The math behind IPL’s big-ticket media rights auction

The monetization process of cricket has been a big story in the game for many years. For about a quarter of a century, segments such as broadcast rights and player endorsements, among others, have seen a lot of money pouring in. But nothing comes close to the Indian Premier League (IPL), a tournament that took shape in 2008 with the goal of fast-paced play and lots of fun. At 20 overs per team, it was possible to host two games a day in different venues without any time overlap. Be it players, team owners or advertisers, it was a great deal for everyone.

It has been proven time and time again that the IPL is in the league of major international sporting events today, and the recent media rights auction reiterated that. However, the acquisition of the media rights – the basic television and digital deals for the Indian subcontinent – for Rs 44,075 crore over a period of five years surprised people for the magnitude of the amount as much as it has on how it might be recovered. Additionally, the amount spit out for digital rights (see chart) means that this is as critical a property as television and over time should continue to grow on a broader basis.

While Disney Star won the TV rights for the Indian subcontinent, Viacom18 won the digital rights for the subcontinent. Viacom18 has also picked up the non-exclusive digital rights for India (which gives it access to a selection of matches over the five-year period) for Rs 3,258 crore. And Times Internet and Viacom18 won TV and digital rights for the rest of the world for a sum of Rs 1,058 crore.

Between Disney Star, Viacom18 and Times Internet, spending was 3 times what was paid in 2017. The then Star India (Disney acquired it globally in 2018) spent 4 times more than which Sony did in 2008. Although no official figures are available, it is gathered from industry sources that Disney has recouped its investment, but not with a significant return. In this scenario, for the bidding numbers to take off strongly, the winners think there is plenty of gas left in cricket even at this price.

In terms of the math for TV, revenue comes primarily from advertising, followed by subscriptions. The 2022 IPL season, which saw the Gujarat Titans win the title for the first time, saw a 10-second commercial, on average, sold for Rs 14-15 lakh. In total, Disney Star generated around Rs 3,000 crore in advertising revenue supplemented by another Rs 800 crore from Hotstar, its OTT platform. Subscription revenue for a specific tournament is difficult to estimate. To recoup the acquisition cost of Rs 23,575 crore, Disney needs to price its 10-second commercial at Rs 19 lakh, an increase of 27%. In a market where it is widely believed that the rates for cricket television commercials have almost hit the ceiling, this seems difficult.

The catch is that the digital rights aren’t with Disney and that heavily precludes them from selling it as a bundle. According to Karan Taurani, senior vice president at Elara Capital, key advertising sectors such as e-commerce, consumer packaged goods, automotive and banking dominate the overall TV and digital advertising pie at around 60%. “However, in the event that the IPL rights are sold separately, we expect fierce competition within TV and digital platforms for advertising budgets. We expect certain verticals like fintech, commerce, edtech and the EV [electric vehicles] to see a rapid shift to digital, as FMCG and automotive will continue to rely heavily on TV for their mass campaigns,” he says.

The digital recovery process is driven by the number of impressions and advertisers base their decision on that. If the price paid for TV by Disney Star was high, the Viacom18 output for digital is even more expensive. This is more than 5 times what Facebook offered (3,900 crore rupees) as the highest bid in 2017. The total size of the digital advertising market is around 30,000 crore rupees and Viacom18 will have to capture some at least 14% (at current industry size), for which it will face Google and YouTube.

Obviously, Viacom18 is looking beyond the IPL. Balu Nayar, former managing director of IMG and key architect of IPL, says its parent company, Reliance Industries, is in a unique position vis-à-vis other bidders because of its telecommunications business. “So digital in their case doesn’t just mean OTT and a pathway to build Voot (their streaming platform), but more importantly, a way to power Reliance Jio subscriptions. These rights provide an opportunity to significantly increase Jio’s market share through bundling strategies,” he said. For him, these rights give Viacom18 a greater ability to create value than other bidders. “Obviously it would have been more powerful if they had gotten the TV rights as well,” he says.

Speaking of Hotstar, Taurani argues that as a platform it will become much smaller and “a bit above other broadcasters’ OTT apps”. Its share of the subscription video-on-demand market, 25% today, he says, will experience a sharp decline, with a potential switch to the Voot or Jio platforms. “Their subscriber base will also shrink by at least 40-50% with the disappearance of IPL. If they don’t win other cricket properties, that could drop by more than 70% in the medium term.

Not only is the IPL the most expensive proposition to advertise, but it also sets the tone for the BCCI and ICC rights which will be auctioned over the next few months. At IPL’s current acquisition costs, Elara’s Taurani expects TV to reach profitability in year two, while for digital it will be in year four. The extent of the impact of this year’s edition in terms of reduced viewership is not yet clear. For now, the cricket obsession is driving the revenue model.

@krishnagopalan

Herman C. Harkins