‘IPL digital investments to be driven from strategic, not profitability standpoint’

In a recent report, Elara Capital has said that the Indian Premier League (IPL) media rights value is expected to touch Rs 50,000 crore to Rs 60,000 crore for the next media rights cycle.

Elara Capital SVP Karan Taurani spoke to exchange4media about the dynamics that will decide the valuation of IPL media rights.

Excerpts:

What are the factors that will drive the growth of IPL media rights 2023-27 cycle?
The first factor that will drive the growth of IPL media rights value is the increase in the number of matches. The earlier cycle had 60 matches per season. This cycle will have 74 matches per season which could potentially go up to 94 matches in the last year of the current cycle. There is a 35-40% increase in the number of matches.

The second factor is the inflationary trends. Last five years, there was an inflation of close to 8-9% on an annualised basis so that is also a reason for the growth. When you put the math together in terms of inflationary trends and the increase in the number of matches, we are seeing a growth of 75-80% versus the earlier cycle and the base price is somewhat closer to that. The base price is 2X compared to the last cycle.

The third factor that will drive the premium on the base price is the segregation of media rights into TV and digital. Both mediums are growing at a different pace. Digital will attract a higher premium and will be a bigger growth driver for the overall IPL media rights because the OTT market is growing at 35-40% annually. Comparatively, TV is not growing at more than 7-8%.

Considering the high base price, there is a possibility that the TV and digital rights might go to different players. Will this hamper the business model of rights owners?
It's a good thing to have the digital and TV rights owned by one player because bundling results in efficient pricing. If TV and digital rights go to separate companies then there is going to be some issue in terms of replicating the revenue of what Star is doing right now due to the bundling aspect. A lot of the advertisers will get divided between TV and digital and then it will depend on the strength of the particular platform. If a digital platform is very good in terms of monetisation, it can surpass the revenue that Disney+ Hotstar is doing. TV and digital rights going to separate players will have a negative impact because bundling is far simpler than approaching advertisers for one particular medium.

With the value expected to jump to Rs 50-60K crore, will the advertising + subscription monetisation be sufficient to recoup investments or will there be a need to reimagine the way IPL is monetised?
There have to be some changes in the way IPL is monetised. It could be the likes of regional feeds which were started by Star. Taking IPL to multiple regional languages was a good initiative. The second opportunity to increase monetisation will be around interaction and try and make it more interactive with the customers. With the advent of Web 3.0 and metaverse, a lot of innovations can be planned on the IPL and that will propel the property to higher revenue growth on the digital platform per se. As far as current revenues are concerned, IPL has moved beyond break-even. Star will be making a profit on IPL. If you look at the IPL media rights for the next cycle, our assumption is that the rights owner will break even in the third if the per year valuation is Rs 10,000 crore or Rs 50,000 crore for the entire bundle and the fourth and fifth year is when they will start making profits.

What impact will IPL have on the media landscape in the next few years depending on who gets the rights?
IPL is a very compelling property and it does have a huge impact on the overall media landscape. IPL has done wonders for Star. The bigger delta is in terms of what it has done to a platform like Disney+ Hotstar because that is where the huge growth is coming from. ZEE5, which is primarily into content genres like movies and web series, is doing an MAU of 100 million but a sports-driven platform like Disney+ Hotstar is doing an MAU of 300 million+. There is a huge shift of eyeballs that a compelling property like IPL generates. Every traditional broadcaster who wants to grow their digital business will want to have a property like IPL. A lot of investments in IPL around digital will be driven from a strategic standpoint and not a profitability standpoint because these are the things that impact your metrics, revenues, and valuation.

BCCI and IPL franchises are expected to be the biggest gainers from the e-auction. To what extent will the franchisee valuations appreciate due to the expected jump in media rights value?
The appreciation in IPL media rights value will have a big delta for the teams as well. For the franchises, close to 70 to 75% of their revenues come via media rights. The share of central pool revenue for the teams will be 2 to 2.5X on an absolute basis as compared to the earlier cycle. The second delta for teams will be around the gate revenue because the number of matches will go up by 35-40%. So, the revenue from gate revenues will be at least 25-30% higher than the previous cycle. Effectively, you are looking at a revenue base of 2.5 times versus the current revenue base for all the IPL teams. If you look at the CAGR for this year and until the next three years, you will see a CAGR of close to 30-35%. Given this kind of CAGR, the market cap to sales multiples for the franchises will be 12 to 13 times. The valuation of each of these teams will multiply at least double from hereon. Before this cycle, the valuations for these teams were in the $400 to 600 million range which has the potential to breach $1 to 1.2 billion. There are other factors that will decide whether or not the team is at the upper-end or the lower-end of the table. These factors are the kind of players in the team, the kind of sponsorship revenue that they make, and the performance of the team.