Bafin, the German financial regulator, has condemned Premiere AG (now Sky Deutschland) for reporting false subscriber figures in the years 2007 and 2008.
The Bundesanstalt für Finanzdienstleistungsaufsicht (Bafin) said that the premium TV operator reported at the end of 2007 623,000 more subscribers than it actually had. For the first six months of 2008, the company reported 611,000 too many.
The broadcaster has also failed to correctly identify the risks involved with acquiring the broadcast rights to the 2010 FIFA World Cup football games. The same goes for the risks involved with the acquisition of the Bundesliga football rights for the three seasons starting in 2009. Moreover, in the interim management report as at June 30, 2008 did not issue sufficient warnings to existing risks to their financial situation due to a short term threat of breach of loan conditions.
In a statement, Sky has published Bafin’s findings.
Information on the total compensation for the acquisition of the Bundesliga sublicense from Arena in 2007, consisting of payments in the amount of €335 million and 16.4 million shares, was not provided in the (consolidated) financial report for the financial year 2007.
Furthermore, risks in connection with the planned acquisition of the Bundesliga rights for the 2009/2010 to 2011/2012 seasons in 2008 were not adequately assessed and explained. It would have been necessary to report the possible consequences of failure on obtaining the rights or of a restriction of exclusivity of the Bundesliga rights with respect to the situation of the company in the (consolidated) financial report.
In the annual consolidated financial statement from 31 December 2007 and the half-year financial report from 30 June 2008, the value of the company assessed was too highly by €248.4 million and €251.9 million respectively.
The acquisition of the sublicense of the Bundesliga rights from Arena Sport Rechte und Marketing GmbH (‘Arena’), a subsidiary of Unitymedia GmbH, and the assets connected to the acquisition, as well as the taking over of the contracts and some employees, should not have been entered into the books by the company as a ‘business combination’ in the sense of IFRS 3.4.
In the half-year financial report from 30 June 2008, the profit position has been declared at an amount that is at least €10 million too high. In 2005, the company had obtained from FIFA a package of free- and pay-TV sports broadcast rights for the 2010 World Cup and in 2008, it resold a portion of the free-TV sports broadcast rights. Sky incorrectly allocated the acquisition costs to the free- and pay-TV sports broadcast rights, meaning that the share of the acquisition costs allocated as expenses compared to the reported revenue was too low.
The Bafin ruling opens the door for damages and claims from investors. In a statement, Sky said that “the findings of BaFin currently have no direct consequences on the balance sheet. Sky Deutschland AG considers the findings of BaFin to be inapplicable and will have the findings of BaFin legally reviewed.
“Should the findings of BaFin be final and conclusive, Sky Deutschland may have to correct its annual financial statements beginning in the financial year 2007. Furthermore, Sky may be subject to fines and damages may be claimed by third parties.”