Sky pushes Spark off the park with rugby deal

Competition for the rights to broadcast sports matches involving New Zealand’s top teams has produced a bonanza for the sporting bodies and forced the media companies to be a lot more innovative. Mark Jennings reports.

COMMENT: In the space of five days, the country’s top sporting codes have signed rights deals worth more than half a billion dollars in total.

First, it was New Zealand Cricket announcing a six-year deal with Spark, and then New Zealand Rugby nailing a five-year agreement with Sky, plus a 5 percent shareholding in the pay-TV operator.

These deals are far in excess of what’s been previously paid for broadcast rights and puts the sporting bodies on a much sounder financial footing. The chairman of the NZR, Brent Impey, described it as a “new era”.

The sporting windfall has come about because Spark decided to get into the sports content game 18 months ago. It outbid Sky for the Rugby World Cup rights and last Thursday announced its deal with NZ Cricket. The latter stunned Sky executives and sent the company’s share price into a tailspin.  

It also forced Sky into urgently tying up a deal it had been quietly, if not secretly, hatching with the NZR. Someone at Sky or the NZR partially leaked details of the negotiations to the media – possibly with the aim of tempering the positive media coverage flowing to Spark over the cricket deal. 

In danger of getting a “please explain” from the NZX, Sky went into overdrive and agreed the deal with NZR on Saturday, signed it on Sunday night, and announced it to the market at 8.30am on Monday.

Sky CEO Martin Stewart was in the UK last week and had to finalise the details over wifi on a flight back to New Zealand early yesterday morning.

A jet-lagged Stewart and an upbeat Impey held a media conference at Sky’s headquarters in Mt Wellington late yesterday morning.

Impey immediately pre-empted reporters’ questions by conceding that Spark had been effectively shut out of the negotiations.

“We could’ve gone to the market, we didn’t go to it, we didn’t feel the need.”

Impey said NZR held discussions with Spark earlier in the year and knew what the telco had to offer and it wasn’t going to match Sky. He rejected a suggestion that Spark’s problems with streaming some of the matches from the Rugby World Cup in Japan influenced the decision. Sky production capability and rugby coverage expertise were more important factors.

“We believe the so-called technical problems are solvable. Technical problems didn’t come into it,” he said.

What did come into it was a huge amount of cash from Sky and some shares.

Impey said the NZR had been facing some “challenging financial long-term projections” but the Sky deal meant it no longer had to find new revenue sources or cut development programmes.

When questioned as to whose idea it had been to take a shareholding in Sky, Impey said NZR had “put it on the table from the start (of the negotiations)”.

“We are an important part of Sky and we should share in the growth that comes with that.”

Whether Sky can use the rights renewal as a springboard for growth is debatable but this is an important deal for Martin Stewart. He can now stop worrying about losing the rugby and concentrate on transitioning the company to a lower cost operator that eventually streams all its content to consumers.

"In the seven months I have been here, someone has told me every day that we need to retain the rugby,” Stewart, almost wearily, told reporters.

“We have a very keen understanding of what our customers want to watch ... rugby is the national game.”

Sky shareholders should also be happy to sign off on giving (the shares will be issued at no cost) NZR the 5 percent shareholding. 

If it was truly costed into the deal and not thrown in as a sweetener then it saves Sky from having to stump up $19 million in cash.  It also cements the relationship - or as it is now being referred to, “partnership” - between Sky and NZR. This could see Spark locked out of local rugby for a decade – possibly forever.

It also pours the pressure back onto the Spark executives who were a few days ago clinking the champagne glasses over the cricket deal. That six-year deal includes all the Black Caps games played in New Zealand but it doesn’t include the games in Australia, India and Sri Lanka or the World Cup ODIs and T20 matches, which Sky has the rights to.

This means cricket fans will need to shell out for both services, which could limit the amount Spark can charge for its packages.

Stewart says Sky’s bid for the domestic cricket rights was barely economic yet it was outbid “by miles”.

Without any All Black, Super or provincial rugby after the RWC ends, it is hard to see how Spark can retain enough subscribers - paying enough money - for it to make a profit out of sport in the longer-term. Its entertainment product, Lightbox, is also losing money.

If the sporting bodies are the big winners in this latest round of high-cost deals, who will be the losers? It will either be the shareholders in Spark and Sky, or their customers, who will have to pay more for some products. Perhaps the pain will be shared. 

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