“Astronomical”, “whopping” and “staggering” were some of the words used to describe Star Group’s consolidated global bid of $2.55 billion for the media rights of the Indian premier League (IPL). Several newspapers described it as the “costliest” cricket property in the world.
It seems to be an opportune time to look at the truth behind the numbers, and answer a few relevant questions. Was Star’s “all or nothing” bidding strategy exceptionally brilliant or extremely stupid? Does the seemingly-high price reflect the enormous and growing valuation of the IPL? Are IPL’s media rights costlier than those for the Indian national team?
The Board of Control for Cricket in India (BCCI) allowed two kinds of bids – a consolidated global bid for the seven rights, including TV and digital, through a consortium, or individual bids for the specific rights. For example, a company could bid for the TV rights for the sub-continent only or only for the ‘Rest of the World’. Another could bid for two, three or four of the seven rights. A fourth could bid for all the seven rights separately. A fifth could do this, and also put in a consolidated global bid through a consortium.
From the information that’s available, Star was the only bidder to exercise the last option – a consolidated bid and separate bids for the seven rights. The others chose to focus on specific rights based on their strengths. Sony, which held the IPL TV rights for the first 10 years (2008-2017), put almost all its budgeted payment – over 99 per cent -- on the TV rights for the sub-continent. Facebook, Airtel and Reliance Jio had huge, but single, bids each for the digital rights.
The second component of Star’s “all or nothing” strategy was to bid really high for its consolidated bid, and fairly low for the specific rights. The idea was simple: make sure that it had a relatively higher chance to bag the composite bid, and ensure that if it got only a few individual rights, it paid much less. This is clear from the bid amounts. Star’s consolidated bid was Rs 163,475 million for five years. However, the sum of its bids for the seven individual rights was only Rs 788,247 million, or less than half of the former amount.
Take a look at the comparative individual bids by the various players to understand Star’s game plan.
Its bid for the subcontinent TV rights was Rs 61,969 million or much less than Sony’s Rs 110,500 million. Its price for the digital rights was Rs 14,430 million, or even lesser in percentage terms than Facebook’s Rs 39,000 million, Airtel’s Rs 32,800 million, and Reliance Jio’s Rs 30,757 million. Thus, Star made certain that it wouldn’t overpay for the individual rights.
But Star was willing to go overboard for the consolidated and overall rights. The reason for this was obvious: BCCI’s tender stated that a combined bid could win only if the amount was higher than the sum of the highest bids in the individual categories. The latter figure, as it turned out, was Rs 158,195 million, or just over 3 per cent lower than Star’s consolidated bid of Rs 163,475 million. It was a lucky break for the winner – if its bid had been four per cent lower, it would have got only a puny ‘Rest of the World’ right that was worth Rs 487.5 million.
In the future, the “all or nothing” strategy may turn out to be exceptionally brilliant or extremely stupid.
This can be explained by two examples. When entrepreneurs opt for mega takeovers, they generally have two kinds of plans. The first is to sell off the various assets as they feel that the sum of the parts will be considerably higher than the whole. The other is to leverage and extract synergies that will result in a higher valuation for the whole.
Both can work, but will the latter strategy work for Star? The quick answer: only if it knows the art and science of synergies.
Over the past several years, sports organizers, media rights-winners (bidders) and advertisers have explored ways to take advantage of sport viewers’ habits in the age of convergence. According to a 2016 working paper by the Harvard Business School, some of the organizers, like UEFA (football), have successfully integrated “commercial activities and resources of sponsors into sports events” to improve “audience experience”.
According to a 2016 piece by Patrick Hanavan, Chief Client Officer, Extreme Reach, a cloud technology platform, “There is increasing evidence that consumers are pairing their TV watching with ‘second-screen’ behaviour on social media....” This provides advertisers with “more opportunities for synergy between their TV buys and video buys... and potentially more cost-effective inventory.”
Given such trends, a rights-holder, who has combined and comprehensive TV and digital rights presence, is ideally-placed to woo a larger set of audience, reach more advertisers, grab more spend from the same advertiser, and work closely with the sport organizer. The global trend is towards a seamless ‘rights’ strategy that encompasses TV, digital, broadband and social media.
Although it’s not strictly similar, Turner Sports’ handling of the NBA media properties is an example. According to a report, Turner’s handling of the NBA’s digital business became so extensive to encompass “everything from mobile and social to broadband and the NBA’s out-of-market package”. Add TV to this mix, and what you have can be a winning combination.
Star can easily drive, rather than merely woo, IPL traffic to its different properties. Star owns Indian cricket as it has the crucial rights for IPL and national team (the Indian cricket rights are with Star till first half 2018). It can extract cricket synergies if it innovates and thinks differently. Over time, the IPL viewership can translate into increased audience for non-IPL content on Star’s properties like Hotstar. The net result: higher returns on overall investment.
Unfortunately, such grand strategies can unwind easily. Star’s attempt to drive traffic internally can drive it away. Seamless integration requires time, and five years may not be enough to translate the objectives into reality. Moreover, the fresh bidding for the Indian team’s rights will take place in 2018, and Star may lose them. It will be left with the IPL rights for a short summer period.
Crucially, competition will keep nipping at Star’s heels, and may overtake it in the future. Next year, Sony, Facebook, Airtel and Reliance Jio will bid more aggressively. This will definitely happen when fresh tender for the IPL bids are floated in 2022. The story of how the bidding for the IPL digital rights has panned out is an indicator. The last time, Star won them for mere Rs 3,030 million for three years or Rs 1,010 million a year. This time, FB bid Rs 39,000 million for five years or Rs 7,800 million a year. It implies that the annual worth has gone up by nearly 225 per cent. Clearly, the social media network hopes to ride the cricket wave. The next time, Star’s “all or nothing” may come to nothing.
Worth of IPL
In 2009, when the IPL rights were renegotiated, Sony agreed to pay Rs 82,000 million for a nine-year period or Rs 9,111 million a year. At a simple inflation rate of 10 per cent, the figure will escalate to Rs 17,311 million over nine seasons. At a compounded rate of 10 per cent, the figure will be Rs 21,483 million. Star agreed to pay Rs 32,695 million per year, or a sizeable over 50 per cent higher than the 10 per cent compounded figure. This indicates that the IPL’s valuation has shot up, or at least the stakeholders think so.
Of course, if one accounts for the rupee devaluation between 2009 and 2017, the math will be different. In 2009, the dollar averaged Rs 46, and is now just over Rs 64.
A similar 10 per cent inflationary calculation for the price paid per match for the national team (the contract was bagged by Star in 2012) and IPL (2017 deal) will reveal that the conclusion that IPL is more expensive isn’t correct. If one looks at the overall scenario from a different perspective, IPL’s valuation has come down. A couple of years after the inaugural season, the league’s value was $4.1 billion in 2010. In 2016, Duff & Phelps found that it was still worth the same --- $4.16 billion.
Only this year did Duff & Phelps upgraded the valuation of IPL to $5.3 billion. Even this signifies an increase of 29 per cent over seven years, or less than what you can earn on fixed deposits. In fact, according to Brand Finance, the value of the league has diminished from a high of $4.1 billion to $3.8 billion now, after reaching a low of $2.9 billion in 2012.
But at the same time, other deals indicate that the stakeholders still have faith in IPL. Recently, IPL title sponsorship was sold for Rs 22,000 million or twice the figure for the Indian team sponsorship.
Only time will tell whether Star India can convert the opportunities to shore up its bottomlines further, considering its financial clout and business acumen.
|(Alam Srinivas, a senior business journalist and Executive Editor of Patriot, has authored two books on IPL, `IPL: Cricket and Commerce’, and `Cricket Czars: Two men who changed the gentleman's game’. The views expressed are personal and Indiantelevision.com need not necessarily subscribe to them.)|