPACT POTENTIAL London, 15th July 2009 © Value Partners 2009. This document is confidential and intended solely for the use and information of the addressee BBC Trust Listed Events review 1 Executive summary 2 1.1 Introduction 2 1.2 Context: sports rights and TV 2 1.3 Historical impact of Listed Events 3 1.4 Future impact of Listed Events 3 2 Introduction 5 3 The regulation of Listed Events 6 3.1 Summary 6 3.2 Introduction 6 3.3 Legislation 6 3.4 Current UK listed events 7 3.5 Review process 8 4 Overview of sports rights markets 9 4.1 Summary 9 4.2 Introduction 10 4.3 The demand for sport 10 4.4 UK sports rights market 12 4.5 The importance of sport to broadcasters 15 4.6 Characteristics of sports broadcasting markets 18 4.7 How do sports rights holders decide how to sell their rights? 25 5 Evidence of impact to date 31 5.1 Summary 31 5.2 Introduction 31 5.3 Impact on the broadcasting market 32 5.4 Impact on the sports rights market 33 5.5 Conclusion 34 6 Market evolution 36 6.1 Summary 36 6.2 Introduction 36 6.3 Broadcasting market trends 37 6.4 Sports rights market trends 41 6.5 Conclusion: market evolution 46 7 Potential for future impact 47 7.1 Summary 47 7.2 Introduction 47 7.3 Impact of trends in the broadcasting market 47 7.4 Impact of changes to listed events on the broadcasting market 48 7.5 Impact of trends in the sports rights market 49 7.6 Impact of changes to listed events on the sports rights market 49 7.7 Conclusion 50 8 Appendix 51 8.1 New entrants in the UK 51 © Value Partners 2009. | UK-BBT-002 090716 Listed events review vFINAL 1 BBC Trust Listed Events review 1 Executive summary 1.1 Introduction The Department of Culture, Media and Sport (DCMS) is currently reviewing its approach to Listed Events, looking at the benefits of a listed events regime, the principles used to determine the list and whether the events on the list should be changed. As part of the review process, DCMS has invited submissions by interested parties. To help inform its submission, the BBC Trust has asked Value Partners to assess whether the current listed events regime has had a significant market impact in the UK and whether it is likely to have one in the future. Listed events were established in the UK in 1956 and similar lists have since been established across Europe. Their purpose is to ensure that events considered to be of particular national importance (primarily sport) can be watched by as many people as possible for free. In the UK, only qualifying channels with 95% free-to-air reach can exclusively show listed events; currently these channels are BBC One and Two, ITV, Channel 4 and Five. The listed events regime was last reviewed in 1998, when the List was divided into two: a Group A for which live coverage is protected and a Group B where only the highlights are protected for free-to-air broadcast. There are currently ten sports events on the Group A list 1. This report examines the impact of listed events on the two markets directly affected by listing: the broadcast market and the sports rights market. 1.2 Context: sports rights and TV An assessment of the potential market impact of listed events must be based on an appreciation of the relationship between sport and television. Sport is one of the most popular TV genres, able to create a unique shared experience for millions of viewers. Football is the most popular sport but a wide range of other sports also attract large audiences. For example, the audience for Manchester United v Chelsea in the 2008 Champions League Final peaked at 14.6 million for ITV and more than 41 million people watched the BBC’s coverage of the 2008 Beijing Olympics. In addition, a large proportion of the population are willing to pay premium prices of over £10 per month to watch live sport on pay-TV. Analysts estimate that over 6m households subscribe to Sky Sports channels 2, out of a total subscriber base of 8.7m Sky households 3. Consequently, major sports events are highly-prized broadcasting assets and are used by both free and pay broadcasters to draw new viewers and subscribers, and to differentiate themselves from their competitors. As a result, sports rights can be amongst the most expensive programming investments that broadcasters make (e.g. sports rights make up 54% of Sky’s total programming budget 4). Generally, the greater the competition between broadcasters for a particular sports right, the higher the price will be – which means that rights holders try to attract bids from as many broadcasters as possible. Whether a sports property is more likely to be broadcast on a pay or free channel depends on the nature of the event. Pay-TV particularly values long-running sports properties which extend across large parts of the year and provide the many hours of broadcast coverage required for dedicated sports channels (e.g. live Premier League). By acquiring such rights, they can create a strong subscription proposition. For these sports, free-to-air broadcasters are unlikely to be able to match the value that can be generated through subscriptions with a comparable amount of advertising income. By comparison, for one-off or shorter events, or those that do not happen each year (e.g. the Rugby World Cup), commercial free-to-air broadcasters may 1 Those sports events are the Olympic Games, the FIFA World Cup tournament, FA Cup Final, Scottish FA Cup Final, the Grand National, the Derby, the Wimbledon Tennis Finals, the European Football Championship Finals Tournament, the Rugby League Challenge Cup Final and the Rugby World Cup Final 2 Source: TV Sports Markets 3 Source: Screendigest 4 In 2008, Sky’s total programming costs were £1,713m, of which £929m (54%) were spent on sports (Source: Sky annual report) © Value Partners 2009. | UK-BBT-002 090716 Listed events review vFINAL 2 BBC Trust Listed Events review be better positioned as they can more easily find the space required in their schedules and can attract one-off, large scale audiences which can be monetised with advertising. When sports rights holders determine to whom to sell their broadcast rights, maximising rights value is often only one consideration. Other objectives, such as promoting their sport to the widest possible audience or maximising reach to generate sponsorship income, can also be factors. In addition, long standing partnerships can create strong brand or corporate affinities between rights holders and broadcasters, and rights holders may value the production expertise of particular channels. The importance of these factors relative to rights value varies by sports property. 1.3 Historical impact of Listed Events Sky is by far the biggest sports broadcaster in the UK. At the core of its dedicated sports channels are its Premier League rights (since 1992) and a broad range of other rights including rugby union’s Premiership, rugby league’s Super League, domestic Test cricket, US Open Tennis, and Ryder Cup Golf. Two new entrants have tried to enter the pay-TV sports market in the last ten years, but neither ITV Digital (failed in 2002) nor Setanta (failed in 2009) have been successful. Historically, the listing of events does not appear to have affected the success of Sky. It has built what many regard as the world’s most successful pay-TV business under the existing listed events regime and continued to grow their subscriber base after the last change to listed events in 1998 5. Sky has been able to acquire a critical mass of rights, which means the inability to bid for a limited number of Listed Events does not have a major impact. Indeed, because of this scale and influence, Ofcom is seeking to impose wholesale must-offer regulation on Sky’s sports channels and the European Commission has agreed with the Premier League that it will not sell all its live rights exclusively to one broadcaster (since the 2007/08 season 6). There is also no evidence that the Listed Events regime was a factor in the failure of new entrants ITV Digital and Setanta. Success in pay-TV sports requires deep financial resources to bid for a broad portfolio of exclusive rights while a customer base is being built, experience in knowing how to bid and monetise those rights and the ability to secure favourable distribution deals. Event listing did not stop ITV Digital or Setanta from acquiring a broad portfolio of rights. If anything, listing events may have helped these new entrants by ensuring Sky could not create an even more powerful sporting proposition. By comparison, the listing of events has probably decreased value for some sports rights holders; English cricket, for example, has achieved much higher prices since delisting by selling its rights to Sky. However, it is impossible to quantify what income has been lost to rights holders due to listing, given the other factors that influence sports rights valuations; it will depend on the nature of the event and the commercial structure of the sport (e.g. events with more sponsorship are less likely to have been affected). It is possible that an initial increase in rights fees due to delisting may prove temporary if a sports property were to lose its relevance to a free-to-air (FTA) audience and failed to create any competition for its rights within the pay-TV sector, but this remains to be seen in practice.