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Sky Television shares rocket as New Zealand Rugby scores 5% stake

If you want to be a successful subscription-based sports broadcaster in New Zealand you better have exclusive rights to All Blacks and Super Rugby games according to share market investors.

This morning the Sky Network Television Limited (ASX: SKT) (NZX: SKT) share price is up 20% after it announced it has secured rugby union broadcast rights out to 2025 with New Zealand Rugby even offered a 5% equity stake in the broadcaster. 

The market is cheering the deal as if New Zealand Rugby owns a serious financial interest in Sky (around NZ$21 million based on Sky’s approximate NZ$425 million market cap) then the two bodies’ interests are aligned as to what media organisation has broadcast rights beyond 2025. 

Sky will broadcast the rugby on both its paid subscription premium sports channels and free-to-air New Zealand channel Prime. 

The announcement did not disclose either how much Sky has paid in total to secure the rights, or how much NZ Rugby will effectively pay per share for the 21.8 million shares to be issued as part of the deal.

The deal was potentially agreed with Sky offering the equity stake in lieu of cash that can be freed up for other investments or simply serve to lift the bottom line in FY 2020 and beyond. 

Sky expects to provide updated earnings guidance at its February 2020 interim profit report. 

The stock rocketed this morning, but is still down around 45% over the past year as the business struggles against overseas streaming services that contributed to Sky’s subscription revenues and subscribers falling over the year to 30 June 2019. 

This resulted in the company scrapping the dividend that heaped even more pressure on the stock.

In Australia media companies like Nine Entertainment Co Holdings Ltd (ASX: NEC) and News Corp (ASX: NWS) are also investing heavily in digital classifieds and streaming services.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has recommended Nine Entertainment Co. Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.