Why Sky and the Premier League need each other

This is part two of my series on football as big business. Part one can be found here: When did football first become big business?

Prior to 1992, televised football was a relatively modest earner for even the biggest teams. Even the most successful teams posted relatively modest financial performance each year.

Even though the BBC and ITV (plus newcomers Channel 4) were keen to show the game, they felt the market price wasn’t high enough to warrant significant investment.

In 1983, a two-year contract to show games live cost £5.2m. By 1988, that had risen to a pre-Sky TV high of £44m for four years and now, from November onwards, live football was part of the TV schedule most Sunday afternoons.

When Sky TV announced their intention to bid for live football rights to help market its new satellite television platform, initial observers were sceptical that Sky would have the finances in place to grasp live football from the hands of ITV or BBC.

Those observers were proved spectacularly wrong. As for Sky, obtaining the rights to the new Premier League was more than just a business choice; it was a central tenet to the long-term success of the company.

1992 Sky smash the previous TV deal record

Sky’s genius in its early years was to understand that football, and particularly top flight Premier League football, would be the draw that would encourage millions of fans to sign up to their new satellite platform.

So, to ensure they obtained the rights, Sky bid an astronomical figure (for 1992) of £304 million to obtain rights for five years exclusive Premier League action. This was almost EIGHT times more than ITV had paid for rights in 1988 and neither they nor the BBC could come close to matching the offer.

That money saw the 22 clubs in the inaugural Premier League receive vastly increased TV revenue, allowing them to attract top quality foreign players from abroad, as well as persuading top talent from the home countries to stay in England, rather than depart for Italy or Spain.

The five-year deal provided the framework to radically increase uptake of the Sky satellite television package, with the access to live football every weekend, one of the key elements, if not THE key element, in persuading millions of new customers to sign up.

By 1996, a new TV rights deal was being mooted and Sky clearly understood that its long-term success was now almost inextricably linked to the Premier League.

1997 – 2007 Sky more than treble their investment in the Premier League

In 1997, Sky paid £670 million for four years of football, plus the Premier League also earned a further £98m from the first Overseas TV package deal.

It was clear that Sky’s investment in the Premier League was making the competition more attractive to top players and fans and as such, its exclusivity on the Sky network meant that the Premier League was equally as important to Sky’s future viability, as Sky’s money was to its clubs.

A state of symbiosis had been achieved, both Sky and the Premier League now were interdependent on each other.

That state of affairs continued in 2001 and 2004, when Sky broached the 1 billion barrier for the first time, paying £1.1bn in 2001 and £1.024bn in 2004. Correspondingly, Overseas TV revenue grew from £98m in 1997, to £325m by 2004.

By now Sky had fended off competition from companies like the BBC, ITV and new companies like NTL to remain as the sole place you could see Premier League football.

That situation however, was soon to change.

2007 – 2013 European Union ruling, exclusivity and Setanta

When the bidding process began for the 2007 TV rights deals, it was in a different legal climate. Prior to 2007, the European Union had ruled that Sky’s monopoly on the television rights for the Premier League was unlawful.

The EU ruled that the 2007 contract should be split into separate packages of 23 games, which interested parties could bid on separately. For the first time since 1992, another channel, Setanta Sport, won the rights to two of the six packages available, Sky winning the other four.

This meant that Setanta Sport would now show 46 Premier League games alongside Sky’s four packages but two years after starting the contract, Setanta Sport went bankrupt, with American sports giants ESPN taking up the rights and showing the remainder of the games.

By splitting the 2007 TV deal, Premier League clubs earned an astonishing £2.331bn from TV revenue alone over the three-year contract, £1.314bn from Sky, £392m from Setanta/ESPN and £625m from Overseas TV deal.

By 2010, ESPN could only secure coverage of one TV package (for £159m) ,while Sky secured the remaining five for a record 1.623bn deal. Overseas TV packages also grew to £1.4bn, meaning that clubs would share in a £3.182bn bonanza from 2010 to 2013.

It seemed that when the TV rights deal were next negotiated in 2013, Sky would be in a prime position, but this time, there was another new challenger on the horizon.

2013 TV deal – BT Sport challenges the dominance of Sky

For the 2013 Premier League TV deal, seven packages were announced and Sky were expected to win the vast majority of them.

The BBC and ITV were unable to match their financial might but a new digital TV network, BT Sport, were interested in acquiring Premier League TV rights.

That is precisely what they did, paying a combined £738m to show a total of 38 live games a season from 2013 through to 2016 on Saturday’s at 12.45pm and also midweek evenings.

Sky bought the rights to the other five deals, but for the first time, BT Sport had managed to get “first pick” of 18 matches each week.(Source)

This was crucial. Previous TV deals gave other companies no such guarantees, with Sky Sports able to cherry pick and show the best games. Now BT Sport not only had Premier League football, but many of the biggest matches of the season.

In terms of revenue, the Premier League continues to rake in cash through TV deals with the current deal reported to be worth over £5bn over the three years.

This clearly shows that over time, Sky’s reliance on the Premier League as a generator for new custom remains undiminished, its value to the site undeniable given its extraordinary levels of investment.

Not even losing some packages to other providers, such as Setanta, ESPN or BT Sport, has diminished Sky’s stranglehold on the game, as the channel still shows by far the lion’s share of all top flight English Premier League football in the UK.

Yet while Sky is reliant on the Premier League to drive its customers to pay higher prices and increase the number of customers (now standing at 10.3m in the UK alone), the Premier League is equally reliant on its bumper TV deal (and Sky money) in order to fund the vast transfer fees and wages paid to most Premier League players.

Yet in a world where Sky and the Premier League continue to grow fatter on the profits of the game, the question remains, who is paying for all of this.

You don’t have to look far for the answer.

Part one: When did football first become big business?