IPL: Dynamics of the ever-rising media rights value
When broadcasters splurge massive sums to land the Indian Premier League property, they will be aiming to achieve much more than mere Return on Investment
Talking up valuations ahead of expensive media rights offerings in sport is common practice. Former IPL chairman Lalit Modi, away from it all for more than a decade, still does it on twitter predicting a $ 8-10 billion bonanza—collective base price is $ 4.35 billion. Those who have to loosen their purse strings sing a different tune. NP Singh, Sony’s MD, recently questioned BCCI’s aggressive reserve pricing.
With each player trying to second guess the other’s strategy, no one really knows where the bidding will finally stop in Sunday’s e-auction, and whether the numbers will indeed be astronomical. What is certain is investing in India’s biggest sporting property isn’t going to be a mere Return on Investment (ROI) chase. Recovering humungous costs only through advertising revenue is virtually impossible. So, what’s in it for the sports broadcasters that drives up the price?
IPLs EARLY DAYS
A bit of historical context here. When Sony became the first IPL rights holders in 2008, no one knew the real worth of the property. Thiers was the only eligible bid. Courtesy WSG-Sony’s $ 1.026bn bid, IPL was hailed as Indian cricket’s billion-dollar baby. But even at dollar rates of the time, to get IPL for ₹400 crore-a-year was a steal. “We started selling a 10-second IPL ad spot for ₹1.16 lakh. If you would have asked me 15 years ago if the market would be 1500% of that, my answer would have been no,” said veteran adman Sandeep Goyal.
As per BCCI’s internal notes, the inaugural year’s ratings were so good “IPL became the highest rated program on television during the entire season”. The opportunity to revalue the deal came next year with BCCI terminating Sony’s contract, questioning the quality of broadcast. Sony stayed on, agreeing to pay over ₹900 crore-a-year for nine years as per the revised deal. “Even though IPL 2.0 was outside India (South Africa), we still increased our viewership by 20%,” read a BCCI meeting note.
Sony, who were primarily an entertainment destination, opened a full-fledged sports network, took over Ten Sports, did bundling of its TV channels and profited on the back of rising IPL viewership.
Enter Star in 2017-18 through their consolidated bid (TV + digital) of ₹3270 crore-a-year. With the TV ad rates around ₹7-8 lakh (per 10 secs) for the first two years, Star’s annual revenue shortfall was reportedly around ₹1,000 crore. Now, ad rates are up to ₹15-18 lakh and Star is believed to have more or less recovered costs. “What Star also managed was to monopolise their hold over Indian cricket. Whenever and wherever India played, whether it was in World Cups, bilaterals in India or IPL, the action was on Star,” said a leading industry voice. “Sony had to make do with India in England or Australia, where the time zones are not ideal.”
Besides, Star’s digital acquisition of IPL coincided with the launch of Jio and cheap internet in India. Hotstar, which employs a hybrid advertising and subscription model, has crossed the 50-million subscriber mark in India, primarily as IPL’s digital destination.
AD RATES
TV rights are expected to continue to outdo digital in the coming 5 years. The reserve price that many find steep is ₹49 crore per match in TV category, which translates to ₹18,130 crore, already over the collective (TV + digital) current value. Do we see ad rates doubling in the next cycle? “Not overnight,” says Goyal. “But in five years, the cost of the ad spot will be three times. Look at the other options for advertisers. There’s no India-Pakistan cricket. India Test matches and bilateral spots are not comparable. The only other time prices are comparative is for ICC tournaments. That too depends on India’s performance. If India loses, the remnant inventory has no takers. Only IPL has a concentrated window and a committed loyal viewership.”
Says an industry voice, “Don’t forget the patronage IPL brings. The inventory that needs to be sold for the rest of the year is done at the wining and dining at the IPL.”
CAUTIONARY NOTE
But holding a more pragmatic opinion is N Santosh, Managing Partner, D & P Advisory, who has worked on multiple IPL research papers for Duff and Phelps. “We called the last rights value right where we predicted ₹50-55 crore per match value and it ended up being ₹54.5. During our last analysis in 2020, we had assumed ₹80-90 crore per match valuation in the coming five years. I think the base price is slightly stretched (approx. ₹89 crore for all bundles). The actual bid price may not be significantly more than the base price.
“In the last few years, the ad revenues went up because the new age ed-tech and food-tech companies were the big spenders. Whether it is Byju’s, Paytm, Zomato, Swiggy, the well-funded unicorns. In the current market scenario, with cash drying up, valuations getting corrected, funding getting tougher, it will be interesting to see if these companies will be willing to shell out the same money.”
Then again, if Reliance-owned Viacom 18 has made up their mind to acquire IPL rights at any cost or if Jeff Bezos is eying the Indian market for Amazon ahead of the 5G rollout, possibilities of leveraging digital rights are plenty. It will be all about going for glory, not ROI.