Dynamics of the ever-rising IPL media rights valuation

When broadcasters splurge massive sums to land the IPL rights, they will be aiming to get more than mere return on investment

MUMBAI: 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 t he 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 humongous costs only through advertising revenue is virtually impossible. So, what’s in it for the sports broadcasters that drives up the price?

IPL’S 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. Theirs was the only eligible bid. Courtesy Wsg-sony’s $1.026billion 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 first year’s ratings were so good “IPL became the highest rated programme on TV during the entire season”. Next year BCCI revalued the deal, terminating Sony’s contract, questioning the broadcast quality. Sony stayed on, agreeing to pay over ₹900 crore-a-year for nine years in the revised deal. “Even though IPL 2.0 was outside India (South Africa), we still increased our viewership by 20%,” a BCCI note said.

Sony, primarily an entertainment destination, opened a fullfledged sports network, took over Ten Sports, did bundling of its TV channels and profited on IPL’S rising 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 ₹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. Besides, Star’s digital acquisition of IPL coincided with the launch of Jio and cheap internet. Hotstar, which employs a hybrid advertising and subscription model, has crossed the 50-million subscriber mark in India, primarily as IPL’S digital destination.

TV rights are expected to continue to outdo digital in the next five 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 Tests and bilateral spots are not comparable. The only other time prices that are comparative is for ICC events. That too depends on India’s performance. Only IPL has a concentrated window, loyal viewership.”

Cautionary note

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/match and it ended up being ₹54.5 crore. In our last analysis in 2020, we had assumed ₹80-90 crore/match valuation in the next 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 wellfunded 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 pushes 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.

IPL held a mock e-auction for bidders on Monday--viacom 18, Amazon, Star, Zee, Sony, Google, Sky Sports, Fancode, MX Player and Super Sport.