BT Sport Takeover - The Telegraph: Failure to win BT Sport leaves Dazn's float plans up in the air

Story from The Telegraph: 

After courting BT since the middle of last year, Sir Leonard Blavatnik's sports streaming empire had been expecting to seal a deal for the telecoms giant’s sports channel. 

Winning control of BT Sport, which has rights to live coverage of the Premier League, Champions League and rugby union, would permit a bolder push into the British market for Dazn, the heavily loss-making app that has been furnished with billions of pounds of investment from Britain's richest man.

BT Sport would also give Dazn a launch pad to pursue a grander ambition of floating on the London Stock Exchange later this year. In the end, however, the deal failed to hit the back of the net. 

Despite months of negotiations, Dazn's deal team was snubbed on Wednesday night when BT executives gave into the overtures of a rival suitor. 

Discovery, the US media powerhouse behind Eurosport and the live Olympic Games coverage, burst onto the scene in December in an attempt to derail Dazn's plans. 

In a media call on Thursday morning, BT chief executive Philip Jansen said he had "two very good external options" but it was a joint venture with Discovery that "made sense for all stakeholders and customers". 

BT's decision to turn to John Malone’s company poses searching questions about the future of Dazn, which faces a battle to wean itself off the handouts provided by Sir Leonard's Access Industries. 

But can the service dubbed by some as the “Netflix of sport” take a compelling story to the stock market without BT Sport spearheading the attack? 

Sources claim Dazn could have sealed a takeover of BT Sport months ago, but had become bogged down in the commercial details as it relentlessly sought better terms. 

Every time BT had ironed out a concern thrown up by Dazn, another issue would arise and bring progress to a halt, an insider says. 

Among the hurdles were long-term guarantees Dazn wanted from BT to cover the costs of BT Sport if customers cancelled their subscriptions. BT is believed to have refused. 

Dazn's deal team is also understood to have miscalculated Discovery's interest. It viewed it as a stalking horse when The Telegraph revealed the US broadcaster's intent in December. 

Yet Discovery was not playing any games as talks dragged late into Wednesday night at BT's new offices in Aldgate on the edge of the City. 

Marc Allera, the head of BT’s consumer division, and the company’s deal team wrangled over the finer details of the two offers as they raced towards deadline. The board eventually settled on Discovery, before the decision was revealed to the market hours later on Thursday morning. 

For Kevin Mayer, the chairman of Dazn, the failure to reach an agreement was down to BT Sport proving "uneconomical" for the business. "We remain fully committed to growing our business and investing in the UK, as you will see in the near future," he added. 

However, Dazn's next steps remain unclear. Shay Sergev, its new chief executive, must find a way to stem losses that swelled to $1.9bn for the year to December 2019, compared to a $731m loss the year before. 

Sir Leonard's Access Industries had provided loans worth $925m during the period for TV rights, marketing and technology development. Dazn's accounts for the year to the end of December 2020 remain overdue at Companies House. 

Dazn has made some lavish plays in recent months. The subscription service launched a €2.5bn winning bid last year to secure the rights to top-flight Italian football for three seasons, as it expanded deeper into Europe. 

The group has also pushed further into original series through the recently launched Dazn Studios, which includes documentaries on the former Brazilian forward Ronaldo and the legendary Argentinian player Diego Maradona. 

Despite attempts to diversify, scepticism remains over Dazn's prospects on the stock market. 

"Without BT Sport, what are you IPOing?" an industry source says. "Dazn being coined as the 'Netflix of sport' is a hoot. With Dazn, you are buying a bunch of sports rights that anyone can buy if they have got the money at the end of a three-year cycle. It's a mug's game." 

Dazn may now wish to bide its time before mounting a fresh offensive on the UK market. The next round of bidding for Premier League rights will not come until the latest deals run out in 2025, after Sky, Amazon and BT agreed to roll over their £5bn deal in May. 

It could make a push into the Champions League when the UK rights deal ends in 2024. However, such moves will do little to solve their financial conundrums ahead of a potential float later this year. 

Claire Enders of Enders Analysis says the success of Dazn in the UK will not just depend on the live sports it secures, but the distribution deals it strikes with pay TV providers such as Sky, Virgin Media and BT Sport. 

"It's absolutely primordial for people to understand that sport is a structurally loss-making business, unless you are working pretty hard at maximising the distribution," she adds. 

"And that is what you have to do, so you cannot be enemies of any owner of any platform. Everyone has to work together for consumers. The whole point about these sports rights is they are like snow: they melt. You have to show them to the maximum number of people." 

When asked in September whether Dazn was poised for a UK expansion, Mayer gave a frank response. 

"We would love to have English Premier League, [but] there are many paths to get there,” he told the Royal Television Society annual convention in Cambridge. 

Exploring those roads may now be Dazn's best hope of rescuing its float ambitions and forging a secure path without Sir Leonard's millions. 

BT has spurned a deal with one of Britain’s richest men to pursue a sports partnership with Discovery, the US broadcaster behind Eurosport. 

The telecoms giant had been discussing a sale of BT Sport to Dazn, the sports streaming provider bankrolled by billionaire Sir Leonard Blavatnik, but is now in talks about creating a joint venture to combine the Premier League broadcaster with Eurosport UK and retain its sports broadcasting rights. 

A deal with Discovery would give BT Sport customers access to the US company’s content and Discovery+ app. 

Talks are expected to conclude in the first half of this year with a launch before Christmas, BT said. 

However, BT shares fell more than 4pc to 185.4p after it cut projections for annual revenues from flat to a 2pc fall, as supply chain disruption and the impact of the pandemic weighed on demand from its biggest business customers. 

On BT Sport, chief executive Philip Jansen said: “We had two very good external options, but in the final analysis it made sense for all our stakeholders and our customers to go down the route of a joint venture with Discovery.” 

Such a deal suggests BT could still shoulder significant costs of paying for sports rights. Sky, Amazon and BT agreed to roll over their £5bn Premier League live sport deal in May. 

Mr Jansen added: “It’s safe to say we wouldn't have [entered exclusive talks with Discovery] if it wasn’t improving the financial profile for both parties.” 

BT also revealed a new channel supply deal with Sky that stretched beyond 2030, in a further sign of easing competitive tension around sports rights. 

BT and Sky had fought a fierce and expensive battle for live sports rights before striking a channel sharing deal in 2017 that allowed both parties’ customers to gain access to each company’s live sport through pay TV packages. 

Meanwhile, BT’s revenues fell 2pc to £5.4bn during the three months to December, as its business-to-business and global IT services arms fell by 6pc and 4pc respectively. 

Mr Jansen said: “Everybody hoped the supply chain issues would resolve themselves quicker than they had. We managed it pretty well ... but in specific places, particularly in the large corporate areas, it’s been difficult to get hold of [equipment] from our suppliers because they are short from a chip shortage point of view and supply chain challenges.” 

BT is under pressure to deliver growth after Patrick Drahi, its biggest shareholder, increased his stake in December from 12pc to 18pc in a move that stoked speculation that he was preparing a takeover bid.

Profits for the period rose by 4pc to £1.9bn as BT benefited from higher sales linked to the roll out of faster full-fibre broadband. 

The company is spending £15bn on upgrading 25m homes and business to full-fibre by 2026 after Ofcom, the media regulator, provided a broadband pricing structure that handed it certainty to invest.

BT said the take-up of full-fibre that is replacing its older copper network had now accelerated to 1.5m homes and businesses. 

Its average full-fibre build rate reached 50,000 a week in the third quarter, meaning 6.5m premises, including 2m in rural areas, could now access the service. 

BT said its EE mobile network had 6.4m customers ready to access 5G, which now covered 40pc of the UK population. 

Meanwhile, Mr Jansen supported calls from rival Vodafone for greater consolidation to help improve low margins across the industry. 

“If you look across Europe, the telecoms market has been challenged,” Mr Jansen added. 

“So, my philosophy is exactly the same: there is no question that consolidation could help the industry to make sure there are more economic rational decisions made as huge capital investments are executed.” 

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