Business or Politics: Why did vivo retire hurt in IPL again?

While some industry experts say it could be political posturing due to upcoming state polls, others talk about vivo’s dwindling business or poor ROI that forced it to exit as IPL’s title sponsor again

e4m by exchange4media Staff
Published: Jan 12, 2022 9:13 AM  | 6 min read

vivo, which commands the third-highest share of India’s smartphone market, has pulled out as the Indian Premier League's (IPL) title sponsor for the second time in 17 months. The Chinese smartphone maker has transferred the title sponsor rights to the Tata Group, which will remain IPL's main sponsor for the 2022 and 2023 seasons. The tournament will now be called Tata IPL.

BCCI and vivo have parted ways mutually, ending the five-year sponsorship agreement that was scheduled to end in 2023. What made vivo to arrive at this decision? While some cite poor returns on investment, others have spoken about the political pressure due to the anti-China sentiment.  

Poor ROI?

vivo first exited the IPL in 2020 due to issues related to discount on sponsorship fee and the India-China standoff, only to return in 2021.

This time, the Chinese brand has reportedly exited IPL due to poor ROIs and a multi-agency probe launched by India over alleged tax evasion and manipulated financial books.

vivo posted its highest-ever loss of Rs 349 crore in FY20 despite a 45 per cent jump in revenue.

Both vivo and Oppo along with OnePlus and Realme are owned by China’s BBK group.

IPL sponsors have been known to make significant gains in terms of direct increase in several metrics. This is also why the cricketing extravaganza is one of the most sought-after events for advertisers.

However, vivo has been slashing its media budgets due to anti-China sentiments and its dwindling profits.

According to financial data accessed by business intelligence platform Tofler, vivo Mobile India had reduced its ad spends by 11.72% to Rs 1133.71 crore in FY20 from Rs 1284.3 crore in FY19. The company's revenue from operations had jumped to Rs 25060.9 crore from Rs 17201.7 crore a year ago.

“In 2021, vivo must have spent close to Rs 100 crore,” media planners told exchange4media.

“The cost of the IPL association is extremely high and not sustainable if brands don't have a good position in the market. The mobile handset manufacturer's sales have also gone down. It is only fair that Vivo walked out,” a media planner said.

The company did not issue any statement on the development and instead tweeted about its new phone models on Tuesday.

Political pressure?

The India-China border issue has flared up again ahead of elections in five states, including the most politically significant state Uttar Pradesh. There are reports of the Chinese army’s incursion in Arunachal Pradesh and the Galwan Valley once again, although the government has neither denied nor confirmed these developments.

These issues have led to negative campaigns against the Chinese companies for the last couple of years.

“For vivo, it is a serious setback. It only strengthens the whole sentiment around China but maybe it is the best solution for the BCCI now,” said Sandeep Goyal, MD of Rediffusion.

Veteran ad man and Director Strategy, Asian Federation of Advertising Associations (AFAA), Ramesh Narayan, says: Cricket is almost a religion in India. So, what works for vivo in the product market might not work for it in a game like cricket. Here, the spirit of nationalism flies high even in a tournament like the IPL. The cross-border relations are at a pretty low ebb these days and with several states being poll-bound, the issue is likely to be raked up even more. Probably, vivo decided that this is not the right time to invest a huge sum of money in an activity like cricket. Sometimes it makes sense to lie low for a while.”

Another ad industry veteran told e4m on the condition of anonymity, “Nationalism has been the ruling party BJP’s main poll propaganda and anti-China and anti-Pakistan sentiments often do wonders for the party during the elections. Since the BCCI board includes several politicians, the possibility of political pressure on the Chinese smartphone makers can’t be ruled out.”

Earlier in 2019, Byju’s had replaced another Chinese phone maker Oppo again for the IPL sponsorship.

Probe into financial irregularities

Chinese phone companies Xiaomi, Oppo and Vivo are facing investigation over alleged “lapses and discrepancies” in their tax filings and business practices over the last few years.  While Xiaomi is the top-most brand with a 27 per cent share, Vivo and Oppo are among the top five.

These phone makers reportedly have been showing financial losses in their India operations to avoid taxes, the data submitted at the Registrar of Companies (RoC) say. Although they have occupied top slots in the smartphone segment.

As per the statutory filings at RoC, in FY 2017-18, Vivo India reported a total income of Rs 11,100 crore against a total expenditure of Rs 11,216 crore, a TOI news report based on RoC figures.

In 2018-19, Vivo’s income increased to Rs 17,377 crore, but the expenditure was almost equal at Rs 17,329 crore. In 2019-20, its income jumped to Rs 25,124 crore, but the expenditure was higher at Rs 25,472 crore.

Windfall gain for BCCI

While Vivo will have to pay Rs 450 crore as exit fee, the BCCI is expected to earn more than what it would have earned from the brand’s deal in the next two years.

According to media reports, Tatas have committed to pay Rs 670 crore for the two-year sponsorship deal. Further, Vivo will pay Rs 454 crore to the BCCI for termination of contract. Thus, the BCCI will end up earning Rs 1124 crore over the 2022 and 2023 editions. Comparatively, BCCI would have earned Rs 996 crore (Rs 484 crore in 2022 and Rs 512 crore in 2023) from Vivo over the next two editions which is Rs 128 crore less than what is slated to earn in the next two seasons.

After the latest transfer of sponsorship, Tata has now offered to pay Rs 335 crore per season as rights fee for two years. This takes the BCCI’s earnings over these two seasons to Rs 1,124 crore.

Sharing more insights into Vivo’s exit, a highly placed source said: “Vivo was trying hard to opt out of the IPL for the last six months. Insiders say it had got two offers in 2021 - Rs 950 crore from Unacademy and Rs 750 crore from Dream11. However, both fell short of its expectations and liability to the BCCI (Rs 1,000 crore). 

Ironically, Vivo has also been sponsoring another premium sports property the Pro-Kabaddi League.

With inputs from Kanchan Srivastava and Sonam Saini.

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