How to profit from Murdoch's woes

The News of the World scandal has hit media share prices across the board. That throws up opportunities for spread betters to profit, says Tim Bennett. Here’s how.

Rupert Murdoch is a man who loves the limelight. But he won't be loving it just now. Speculation is rife about the impact of the News of The World hacking scandal on the global media mogul's empire. And for spread betters his discomfort presents opportunities to make money.

The BskyB share price

Last Friday BSkyB shares dropped 7.6%. Today they were down again. The reason is simple Murdoch's bid (via News Corp) to buy BskyB may now fail.

Even if the bid still succeeds (deputy Prime Minister Nick Clegg added his voice to the growing chorus demanding Murdoch pull the deal) there is much uncertainty over the price.

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A conventional reaction would be to short the stock in anticipation of more damage. This can be done via a spread bet easily enough.

However, as Goldman Sachs notes, although no-one knows quite where this deal will end up, "a 14% downward move in BskyB's share price in the last two days" is an "attractive entry point" for a company with "top quartile industry positioning and returns".

What's more, at the last glance the share price had fallen below the price Murdoch bid in June 2010 and it's a safe bet the wily Australian knows how to price a media business. So a contrarian (in news terms) might consider an upbet instead.

The media sector

True to form, the press is reacting to the latest news with pages and pages of editorial devoted to the death of the News of the World and speculation about the future facing UK media.

This has, unsurprisingly, hit media share prices the FTSE 350 media index was down 1.8% on the day at the time of writing. And specific media stocks, such as Pearson (LSE:PSON) were down too over 1% on the day in their case.

This sort of sector-wide panic presents more opportunities to place long bets (or even pairs trades long media and short say FTSE 100), But this type of punt is only for the brave. Sure, the future for media stocks is uncertain in the medium to long term but meantime short-term market overreactions to the current furore should present some profitable opportunities on the long side for those with a cool head.

As always with spread bets, stop losses are a good way to protect you should a bet backfire.

Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.