Star’s big bet on cricket defies financial logic

Six months ago, Star India bagged the consolidated media rights bid for IPL at a humongous price of Rs 16,347.5 crore (US $2.55 billion) for a period of five years. On April 5, Star India once again made an aggressive bid to acquire BCCI media rights for a period of five years at a whopping price of Rs 6,138.1 crore (US $944 million). On both occasions, Sony was the closest and equally aggressive second bidder. BCCI and IPL rights will give Star India complete monopoly over cricket coverage in India for the next five years. Additionally, Star also holds the rights of ICC tournaments and cricket played in New Zealand. That’s lot of cricketing action in Star’s kitty which will make Star the undisputed leader in cricket on TV and in digital space.

But, it’s not all that simple as it sounds when you look at it from business point of view, because the bids Star has made for acquiring IPL and BCCI media rights will require an elaborate and equally aggressive media plan to recover the investment. While the cash rich BCCI, the richest cricket administrator in the world, has not only got a huge premium for its prime property IPL, BCCI has also struck gold in the case of media rights for international matches in India at a per match price that’s higher than the IPL. This makes Star India’s task of getting its money back a real big challenge, if not entirely implausible.

Of the 180 days of cricket, which has commercial potential for the broadcaster, IPL is a high impact show, followed by T20 bilateral matches, one-day internationals (ODIs) and, finally, the Test matches which report low viewership. Over the next five years, apart from 300 IPL matches, India will play 102 bilateral games: 22 Tests, 42 ODIs and 38 T20 internationals. In the earlier five-year cycle, Star paid Rs 43 crore to BCCI for every international match played in India. Under the latest deal, the average per match payout to BCCI will be Rs 60.18 crore. For IPL, Star will pay Rs 54.49 crore per match; earlier Sony paid roughly Rs Rs. 13.7 crore per match for TV rights. Thus, over the next five years, Star will pay Rs 22,485.60 crore to BCCI for both IPL and BCCI bilateral international cricket. This works out to Rs 4,497.12 crore per year.

If this sounds highly ambitious investment on a single sport, even after taking into account huge fan following for the game in the subcontinent, it is also fraught with great risk. A payout of Rs 4,497.12 crore per year to BCCI means that Star India will have to earn more than Rs 4,500 crore each year from TV and digital rights for the next five years to break even. Does it sound improbable? It does. But Star India chairman Uday Shankar sounds confident when he says “Star is a professionally managed media company which prides itself in financial discipline.” He has also claimed that the current season of IPL will deliver Rs 2,000 crore in revenue from TV and digital advertising alone.

Among the three areas of revenue streams, TV advertising is the biggest, followed by subscription from cable and DTH operations and digital (advertising and subscription). Television viewership is still growing in India though growth has slowed down in recent years as deeper penetration of cable and DTH networks has ensured that most of the uncovered and under-serviced semi-rural and rural areas have largely been covered by now. Same applies to subscription revenue. But digital space is a relatively new revenue stream which has lot of growth potential, though digital advertising revenue is not comparable with TV advertising.

While the annual growth in television advertising is about 10 to 12 per cent, growth in TV subscription industry is about 8 to 10 per cent. This works out to around Rs 3,000 to 3,500 crore of additional revenue from TV advertising and subscription for the industry as a whole. As one of the leading TV networks and content creators in India, Star is also one of the leading destinations for TV content consumption. Hence, it is safe to assume that a decent share of additional revenue from yearly growth in TV advertising and subscription will flow into Star India’s kitty. However, Star has paid 158 per cent premium over the previous cycle for IPL and 60 per cent premium for bilateral international cricket over the earlier five-year cycle. Cleary, Star India has paid much more than the growth potentials of the two major revenue streams, though digital is not expected to disappoint.

In India, cricket defies logic and Star’s astronomical bids appear to defy financial logic. Two reasons seem plausible behind Star’s aggressive bids: one, nullify competition by establishing monopoly over cricket content, and two, use cricket for brand building and future growth. It is true that cricket delivers viewership. It also enhances the stature of a network, helps the network grow by getting in new consumers. However, at the end of the day, price does matter and Star may find it challenging to monetise its investment, at least in the first couple of years. What also makes Star’s task even more difficult is the short five-year period for both IPL and bilateral India cricket, unlike the 10-year advantage that Sony enjoyed for IPL in the previous cycle.

Cricket may or may not deliver what Star is hoping for, but it has delivered a massive bounty for BCCI which however, delivers little when it comes to administering the game in a fair and transparent manner. Nearly two years after the Supreme Court order to BCCI to set its house in order and implement reforms suggested by the Lodha committee, there is little progress in the matter. If Star has a definite plan to monetise its investment, there is no clue how BCCI will utilise the big bucks to revitalise domestic cricket. With focus shifting to IPL and international cricket, nobody talks about setting right the domestic cricket set up. IPL, for instance, is only club cricket. There is no reason why it should get more importance and attention from players and administrators than first-class cricket which is the main training ground and only source of cricketing talent in India for all its international fixtures besides a jamboree called the IPL.

The writer is an independent senior journalist.