Thursday, 14 June 2012

BSkyB shares lose £760m!

British Sky Broadcasting Group @ 650.5p, -45p (-6.47%)

Now thats interesting.
After yesterday evenings Premier League rights announcement (BSkyB and BT to pay £3bn for Premier League rights), BSkyB shares have been "adjusted" by 45p this morning.

When I first checked it this morning the shares were down 45p which, with roughly 1685.44m shares in issue, equates to £758.5m off the company's market capitalisation.
And, funnily enough £758.5m equates to the £760m per annum that Sky has agreed to fork out for the Premier League rights (BSkyB and BT to pay £3bn for Premier League rights).

But £760m is for the season starting Aug 2013 unless the company spent that amount yesterday I don't really understand why its been top sliced off the value of the company this morning.

Alternatively, if it doesn't start to be expensed until next year then there must have been some "estimate" of licensing costs in analysts forecasts given BSkyB's traditional position as the go to provider of Premier League football broadcasting in the UK and would therefore participate in any future auction.

That being the case the continued attraction of the Premier League would suggest an additional premium on the approximate £444m (BSkyB and BT to pay £3bn for Premier League rights) that is being expensed currently based upon the last licensing deal.
Which therefore conflicts with £760m been lopped off the price rather than a figure lower than £314m (£760m minus £444m already being expensed) which assumes no increases to subscriptions/advertising to compensate.

Now it also looks strangely like BSkyB's shares were suspended (or something like), as the share's don't look to have come live for trading until 8.05am, with the price already adjusted.

Click to enlarge, close to return. 
(Chart courtesy of Digitallook).

Anyway, even if the first year's cost has come out upfront (to show as a pre-payment) and the pattern is a continuation of previous practice then there will be benefit next year when the old deal drops off the P & L to the tune of £444m and the last year of the deal which, through a staggered upfront payment, would have been already paid for.
The company's cashflow might take a hit in the period but will surely average out over the longer 3/4 year span of the current/new deal.

Doesn't make too much sense to me then and it still seems more likely that the £760m "should" be expensed during the year of broadcast, either way there will a level at which the 2 deals balance and average out at which point the new deal is an additional cost to the BSkyB of £314m not £760m.
So that could and should mean that only £314m should have come off the market capitalisation (the additional incremental expense) which with 1685.44m shares in issues equates to 18.6p.

As 45p has come off the share price then that is a possible over-reaction of 26.4p
And 26.4p would add 4% to the 650.5p share price taking it back to 676.9p.

Is the share price over sold on that basis giving an additional 4% opportunity in addition to the company's underlying prospects and any subscription/advertising increases.

My naggng concern is that with the strange "suspension" type gap on the chart that some kind of formal accounting exercise may have taken place.
However, as mentioned, even if this is a hit to cashflow in this period, I can't see it doing anything other than averaging out over the newly extended period of the deal. 
And, that would also assume that there is no "value" to the £760m per annum license.

Looks like BSkyB is one to keep an eye then.

Earlier post:
BSkyB and BT to pay £3bn for Premier League rights

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