By Karan Taurani @Elara

India sports adex – Continued outperformance          

Cricket is set to continue with its outperformance spree vis-à-vis the TV industry’s average growth on adex. But the quantum of outperformance may converge towards 12 percent CAGR in the medium-to-long term. This is owing to stagnated eyeball growth in TV escorted by a potential downside risk if the audience veers to selective viewing.

Nonetheless, TV and digital may coexist for sports, as the digital medium is more convenient for viewing-led, whereas sports are watched on the large screen, by a larger group.  

Note that India’s sports adex – dominated by cricket (94 percent share in sports media rights in CY21) – contributed 19 percent to total TV adex in CY21, which has spiked sharply from 9 percent in CY17, helped by a CAGR of 24 percent. This is 3x the growth of the TV industry in the same period (8.4 percent CAGR).   

Cost of acquisition elevated

International Cricket Council. (ICC) rights for marquee international tournaments were bought by Disney for USD 3bn (CY24-27). Z acquired TV rights of this bucket – As per our assessment, the company paid anywhere within 40-60 percent of the total rights value for TV. TV rights accounted for 49 percent of the total value in the recent IPL auctions.

Based on our assumption that the cost of acquisition in the TV segment is at 50 percent, Z has paid a cost of ~INR 436mn/match, around 22 percent lower than that for IPL TV rights; this is a big premium (discount of mere 22 percent), as pricing is high only for India- based matches. And if India does not qualify for the later stages, the pricing may converge sharply (down 40-50 percent). As per our assessment, India matches contribute 9-17 percent of the total matches in marquee tournaments based on performance. Thus, India needs to perform well to recover the hefty content cost.        

The near-term downgrade, but with likely medium-term upgrade

Zee may draw USD 1.7bn revenues for the TV rights of matches, at an annual ROI of 2.2 percent over four years. This is assuming that it has paid 50 percent of the total value for TV. The annual ROI dynamics may change favorably to 9 percent if it has paid 40 percent of the total rights value.

Cricket as a content investment strategy is favorable as: 

1) it is among the few genres that is consumed live and with a large audience at home,

2) provides exposure to new advertisers for broadcaster, 

3) may help Z gain viewership share in urban metros and 

4) enable some edge on distribution (bouquets and packaging), better push strategy for other genres.

Expect this deal to be earnings-dilutive, near term and FY25E earnings to be cut 14 percent/8 percent (standalone Z/Consolidated merged entity) – Two tournaments – ICC T20 World Cup & ICC U19 World Cup – in that year. But potential exists for 61 percent upgrade (standalone Z) in FY28E helped by Cricket World Cup. We maintain Buy with SoTP TP (with Sony merger and synergies therein) of INR 425 (from INR 450). This is post factoring in the near-term negative impact from the sports content acquisition, even as overall long-term benefits prevail.