Decoding the Indian Premier League Media Rights Sale – Part 2
In part one of this article, the authors provided a brief introduction to the IPL’s history and commercial structure, described the background to and the nature of the Supreme Court of India’s intervention to implement governance reform in the BCCI, and 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 for various stakeholders. Specifically, they examine:
The tender structure
The strength of the IPL brand
The rise of new media
The Indian broadcast ecosystem
The global cricket rights landscape
The impact on Star’s subscription and advertising rates
The impact on BCCI, franchises and players
The value of the media rights sale broke new ground for cricket. Unsurprisingly, the result was closely followed world-wide and significant ripple effects will be seen. The following are noteworthy aspects of the sale and how key stakeholders might be impacted and might react.
The Tender Structure
The BCCI will see the outcome as a significant success and due credit must go to the manner in which it structured the sale for price discovery. In retrospect, the ability for bidders to bid in categories and in consolidated bids and the manner in which the winner was to be chosen appears to be a masterstroke from a price discovery perspective. The BCCI also reduced the tenure of rights being sold from 10 to 5 years, trading in long-term stability for an opportunity to test the market again in 5 years.1
This approach is largely in line with the sale of rights for globally popular football leagues such as the UEFA Champions League, the Premier League and the Bundesliga. UEFA2, the FAPL3 and the German League Association4 were, respectively, permitted by the European Commission to continue with the practice of joint selling of sport media rights on behalf of their constituent football clubs, provided the rights were sold through open and transparent tender processes, were of limited duration (usually not exceeding three years) and were broken down into different packages to allow several competitors to acquire rights (referred to as the “no single buyer rule”). The option to table a consolidated bid for global rights was in keeping with well-established international practice for cricket rights and other sports rights.
Brand IPL Stands its Ground
The increase in valuation of the rights and the bidding sentiment across the board is a strong signal that the IPL’s mass appeal to the Indian audience is intrinsic and BCCI being in a zone of legal and governance turmoil does not materially affect this. Either governance ambiguity doesn’t hit the bottom-line as much as might be presumed or the broad direction the Supreme Court is taking BCCI governance in was seen as providing adequate comfort.
Interestingly, the tender process was executed by the BCCI’s management under the CoA’s vigil and with inputs from the BCCI’s acting office bearers. The outcome of the tender process perhaps makes a strong case for the possibility, and even desirability, of separating the BCCI’s governance and management – which is one of the most significant governance reforms recommended by the Lodha Committee. That said, no matter how suitable the outcome, continued oversight by the Supreme Court poses material concerns with respect to the fundamental principles of "autonomy" from and "non-interference" by state actors in the sports body’s functioning. The "dilly-dallying" by the Supreme Court in enforcing its own judgment definitively has caused even greater uncertainty and given perfect fodder for continuing power struggles.5
Ultimately, it is the eyeballs that drive investments and the only real call on governance by rights holder is to respect and protect the integrity of rights granted by managing the game professionally. The BCCI has a long history, the cricket brand is strong, and the IPL is the cricket-watching audience’s favourite fix.
The Rise of New Media
Besides the total deal value, the rise of the digital medium in this tender process was noteworthy. Although Star won the consolidated rights, one of the biggest stories was Facebook’s digital right bid of $ 610 million. Mobile carriers Airtel and Reliance Jio bid $ 500 million and $ 462 million, respectively, for the digital rights. Each of these bids is a quantum leap from the first digital rights deal stuck with Times Internet Limited for $ 41 million (for 4 years) and the second deal with Hotstar for $ 47 million (for 3 years).
The emergence of Facebook as a serious player has not gone unnoticed. Facebook’s IPL bid was made soon after it had formally launched its “Watch” service for live video broadcasts and expressed the desire to alter sports viewer behaviour on its platform.6 The transition of Facebook from "owner of users" to wanting to be "owner of content" is certainly significant – there has probably never before been a potential sports rights holder that better knows each of its users down to the most granular detail. In recent times, Facebook has also been more closely acquainted with the popularity of sports and cricket content. It has become the platform of choice on which large quantities of unlicensed user-generated content (both live streams and short-form content) are now broadcast by pirates. It has also progressively, entered into revenue sharing partnerships (paying no rights fee) with sports rights holders to deliver content to its massive user base and to collaborate on monetising it.
With the transition from "platform for user uploads" to "official platform for sports rights owners" having been successful, the next frontier for the digital players is "rights ownership". Amazon7 and Twitter8 have already taken the lead in this respect, outbidding traditional broadcasters in a number of cases. In years hence, when social media platforms like Facebook and Twitter, and others such as Amazon, buy sports rights as a matter of course, the IPL tender will be seen as the line in the sand when the first serious, albeit unsuccessful, foray into sports rights was made. There is much more to come in this space, so event organisers, federations and conventional broadcasters around the world will be keeping a keen eye out for the next Facebook status update.
The Indian Broadcast Ecosystem
Around the time of the IPL broadcast tender, a senior executive at one of Star’s competitors had written to the Competition Commission of India, raising concerns over Star’s impending monopoly over cricket broadcasting rights.9 With Sony’s acquisition of Ten Sports in 2016, the Indian broadcast market has been rendered a virtual duopoly between Star and Sony, with the only other sports broadcast players of note in India being brand new entrant DSport (from Discovery) and the national broadcaster Doordarshan which has not purchased cricket rights in decades and has relied completely on the laws mandating sharing of sports signals to Prasar Bharati to transmit cricket matches that are notified as "sporting events of national importance".
Star owns BCCI rights (until March 2018), England & Wales Cricket Board rights (until 2019), International Cricket Council rights (until 2023) and, until recently, owned rights to Cricket Australia events in India and other territories. In India, Star also owns rights to marquee events in other sports such as the Premier League, Formula 1 and Wimbledon. In 2013, Star committed to investing in excess of $ 3 billion, to expand its sports coverage and create sports leagues in India.10 The value of the IPL rights deal is almost that entire amount and, in the absence of fresh infusions of capital, could impact Star’s willingness to engage in the purchase of rights from other cricket boards and in relation to other sports. While that in itself might dispel the fears of a sports broadcasting monopoly being created, the sale of rights through transparent tender processes provides equal access to the rights purchase process to entrenched players and new (adequately qualified) entrants as well.
The Global Cricket Rights Landscape
It will be interesting to track Star’s strategy with respect to other cricket and non-cricket broadcast rights in the near future and also to monitor how their competitors, old and new, will respond. Star’s next test will be the forthcoming (in early 2018) bidding for BCCI’s broadcast rights for domestic and international cricket in India. Given that cricket rights have historically been used by networks as "loss-leaders" and "subscription-grabbers", a circumspect and focused approach could be expected given that Star already owns rights to the crown jewels. Star could well decide to prioritise the IPL, BCCI and ICC rights over other cricket rights. In such case, the number of options (and, consequently, the negotiating power and money on offer) for the other cricket boards in the key Indian market might well shrink. To illustrate, recently, Star opted not to renew its Cricket Australia rights, and, after the IPL media rights sale was complete, Sony stepped in and entered into a six-year broadcasting deal with Cricket Australia for an undisclosed sum.11 Meanwhile, Star purchased Cricket New Zealand rights for three years for the Indian sub-continent and South-East Asia till 2020. These rights were previously held by Sony.12
In the changing Indian sports ecosystem driven by franchise-based leagues, Star has travelled up the production chain to own the immensely popular Pro Kabaddi League13 and has significant interests in the Indian Super League (ISL), a football league.14 Star is also the broadcaster of leagues in badminton15, hockey16 and tennis17 and local cricket18, among others.
The IPL media rights purchase, and the financial and operational resources it will command, might cause Star to take a careful look at its portfolio of ownership and rights interests across Indian sport. It would hardly be surprising if Star demonstrated a razor-sharp focus on making the IPL rights work alongside its existing cricket, football and kabaddi assets – a decidedly strong portfolio of mature properties – with reduced appetite for anything else. The effects of a rationalised approach will be felt by some of the smaller and less commercially successful leagues as well as by new entrants. In such a scenario, Sony, Discovery and others might participate and will enjoy significant negotiating leverage as against promoters and event organisers. Then again, unless the traditional sports broadcasters remain vigilant both individually and as a category, their digital platform competitors might make significant forays into rights territory (discussed above) sooner than originally expected. This is particularly so in a legal environment that regulates television broadcasts on many fronts but places few curbs on digital content delivery.
The impact on Subscription and Advertising Rates
In terms of Star’s own engagement with the market as the IPL rights holder, it will focus on getting its subscription and ad-sales strategy and operations just right. This at a time when it must deal with piracy19, under-reporting by cable operators20, a television ratings system in transition21 and still-evolving digital consumption metrics and user profiling/targeting22. A saving grace for Star is that the IPL is not (yet!) classified as a "sporting event of national importance" and the "mandatory sharing" and "clean feed" obligations do not extend to these rights in the manner they do for BCCI events and certain ICC matches.23 Mandatory sharing obligations pose a number of technical and commercial threats to the media rights holder. Any belated classification of the IPL, a league involving private franchises, as a "sporting event of national importance" would be decidedly odd. That said, just as this article was going to print, the first murmurs of such a move were heard, i.e., to designate IPL matches as subject to mandatory sharing with Doordarshan.24
Star will look to recoup its investment in the IPL rights through advertising and subscription revenue. During IPL 2017, Sony is estimated to have earned $ 200 million as advertising and approximately $70 million as subscription revenue, while Hotstar reportedly earned about $ 20 million.25 It is likely that both ad-slot rates and channel subscription rates will increase. Star could also disrupt the market by experimenting with ad formats and duration.26 Market analysts believe that advertising rates are likely to go up by 200% on television and 300% on digital platforms and that subscription rates for channels and channel bouquets will also increase.27 Reports suggest that Star is targeting advertising revenues of close to $ 300 million for IPL 2018, which in itself marks a significant increase from 2017.28 Star will also be tasked with on-selling television broadcast rights in markets such as the UK, USA and MENA for attractive values, and in transforming Hotstar into the single global digital platform for the IPL.
With respect to the digital broadcast of the IPL, Star could move to a model in which "premium" features such as live streaming, highlights, or analysis are available only through subscription. Deferred broadcasts could be ad-supported.
Ultimately, the model will succeed if the IPL remains accessible and attractive to viewers, and also within the reach of advertisers who recognise the power of the vehicle to reach desired audiences.
The Impact on BCCI, Franchises and Players
The BCCI and its members will be the largest direct commercial beneficiaries of the media rights sale. From 2018, the BCCI will retain half of all central revenues, including broadcasting revenues, with the remaining half being distributed among the franchises. The BCCI share will first off-set tournament and administrative expenses and all profits that remain are distributed among its members. With the financial stakes growing at a rapid pace at the BCCI, the battle for autonomy in the BCCI’s governance is likely to grow even more fierce and the push-back to the CoA and Supreme Court more strident.
Lurking in the background is the spectre of the $ 130 million compensation that the BCCI is required to pay the owner of the Kochi franchise for wrongful termination29, which will in effect wipe out substantial earnings from one year’s worth of revenues from the broadcast deal.
In general, player fees for Indian cricketers have increased in the last decade as the IPL has grown. The value of the retainers on BCCI’s Category A central contracts was $ 100,000 in 200730, $ 160,000 in 201131 and was recently increased to $ 320,000.32 Match fees, which have also grown rapidly, are in addition to these as are a percentage share in the BCCI profit. Domestic first-class match fees have also increased significantly during this period. However, all of these amounts pale in comparison with IPL player fees that can go up to $ 2.5 million per year for 6 weeks of work.33
Reportedly, unlike the profits ensuing from the BCCI media rights sales and the ICC distributions, the Indian national players do not participate at all in the sharing of the IPL profits,34 Whether or not the Supreme Court mandated reform requiring the establishment of a players’ association is implemented, there is bound to be a push for a seat at the table for the players. They will expect to participate in the commercial growth of the IPL as key stakeholders. This could either be in the form of a share of IPL profits or, more likely, an increase in the value of central contracts for the internationals and match fees for both international and first-class cricketers. It is possible that the BCCI will do neither and instead increase the IPL player fee cap for the franchises, the cost of which increase will be borne by the franchises rather than the BCCI. Just as this article was going to print, reports in the Indian media suggest that the Indian men’s players’ proposal for an increase in player remuneration for international cricket participation has been accepted by the CoA, although the finer aspects of the structure are yet to be finalised.35 It remains to be seen whether these increases will extend to the women’s, junior and domestic teams.
An increase in player fees will only consolidate the IPL’s pre-eminent position in any player’s wish list, relative to both T20 leagues in other countries as well as, possibly, international cricket. The annual calendar will then continue to give the IPL primacy and national boards will also have to navigate the protocols for releasing their nationally contracted players to the IPL at the risk of otherwise losing them to "free agency". On the other hand, the BCCI remains steadfast in its stand of not releasing Indian men’s players (both centrally contracted and registered) for other T20 leagues across the world36 as well as domestically.37
Meanwhile, the revenue of each of the IPL franchises is expected to treble, even though the relative share of the franchises in central revenues has reduced. This is simply because the size of the central revenue pie has grown exponentially as a result of the title sponsorship and broadcast deals. Consequently, the valuation of franchises will also rise. Whether and how much this will take all the franchises together into the red (for the first time in the IPL’s history) will depend both on the IPL’s rules (particularly any adjustments to the consolidated player fee cap) and franchise behaviour (including ticket and merchandise pricing). With the growth of central revenue distributions as the primary sources of franchise revenue, it remains to be seen if ticket and merchandise prices will be lowered so that the benefits of growth are passed on to fans. After all, there is a fine balance to be maintained between keeping the IPL experience both aspirational and generally accessible.
All in all, the IPL media rights sale of 2017 capped an eventful decade for the IPL, world cricket and Indian sport. At the same time, it promises to be the beginning of much more to come. Stay tuned!
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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- Decoding the Indian Premier League Media Rights Sale – Part 1
- A review of the IPL and BCCI spot-fixing scandal – governance, corruption and reform
- Indian sports federations need to restructure to meet international standards
- Negotiating athlete endorsement agreements in India
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.