RedBird Capital recently bought into the Rajasthan Royals, taking a 15% stake in the Indian Premier League club at a $250 million enterprise valuation. On the surface, an investment in a Twenty20 cricket franchise might seem out of left field for a New York-based private equity firm. But this wasn’t a bet on the future of the bat-and-ball sport as much as it is a media rights play. The IPL’s existing broadcast agreement with Star India, a wholly owned subsidiary of The Walt Disney Company, expires in 2022, and it is believed the competitive dynamics are in place for the popular cricket league to command a significant price increase. Dan Cohen (SVP, global media rights consulting, Octagon) predicted the IPL would be able to “double its rights fees” this time around.
Our Take: RedBird Capital knew little about cricket before looking at the opportunity to buy into the Royals (and by proxy the IPL). But the PE firm found several of the league’s characteristics attractive once it began sniffing around it. For starters, the IPL is a closed league, and every team is profitable. While that may not be a foreign concept here in the U.S. (see: NFL), it is unusual for club owners abroad not to face the risk of having to fund losses (nevermind relegation).
The prospect of organic growth appealed to RedBird, too. As it stands, the IPL has just eight teams and plays the entirety of its season in six weeks. But it’s not difficult to envision the 15-year-old league expanding and extending the length of its season (think: 20 teams, 15 weeks). Doing that could increase the value of the league and its teams exponentially. Of course, that assumes both quality and consumer demand for the product remain high.
The easiest thing for RedBird to get their minds around, though, was the value of the league’s media rights (and the potential for them to grow). Simply put, there is no better way for a company to attract eyeballs within the massive Indian market (population: 1.37 billion) than the IPL. Some 44% of India’s TV households watched a match of the 2020 IPL season live, accounting for around 61 billion viewing minutes, and it’s believed several macro trends are working in favor of driving those figures up (see: growing disposable income within middle and upper class, the digitalization of India).
But it’s not just India tuning in for IPL matches. The IPL has the largest cumulative audience of any major sports league in the world. Nielsen estimates a cumulative global audience of 5 billion people tune in. To put that in perspective, “just” 3 billion people will watch the English Premier League. It is not clear if the IPL intends to sell rights as a global package or slice them up across multiple markets.
When IPL rights last went up for auction in 2017, 24 companies bid on the league’s digital and broadcast rights (including Facebook, Jio, Sony, Netflix and Amazon). Disney won the tender, taking all rights in all markets for the five-year period after submitting a whopping bid of $2.55 billion (a 5x increase over the expiring agreement). Their aggressive approach made an immediate impact. Disney+ Hotstar (India’s largest SVOD) saw their subscriber base grow 70% in the wake of the deal being announced.
Considering those numbers, there is a strong argument that IPL rights are more important to Disney+ Hotstar in India than the Star Wars franchise is to Disney+ in the U.S. (at least on an relative basis). Around 30-40% of all Disney+ subscribers are located in the South Asian country, a large portion of which is paying for Disney+ Hotstar because it has the rights to IPL matches. Should Star India lose the broadcast rights, Cohen says many of those subscribers would migrate to the new rights holder (probably not the case if the Star Wars franchise were to leave Disney+).
“There is no other piece of content more valuable than the IPL is to Star in India,” Cohen noted. So, the Disney subsidiary is expected to bid aggressively to retain them. The competition is likely to be steep. The bulk of those who expressed interest in 2017 are expected to be at the table again, and “you are going to see the likes of Amazon and potentially other FAANG tech giants bid more aggressively than they have historically,” the media analyst said. Rising digital consumption and digital adoption rates in India (think: watching live video on mobile) make the tech giants far more natural bidders for IPL matches than they are for America’s big four sports. For reference purposes, 2019 IPL viewership on Disney+ Hotstar peaked at 18.6 million simultaneous viewers, on par with the NFL in the U.S.
Keep an eye on Indian billionaire Mukesh Ambani and his company Jio (a subsidiary of Reliance Industries), too. “To date, they have not been aggressive bidders for sports rights,” Cohen said. “But as Reliance grows in adoption and revenue across the Indian sub-continent, I think they will take a hard look at the most important piece of content.”
RedBird is the first institutional investor approved by the IPL. Their investment in the Royals should draw attention to a league flying way below the radar (at least in the U.S. and Europe, where the bulk of buyers for costly sports franchises reside). But with most of the league’s clubs owned by wealthy Indian families, it is doubtful we’ll see a flood of foreign investment following their lead (i.e. the demand should outweigh supply).