Decoding the Indian Premier League Media Rights Sale – Part 1

Published 01 December 2017 | Authored by: Nandan Kamath, Roshan Gopalakrishna

In early September, Star India Pvt. Ltd. (Star) – the South Asian member of Rupert Murdoch’s global broadcasting network – acquired the consolidated global television and digital rights for the Indian Premier League (IPL) for a five-year period (2018-2022). The IPL is a Twenty20 (T20) cricket league promoted by the Board of Control for Cricket in India (BCCI), the national governing body for cricket in India. At $ 2.55 billion, this deal represents the biggest media rights purchase in cricket history by some distance.

The media rights sale process and its outcome were witnessed with great interest both in India and across the sporting and broadcast world. The resulting media rights valuation caps a tremendous decade for the IPL, which has been the subject of commendation and condemnation in equal measure for events that have occurred both on and off the field. Though opinions are divided on the IPL’s qualitative contribution to cricket, what is more unitary and undebatable is the sheer impact it has had on Indian and world sport. It has affected player movement and commitments, raised player incomes, carved out a place for itself on the complex annual cricket calendar and inspired a number of ‘me-too’ cricket and non-cricket franchise-based leagues in India and internationally.

In part one of this article, the authors:

  • provide a brief introduction to the IPL’s history and commercial structure;

  • describe the background to and the nature of the Supreme Court of India’s intervention to implement governance reform in the BCCI; and

  • examine the salient aspects of the tender and media rights sale process.

In part two, the authors discuss and analyse the key takeaways from the media rights sale, its probable impact of the valuation of rights on the global cricket economy and what it portends of the future.

 

The IPL’s History and Context

Background

India’s unexpected victory at the inaugural edition of the ICC World Twenty20 in South Africa in 2007 proved to be the catalyst for the creation of the IPL by the BCCI. At the time, the BCCI was already being challenged by the unauthorised rebel Indian Cricket League and needed to act decisively. The young and inexperienced Indian T20 team’s win in South Africa, following soon after the poor performance by the Indian team at the ICC Cricket World Cup in the West Indies earlier that year, was exactly the ammunition that the BCCI needed to establish the league in the new cricket format.

The BCCI was successful in auctioning eight franchises across different cities in India for an aggregate fee of $ 724 million payable over 10 years,1 significantly in excess of the aggregate base price of $ 400 million ($ 50 million per franchise) that was set.2 In 2011, the BCCI added two franchises from Cochin and Pune for an additional $ 700 million,3 both of which (along with one of the original eight franchises)4 have since been terminated. Two "temporary" franchises were added for the 2016 and 2017 seasons of the IPL while two of the original teams served out court-mandated suspensions for these seasons.5

The Business Model

The IPL is a franchise-based league. The BCCI, as franchisor, enters into franchise agreement with each of the participating teams. The business model of the IPL provides for a distinction between central (franchisor) and team-related (franchisee) sources of revenue. For the first ten years, the franchises were required to pay the BCCI a franchise fee (based on their respective bids) and a small percentage of team licensing and team merchandising revenues. The BCCI has retained the right to sell broadcast and digital rights, title and other central sponsorships and other league-wide rights. To provide the nascent franchises with financial stability to tide through the initial years, the IPL’s central revenues for the first decade were shared in a manner that favoured the franchises. Franchises received almost 3/4 of the broadcast revenues among them in the first five years and almost 2/3 of those broadcast revenues for the next five years.6 In addition, almost 2/3 of the other central revenues from sponsorship and sale of league-wide rights were divided equally among the franchises.7

The commercial model for the BCCI and the franchises changes from the 11th season of the IPL in 2018. The franchises stop paying an annual franchise fee to the BCCI, and will instead pay the BCCI a portion of their revenues in lieu of the franchise fee. At the same time, the share in central revenues to be distributed across the franchises falls to 1/2. The other 1/2 of the central revenues is retained by the BCCI, the profits of which will be distributed to its members and others in accordance with its profit distribution guidelines.8

With the exception of the "play-off" matches, which the BCCI itself organises, the responsibility of hosting "home" matches and operating the teams – such as player salaries (subject to IPL-mandated total player fee caps for auctions and retentions), coaching and support staff fees, travel and accommodation, management teams, stadium fees, security, hospitality, etc. – rests solely with the respective franchises. Matches in the round-robin league stage are held on a home-away basis with each team playing all the others twice during the league stage.

Similar to franchise-based American sports leagues, the IPL operates as a "closed" league, which means that there is no relegation or promotion of teams based on their performance in the previous season of the league. All franchises also receive prize money from the BCCI based upon their final league position. The prize money pool has been approximately $ 6-7 million per season. During IPL 2017, the winning Mumbai franchise received $ 2.3 million as prize money.9

Commercial & Media Rights

A consortium of India’s Multi-Screen Media Private Limited (Sony) and Singapore-based World Sport Group (WSG) bagged the IPL’s television broadcasting and certain specific digital rights for 10 years for $ 918 million in 2008.10 Based on the success of the inaugural edition of the IPL, the BCCI renegotiated a new nine-year deal with WSG worth $ 1.63 billion in 2009.11 The value of the IPL’s television broadcast rights had practically doubled after just one season. However, WSG’s failure to disclose the payment of a "facilitation fee" by Sony led to the cancellation of this agreement, and the BCCI entered into an agreement directly with broadcaster Sony for the remainder of the period.12

The agreement with Sony provided Sony with a right of first refusal to extend the broadcast deal upon its expiry in 2017, and mandated that parties would be obliged to discuss the new deal in a 60-day window immediately after the end of IPL 2016. During this period, Sony could make an offer of extension for the BCCI to consider. The BCCI was required to respond within 10 days of the closing of the 60-day negotiating window. In the event that Sony and the BCCI were unable to agree upon the terms for the extension, the BCCI could approach the market. However, the agreement also provided Sony with a right to match any counter-offer made by a rival.13 

Beginning in 2009, the BCCI also explored digital broadcasts of the IPL.14 In 2010, the IPL became the first sporting event in the world to be broadcast live on YouTube.15 Subsequently, the BCCI sold digital broadcast rights for India to Times Internet Ltd. (2011-14) and Star’s digital arm Novi Digital Entertainment Private Limited (operating as Hotstar) (2015-17).16 The digital broadcast rights holders for India were required to ensure that their IPL broadcast was undertaken with a five-minute delay, as Sony (the television broadcaster) had contractual protection against a live digital simulcast. Further, the IPL’s theatrical and public exhibition rights were sold to Entertainment & Sports Direct in 2010 for $ 72 million for a ten-year period,17 a deal that was subsequently put under the scanner for the "under-priced" value of the rights18 and appears to have since been annulled.

The IPL’s title sponsorship rights changed hands three times in the IPL’s first decade, moving from real estate developer DLF to beverage major PepsiCo to mobile handset brand VIVO. Recently, the BCCI has sold the IPL title sponsorship for the 2018-2022 cycle to VIVO for $ 341 million,19 representing an approximately 550% increase in value from the previous deal.

Overall, the IPL is expected to have generated revenues of close to $ 2.5 billion (from broadcasting, sponsorship and franchise sale) for the BCCI in its first decade. Significant revenues were also generated by the BCCI (and shared with its partners Cricket Australia and Cricket South Africa) from the erstwhile Champions League Twenty20 tournament (CLT20), an annual international tournament between top domestic T20 teams from cricketing nations. The CLT20 was scrapped in 2015 after six troubled editions, with the broadcast and commercial rights holder Star being required to pay a break-fee, which it presumably deemed more judicious than continuing to bear significant annual losses on the event.20

Although an undoubted commercial success, the sale of media rights has come under the Indian competition law scanner. The media rights agreement from 2007 contained an assurance from the BCCI in favour of the broadcasters of the IPL that the BCCI would not organise, sanction, recognise, or support another professional domestic Indian T20 competition that is competitive to the IPL for a sustained period of 10 years.21 Based on a complaint received in 2010, the Competition Commission of India (CCI) recently upheld its earlier order from 2013 and found that this assurance amounted to an abuse by the BCCI of its dominant position in the organisation of professional domestic cricket leagues or events in the country.22  The CCI further held that the assurance and the resulting restriction were not linked with the legitimate interest of cricket in the country, but rather served only to enhance the commercial interest of the bidders of IPL broadcasting rights and the consideration in turn received by BCCI. The CCI imposed a fine of $ 8 million on the BCCI.23

Governance and Reform

Indian cricket legend Kapil Dev once famously said, “If you play good cricket, a lot of bad things get hidden”.24 For an event that is just ten years old, the IPL has faced more than its fair share of controversies and challenges, the most infamous of which was the spot-fixing and betting scandal during IPL 2013 when three players from the Rajasthan Royals franchise were arrested on charges of spot-fixing25 while one of the owners of the Rajasthan Royals franchise confessed to betting on IPL matches26 and one of the principals of the Chennai Super Kings franchise (and son-in-law of the then-President of the BCCI) was arrested for betting on IPL matches and links with bookies.27 The BCCI failed to address these issues adequately through its internal processes, leading to claims of "conflict of interest" at the highest echelons of the BCCI.28 This series of events culminated in the Supreme Court of India appointing the Justice Mudgal Committee to examine culpability of various parties involved in the scandal.29 Based on the Mudgal Committee findings, the Supreme Court appointed the Justice R.M. Lodha Committee and requested it to recommend the penalties and consequences for culpable parties. The Lodha Committee suggested life-bans for the persons found to be involved with illegal betting and fixing and the two-year suspension of the Rajasthan Royals and Chennai Super Kings franchises from the 2016 and 2017 seasons.30 The Supreme Court endorsed these recommendations, ordering the BCCI to enforce these penalties.

Meanwhile. PepsiCo pulled out as the IPL’s title sponsor in 201531 and transferred its rights to VIVO.

Given the structural defects it observed in the BCCI’s manner of functioning, the Supreme Court expanded the Lodha Committee’s mandate and requested it to provide recommendations on how the BCCI could be restructured to bring in a greater degree of transparency, ethical conduct and public responsibility in its functioning.32 The Committee recommended several sweeping changes in the BCCI to be incorporated in a new constitution and the Supreme Court ruled that this report was to be implemented by the BCCI more or less on a wholesale basis.33 The reforms have been steadfastly opposed by the BCCI’s old guard as well as several of the BCCI’s members and this has resulted in, among other things, the Supreme Court removing the then-incumbent President and Secretary of the BCCI and eventually appointing a Committee of Administrators (CoA) to oversee the functioning of the BCCI.34 The BCCI meanwhile has put in place (with the blessings of the Supreme Court) acting office-bearers. These were the handful of BCCI office-bearers not disqualified by the age and tenure eligibility criteria forming part of the Lodha Committee reforms. This has created additional ambiguity as to jurisdiction and authority to make decisions.

Until a new BCCI constitution is put in place, the BCCI management, led by its CEO, is to work under the oversight of the CoA. It is unclear whether the BCCI’s acting office bearers have any powers outside the responsibility for implementing the Supreme Court mandated reforms. During this period, all BCCI contracts above a threshold of $ 40,000 must be put before the CoA for approval and a tender process must be followed for all new contracts.35

 

The Tender Process

The BCCI had originally opened the tender process for the media rights in September and October 2016, after the expiry of the "exclusive negotiating period" with Sony.36 This was at a time of much ambiguity in its governance structure, but this did not seem to limit market interest with reportedly 18 potential bidders being in the fray for the second decade of IPL media rights.37 However, following the BCCI’s continued opposition to the Lodha Committee reforms, and the approval of the Lodha Committee being made a mandatory requirement for the conclusion of major contracts during the period, the BCCI withdrew the media rights process in October 2016 and awaited further directions from the Supreme Court.38

Almost a year later, with time running out for the 2018 season, and based upon assurance provided by the BCCI’s interim administration, the BCCI (under the CoA’s supervision) was permitted by the Supreme Court to proceed with the open media rights tender. This effectively negated Sony’s right to match under the 2009 media rights agreement, and provided the BCCI with legal basis for the issuance of an open market tender for media rights in 2017. The process wasn’t without its hiccups – a prominent Indian Member of Parliament approached the Supreme Court seeking, albeit unsuccessfully, an "e-auction" of IPL media rights instead of the tender process.39

The Invitation To Tender (ITT) document for IPL media rights was reopened in July 2017. The rights on offer were segregated into television broadcast rights, and digital (internet and mobile) broadcast rights. Bidders could opt for any or a combination of eight categories of rights such as Global Rights, Indian Sub-Continent Television Rights, Indian Sub-Continent Digital Rights, or Television and Digital Rights for key cricket markets such as Australia and New Zealand, the Middle East, South Africa, UK and U.S.A. As with previous rights cycles, the digital broadcast of the IPL in India was to be undertaken with a five-minute delay to the television broadcast, unless the same bidder purchased both the television and digital broadcast rights.40 The rights were put on sale for 5 years (2018-2022), half the period offered during the original media tender process that was commenced in 2016.

The rights would be awarded to the highest bidder in each category. An interested party or a consortium could make a consolidated global media rights bid across categories and platforms. However, such a bid would only succeed if the amount of the consolidated global bid was greater than the sum of the highest individual bids across categories. The winner in each category would be determined by matching the bids, which were to be presented in sealed envelopes. Each bidding entity was required to submit technical and financial bids, and only bids by entities that satisfied the technical and financial criteria were considered, with the highest bid from among qualified bidders eventually securing the rights.41

This time, 24 entities picked up the ITT, of which 14 submitted formal bids across the various rights categories.42 Notable absentees among the final bidders included ESPN Digital Media, Discovery, Sky UK, Amazon and Twitter.43 The number of digital rights bidders for the Indian market was in excess of the number of television rights bidders for the Indian market. It is also noteworthy that mobile network operators such as Reliance Jio and Airtel, and social media giant, Facebook, placed significant bids for the digital rights in India.44

While Star eventually prevailed with its global consolidated (television + digital) rights bid of $ 2.55 billion, the margins in this "winner takes all" strategy were fine. Only $ 80 million separated the value of Star’s bid and the sum of the highest bids in each of the individual categories, which was $ 2.47 billion. While Sony bid $ 1.72 billion for Indian television broadcast rights, Facebook bid $ 610 million for the Indian digital broadcast rights, a category that saw high bids also being placed by Airtel ($ 500 million) and Reliance Jio ($ 462 million). It appears that Star strategically submitted much lower individual bids in these categories ($ 931.5 million for India TV, $ 217 million for India digital) in pursuance of its "all or nothing" strategy, presumably not wanting its individual category bids to raise the aggregate of the individual bids and thereby reduce the likelihood of success of what it was looking to win – the consolidated global rights.45

On the face of it, Star’s winning bid of $ 2.55 billion represents an increase of approximately 160% in the annual media rights value of the IPL from the previous cycle. Meanwhile, the IPL title sponsorship value has grown by over 550% and the IPL brand value has grown to $ 5.3 billion.46 With all these numbers looking up, it is inarguable that the IPL is a commercial property of note, standing shoulder to shoulder with the largest global sports properties.

In part two , the authors discuss and analyse the key takeaways from the media rights sale, its probable impact of the valuation of rights on the global cricket economy and what it portends of the future for various stakeholders.

 


The views and opinions expressed in this article are the personal views and opinions of the authors and do not represent those of any person or organisation they may represent. This article has been compiled solely based on publicly available data and information, which may or may not be accurate. Any other errors are the authors' alone. 

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About the Author

Nandan Kamath

Nandan Kamath

Nandan is Principal Lawyer at LawNK, based in Bangalore, India. His practice specialises in sports, technology and media laws, with clients ranging from international and national sports federations, to leagues, teams, sponsors and athletes.
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Roshan Gopalakrishna

Roshan Gopalakrishna

Roshan is Counsel (Sports & Entertainment) at LawNK, a Bangalore based niche law practice specializing in sports, intellectual property, media and information technology laws. In addition, Roshan is also the Chief Legal Counsel at Copyright Integrity International, a world leader in the protection of digital and broadcast rights. Roshan is a graduate of the National Law School of India University, Bangalore.

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