A well known and successful figure in the sports rights industry identified two approaches to valuing sports rights;
a) Bid the maximum amount you can afford without busting your business
b) Estimate the revenue generating potential of the rights and bid accordingly
In the case of top tier rights b) is very rarely effective. However the perception of value can be misleading.
BT Sport very much appeared to take the approach in a) with the Champions League and blew the armies of bean counters at ITV and SKY clean out of the water. Given the size of BT they could have bid more but will have taken a best guess on the top price coming from the competition.
Does this mean that the rights are worth what BT paid ? (£897 million).
From an accounting perspective there are three main methods of valuing IPR / intangible assetts
1)Cost method (pleasingly circular argument)
2)Income based method
3)Market based method
Clearly on a cost based method BT paid the right price (!), a market based method suggests too much was paid but how about the income based method ?
If we make a massive assumption that each BT quad play (now they have mobile too) customer is worth £30 per annum to either keep or acquire then how many customers need to be impacted by the Champions League to break even ?
The answer on the figures above is 10 million customers per year. Since BT consumer has about 18 million customers now this seems plausible.
If we continue on this flight of fancy the next question is why didn't BT take such an aggressive approach with the Premier League rights ?
Potentially the EPL has been overvalued and the Champions League undervalued - but a good buy by BT perhaps and an error from Sky. Forgetting the piracy issue of course......