Sky shares leap after rugby rights revealed

SKY had a riproaring Monday. Its shares soared nearly 20% on news it had secured toptier rugby rights for another five years.

The deal came with an unexpected kicker: NZ Rugby was given a 5% stake in Sky — a clever move that tied the sporting body’s fortunes to those of the payTV broadcaster.

‘‘Spark Sport is effectively locked out of rugby,’’ declared Craigs analyst Adrian Allbon.

Mr Allbon could well be right.

But in a note yesterday, Morningstar Research analyst Brian Han saw several problems ahead for Sky — and streaming providers in general — that led him to downgrade his rating.

Mr Han said Morningstar had reduced its fair value estimate on Sky by 30% to $1.30 per share on higher content cost assumptions.

The analyst said it would have been ‘‘fatal to its intrinsic value’’ for Sky to lose Sanzaar rights (covering All Blacks, Super Rugby and Mitre 10 games through to 2026) on the heels of domestic cricket rights going to Spark.

He also gave Sky recognition for throwing in a 5% stake as part of the deal — a development, he said, that left the payTV broadcaster and NZ Rugby ‘‘tied at the hips’’.

Although Sky succeeded in keeping Sanzaar on board, it was at a price estimated at $400 million for the fiveyear contract as the cost swelled from about $70 million to $80 million per year.

Mr Han, like many analysts and pundits, was caught on the hop by Spark’s ‘‘aggression’’ as it made a successful play for domestic cricket rights.

He saw the telco making a grab for NRL and Olympic rights next which, at the very least, would drive up pricing.

‘‘Spark appears hellbent on dismantling Sky’s position as the ‘House of Sport’,’’ he said.

More probably, Mr Han saw consumer confusion as the market became more fragmented amid a move to a more streamingcentric market. ‘‘The likely confusion among consumers, having to choose between so many platforms to access different sports and programming, will impact all operators. But as the incumbent aggregator, Sky has the most to lose,’’ he said.

The Morningstar analyst focused on sport, but earlier the New Zealand Herald noted that Sky also faced challenges in the entertainment area from directtoconsumer streaming services such as Disney+ and HBO Max.

Disney is launching the $9.99 Disney+ in New Zealand next month, and Sky will shutter its two Disney channels at the same time.

In the US, Disney is set to bundle three streaming services — Disney+, ESPN+ and Hulu (a Netflix competitor in which Disney owns a 50% stake) for just $US12.99 per month — a development noted by Sky CEO Martin Stewart as his company recently revealed a massive fairvalue writedown.

Sky shares jumped 19% to $1.06 on Monday but the payTV provider was still down 50% for the year and yet to fully make up its dip after Spark claimed domestic cricket rights last week.

❛ Spark appears hellbent on dismantling Sky’s position as the ‘House of Sport’