Rs 30,000 crore—Will IPL media rights bid cross the magic number?
Competitive intensity, expansion of the tournament through two new teams, and the fact that it is the only profitable sports property will be key factors that will determine the value
The upcoming Indian Premier League (IPL) media rights auction has all the ingredients to be a blockbuster event. Indications are that the IPL media rights value for the next five-year cycle will reach a stratospheric level. The Board of Control for Cricket India (BCCI) is eyeing record revenue from the auction of IPL media rights towards the end of this year or early next year.
Some of the key factors that will determine the final value of the media rights include the competitive intensity, thanks to the entry of new players (Viacom18 and Amazon), expansion of the tournament through two new teams, and the fact that it is the only profitable sports property.
According to industry watchers, Star India earned an estimated Rs 2500 crore from IPL 2018 from ad and subscription across TV and digital. That figure will almost double to Rs 5200-5300 crore for IPL 2021. The ad revenue has been the biggest contributor to this growth. Star is widely expected to break even on its Rs 16,000+ crore investment on IPL and might end up with a small profit.
The value of the next five-year cycle of IPL media rights is projected to be anywhere between Rs 24,000 crore to Rs 40,000 crore depending on the bidding frenzy. Experts feel that Star India, Sony Pictures Networks India (SPNI), and Viacom18 with the backing of Reliance Industries are the three main contenders for the rights. Amazon, which has gone big on live sports globally, is also considering putting up a serious bid for IPL.
While the upcoming IPL media rights auction has success written all over it, the Board of Control for Cricket in India (BCCI) will have to come up with a well-thought-out plan to squeeze the maximum value from the property. For one, the BCCI will have to decide on the likely format that the IPL will follow from 2023. The increase in the number of matches due to the addition of two new teams has the potential to make or mar the success of the IPL media rights auction. While it will help BCCI earn more due to the increase in the number of games, broadcasters are wary of viewer fatigue which will disrupt all their calculations.
With the BCCI expected to follow a round-robin format involving 10 teams, the number of matches will jump by almost 50% to 94. Last time around, when the IPL was expanded to 10 teams and the number of matches increased to 74, there was a drop in viewership due to the presence of a lot of double-headers. The afternoon matches generally attract less viewership than the evening prime-time games.
Triplecom Media Founder and CEO Kunal Dasgupta says that the round-robin format wherein each team plays the other twice has worked well for the tournament. He further stated that the BCCI should consider splitting the IPL into two parts like it is happening this year albeit due to Covid-19.
"IPL media rights are valuable and will continue to be valuable but the biggest issue right now is that they are adding two new teams and the last time they added two new teams and the number of matches went up, the ratings fell. It won't be as lucrative if that happens because there is viewer fatigue if the tournament is too long," he asserted.
Dasgupta also opines that dividing teams into two groups will help reduce the number of matches to 74 but it will also kill the excitement of the tournament. "I don't think dividing 10 teams into two groups is exciting because some players or teams may not play each other at all. I would prefer to go for the full 94 matches but like it happened this year by accident due to Covid-19, I would like to see them break IPL into two seasons. 47 matches in March-April and the balance 47 matches in September. Then the value will shoot up like anything. The BCCI will be smart if they think of it this way," he avers.
He also suggests that the BCCI should consider splitting TV and digital rights and giving them to different parties rather than giving consolidated rights to a single party. He noted that splitting the TV and digital rights is necessary if the BCCI wants to avoid even a distinct possibility of IPL going off the TV in case a digital player walks away with the consolidated rights.
"The IPL media rights will be hotly contested but if it goes off the TV by any chance because some online bidder has made a bigger bid then that will be a huge loss for BCCI. If IPL is not on TV for five years then that will be tantamount to killing it," Dasgupta stated. "To overcome such a situation, the BCCI should segregate TV and digital rights, otherwise, the true value of both the rights will not get discovered. Some digital players might want to spend a lot but they don't have broadcast. By forcing someone to take both TV and digital rights is like creating a situation where the monetisation will become difficult and unmanageable for any one company."
The veteran media executive also says that the IPL media rights might jump to Rs 24,000 crore over the current value of Rs 16,347.5 crore just based on a 50% increase in matches. "I am expecting that against the Rs 16,000 crore that Star bid, simply by 50% increase in matches, it goes up to Rs 24,000 crore. I don't think a single company can bid that much on its own. And this doesn't factor in the bidding intensity. To get an increase, BCCI will have to split it in such a way that the base price for TV is Rs 16,000 crore and for digital it should be Rs 10,000 crore," Dasgupta notes.
A senior media executive, on condition of anonymity, says that the IPL's biggest draw is that it has been a profitable property for both Sony and Star. When Star acquired the IPL media rights for a whopping Rs 16,347.5 crore, it was widely believed that the broadcaster will not be able to recoup its investment let alone make a profit. Four years down the line, the broadcaster has proven naysayers wrong.
"IPL will certainly see an increase because it is a profitable property and also the number of games is going up. It needs to be seen if more evening games go up or will it be more doubleheaders. If it's the latter, then it makes it much more difficult. The other crucial part is what comes first, IPL or ICC. If ICC rights come up before IPL then ICC will do well. If ICC comes after IPL or BCCI then it will be much more difficult for it to make that sort of money because ICC is a loss-making property. When the bids for ICC had happened in 2015, the New Tariff Order (NTO) was not there so the view was that there will be enough and more distribution revenue coming in. ICC as a property got jacked because of underwhelming subscription monetisation. BCCI media rights are good to have because of the spread of matches," the executive says.
He also says that the IPL media rights value will be Rs 25,000 crore at the minimum level. It has the potential to touch Rs 40,000 crore since it is a great property from monetisation point of view. "Star is paying Rs 16,347.5 crore based on 60 matches. The next season will be at least 94 games because two teams are being added. On a like-to-like basis, the 94 match format itself will fetch Rs 25,000 crore to the BCCI. The fact that Star made money on it, even on that basis, the IPL media rights value will cross Rs 35,000-40,000 crore."
Concurring with Dasgupta, the executive says that splitting IPL into two parts will be the best decision in the larger interest of the league. "If BCCI tries to squeeze the expanded IPL into the same number of days which means that there are more afternoon games, then the value will drop. If the BCCI does it slightly differently and they were to increase the number of days, keeping the percentage of games the same, then it can still have a very different play. Splitting IPL into two will be a game-changer with the first half taking place in March-April and the other half being held in September-October. But it needs to be seen if ICC will allow that because all the ICC tournaments are scheduled in October from 2024 onwards."
According to a source in the ICC, the BCCI will have to tread carefully as far as scheduling of the IPL is concerned since the window to accommodate so many games is not there. "The value of the IPL rights will be determined based on the format, the competitive intensity, and how each of the interested parties looks at the property. If the current format is applied to 10 teams then the matches go up to 94 which is an over 50% increase in the number of games. The last time when the IPL was played with 10 teams, there was a drop in viewership. Plus, it will be difficult to accommodate an expanded IPL in the FTP," he adds.
The source also says that Reliance, Amazon, or Facebook will have a different outlook towards IPL compared to a Star or a Sony. "Currently, there are four serious contenders for IPL media rights, Star and Sony, who have experience in monetising the property besides Reliance-backed Viacom18 and Amazon. Facebook's entry cannot be ruled out. However, IPL requires a substantial investment and it needs to be seen how far these players are willing to go to acquire it. That said, for first-time players like Reliance and Amazon, the IPL investment will be like a new business investment and they might not look at it from a purely profit/loss point of view. For Amazon, IPL will be used to grow its Prime subscription business and the e-commerce business. Reliance will try to use IPL for its telecom business, which is all about data consumption."
ITW Consulting MD Bhairav Shanth says that IPL has the potential to become one of the costliest properties on a per-game basis if the media rights value were to double. "If the media rights value jumps about 100% in the next cycle from what it was when Star acquired it, IPL becomes the most expensive broadcast rights per game and it will beat the NFL on a per-game basis. Today, IPL is fifth most expensive on a per match basis. Now, if the NFL has a certain value and IPL beats it then where is the commerce?" he states.
He also feels that the IPL rights holder will have to look at new revenue streams to make it viable. "I don't know how anyone will make a business out of it - the ad rates required to recoup such monies would have to be impossibly high. It can be a portfolio hold if I am a big company and I can absorb losses. If someone wants to make a profit then it will not happen at that level unless something changes drastically. If AR/VR kicks off and a new revenue stream comes then that will be a different game. The Rs 40,000-50,000 crore that people are guessing will not happen unless there are new revenue streams."
Shanth feels that sports broadcasters are already reeling under losses and will not have the appetite to absorb more losses. Moreover, the sports broadcasters will also need a portfolio of properties to build their sports business. "If you add the 14 extra matches (for an expanded IPL), the rights value will be at approximately Rs 20,000 crore because the 74 matches will have to be taken into consideration at last time par value. If we are talking about a bid of $5 billion (Rs 35,000+ crore), then we will also need to factor in issues like viewer fatigue due to growth in the number of games. Star has stretched itself in terms of monetisation. Going forward, that elasticity may not be there. Between the 11th and 15th years, monetisation jumped due to programming, expansion in languages, better penetration, and the way they sold it. But ultimately, how do you grow it significantly to narrow the losses or make some profit."
A senior sports media executive says that the only way for IPL media rights is up. The ultimate value will be determined by the extent of bidding. "How crazy the bidding is and how much higher can it go will depend on 2-3 things. Is Reliance/Viacom18 serious, and how serious are they? A lot depends on whether it is bidding between two people, three people, or four people. If it is a Star vs Sony game, then it will go up but how much it will go up one doesn't know, but it will not go to an irrational level because Star and Sony know the potential of the property. Both of them will be aggressive but not crazy," he added.
He also says that the e-auction of IPL media rights on the lines of BCCI media rights e-auction will also add to the inflation. "BCCI is expected to do e-auction of IPL media rights. That will put pressure on all the players to keep increasing their bids. It will become an aggressive thing if Viacom18 is there in the picture. Another important factor is Amazon. Nobody knows what they will do. The addition of two new teams and the format of the league will decide the value of the IPL media rights. Dividing teams into two groups is not exciting because all teams will not be able to play with each other twice."
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