Skip to main content

Premier League TV rights: Winners curse?

The wait is final over to discover who will broadcasting Premier League football from 2016 onwards. There is no surprise this time in the successful bidders - Sky and BT. But there is surprise at the price they have paid - a huge £5.1 billion. That equates to over £10 million per game. This figure is 70% up on last time and above all analyst forecasts. Surely it is time to talk of the winners curse?
        The winners curse is the idea that a winner of an auction may well end up losing money. The intuition is simple enough in that the winner of an auction is likely to be the most optimistic as to how much the prize is worth; that optimism may be misplaced. In the past, TV rights have provided some textbook examples of the winners curse. So, do we have another example?
        One reason to doubt Sky and BT have overbid is the fact they know pretty well what they are bidding for. The winners curse is most likely to occur when the value of the prize is highly uncertain. But Sky have been broadcasting the Premier League for decades and so they surely know what they are doing. Moreover, football rights have come to be central to both Sky and BT's business plan. So, they may well be content to make a loss on football in order to protect their general image as top broadcasters.
        Even so, the latest numbers are shockingly high. It seems that Sky and BT are not so much betting that football fans will continue to pay huge amounts to watch football but that they will pay ever increasing amounts of money to watch football. That seems a dangerous presumption. The football market is already saturated with fans disgruntled at the cost of it all. Can they continue to pay more? I do not think so. Will Russian oligarchs and Arab sheiks continue to plough money into the Premier League? Who knows.
       So, what if Sky and BT have paid too much? Then, I'm afraid, the bubble may well burst. Since its inception the Premier League has hugely distorted the football market in the UK. And the Premier League also appears of the mind-set that ever increasing amounts of money can be expected. Take away the money and the whole thing might collapse. I think, therefore, that it is the Premier League who are taking a big risk by extracting so much money from Sky and BT. Sky and BT will survive the loss of £5.1 billion; I'm not sure the Premier League could!  
          
         

Comments

Post a Comment

Popular posts from this blog

Revealed preference, WARP, SARP and GARP

The basic idea behind revealed preference is incredibly simple: we try to infer something useful about a person's preferences by observing the choices they make. The topic, however, confuses many a student and academic alike, particularly when we get on to WARP, SARP and GARP. So, let us see if we can make some sense of it all.           In trying to explain revealed preference I want to draw on a  study  by James Andreoni and John Miller published in Econometrica . They look at people's willingness to share money with another person. Specifically subjects were given questions like:  Q1. Divide 60 tokens: Hold _____ at $1 each and Pass _____ at $1 each.  In this case there were 60 tokens to split and each token was worth $1. So, for example, if they held 40 tokens and passed 20 then they would get $40 and the other person $20. Consider another question: Q2. D...
Post a Comment
Read more

Nash bargaining solution

Following the tragic death of John Nash in May I thought it would be good to explain some of his main contributions to game theory. Where better to start than the Nash bargaining solution. This is surely one of the most beautiful results in game theory and was completely unprecedented. All the more remarkable that Nash came up with the idea at the start of his graduate studies!          The Nash solution is a 'solution' to a two-person bargaining problem . To illustrate, suppose we have Adam and Beth bargaining over how to split some surplus. If they fail to reach agreement they get payoffs €a and €b respectively. The pair (a, b) is called the disagreement point . If they agree then they can achieve any pair of payoffs within some set F of feasible payoff points . I'll give some examples later. For the problem to be interesting we need there to be some point (A, B) in F such that A > a and B > b. In...
Post a Comment
Read more

Prisoners dilemma or stag hunt

Over Christmas I had chance to read The Stag Hunt and the Evolution of Social Structure by Brian Skyrms. A nice read, very interesting and thought provoking. There’s a couple of things in the book that prompt further discussion. The one I want to focus on in this post is the distinction between the stag hunt game and the prisoners dilemma game.    To be sure what we are talking about, here is a specific version of both type of game. Adam and Eve independently need to decide whether to cooperate or defect. The payoff matrix details their payoff for any combination of choices, where the first number is the payoff of Adam and the second number the payoff of Eve. For example, in the Prisoners Dilemma, if Adam cooperates and Eve defects then Adam gets 65 and Eve gets 165. Prisoners Dilemma Eve Cooperate Defect Adam Cooperate 140, 140 65, 165 Defect 165,...
Post a Comment
Read more