India sports: In it to win it
Private equity interest in the commercialisation of sport globally is filtering through to India, with a couple of high-profile cricket deals. What other franchises and rights owners could be up for grabs?
Private equity involvement in IPL, India’s marquee cricket league, moved to a new level in October when CVC Capital Partners was awarded one of two new team franchises. Coming months after Redbird Capital backed an existing IPL franchise, it underscores how institutional investors are tapping into the commercial potential of Indian sport.
CVC paid INR 56.2bn (USD 739m) for the Ahmedabad franchise, while RPSG Group, a company controlled by local business tycoon Sanjiv Goenka, committed INR 70.9bn for a team to be based out of Lucknow. The Board of Control for Cricket in India (BCCI) was reportedly looking to generate around INR 100bn through both sales.
Private equity interest in sporting assets is a well-established trend globally. Investors typically target teams that participate in franchise-based leagues or the organizations that control the commercial rights to those leagues. There is an expectation that India, with its 1.3 billion population, is about to be drawn further into this world.
“It could well lead to more private equity players getting interested in not only IPL but also other sports like football, kabaddi, hockey and badminton which are extremely popular in India,” Shinoz Koshy, a partner at law firm Luthra & Luthra, noted.
CVC made its mark with a hugely successful investment in Formula One, which was exited in 2016 at an enterprise value of USD 8bn. The private equity firm’s current portfolio includes the commercial rights holders to three rugby competitions and global volleyball.
Redbird, which picked up a 15% stake in the Rajasthan Royals IPL franchise for around USD 37.5m in June, is also an investor in major league baseball team the Boston Red Sox, English Premier League (EPL) heavyweight Liverpool, and in media rights owners in sports such as baseball and basketball.
There has already been substantial private equity investment this year in India-based fantasy sports league operators Dream Sports and Mobile Premier League. Redbird co-led a USD 840m round for Dream Sports at a valuation of USD 8bn in November.
Sport also features in the technology, media and entertainment, and lifestyle investment mandate of emerging Asia-focused private equity firm FidelisWorld. However, it tends to avoid rights holders and team franchises, preferring to look at the broader ecosystem. Portfolio companies include Sportz Interactive, a data and analytics provider to media groups and sports organizations.
“The risk is less because the investment thesis is not limited to one team and its fortunes, but is focused on the solution and service industry providing value to all leagues and teams, across sports. That's not to say investment in teams cannot be lucrative, but the risk becomes higher because this is a nascent strategy in this geography,” said Anand Krishnan, a managing partner at FidelisWorld.
“I’m sure the ecosystem will grow as the leagues grow. There is a constant in the services business and value can be built not only in India but also overseas. Scaling businesses domestically, and particularly in international markets, remains our strategy for value growth.”
Lucrative, but long-term
IPL is the most-watched cricket league in the world and among the highest across all sports based on average attendance. The brand value of the IPL ecosystem was INR 458bn in 2020, according to Duff & Phelps. The Rajasthan Royals were worth INR 2.49 bn, the lowest of the eight existing franchises.
For IPL and most other popular leagues across football, kabaddi, and badminton, around 70% of revenue comes from media rights and 15-20% from sponsorship, a managing director at a top-tier investment bank in India noted. The remainder is generated from ticket sales.
Hotstar, an Indian subscription video streaming service owned by Disney, paid USD 2.55bn for the IPL broadcast rights over five years ending 2022, a fivefold increase on the previous deal. The tournament’s title sponsorship for the same period sold for USD 341m. For the upcoming 2023-27 cycle, the broadcast rights price is expected to reach USD 5bn.
India’s football league, ISL, is smaller, but the 2020-21 season was still broadcast live in over 80 countries, attracting 130m viewers. Abu Dhabi’s City Football Group, owner of EPL team Manchester City, and domestic corporates and high net-worth individuals such as Rakesh Jhunjhunwala and Jaydev Mody are among the 11 current franchise owners. ISL is looking to add more.
“Given that Indian football already has international tie-ups for training and talent scouting with English and European clubs, opportunities abound for those looking [to invest],” Koshy noted.
Owners of the 12 franchises in the country’s Pro Kabaddi League include entrepreneur Ronnie Screwala’s Unilazer Ventures, JSW Group and Adani Group. More than 320m viewers followed the league’s seventh season, placing it second after IPL. Observers surmise that kabaddi, considered a sport of India’s hinterlands, has huge growth potential given rising digital penetration.
Premier Badminton League (PBL), now in its sixth season, has a reported fanbase of more than 150m. Sahara India Parivar and Devyani Leisures are among the seven franchise owners. Star Sports is the title sponsor for PBL, with Hero MotoCorp and Vivo backing ISL and Pro Kabaddi, respectively.
“If not in controlling capacity, private equity funds could definitely look to invest in these franchises in a minority capacity,” said the investment bank managing director.
Sport can be a long-term investment, especially when commercialization is in its nascent stages or there are structural complications to address. CVC, for example, held Formula One for more than a decade. The private equity firm made a bold move by entering IPL, but it has the requisite experience, said a partner who covers sport at a top-tier Indian law firm.
“The first two to three years they will not make money. That will come from year four onwards and the peak is when ideally, they would like to sell it to somebody. Exit options include a trade sale, a strategic sale, or even an IPO, replicating what was done with EPLs Manchester United and Serie A’s Juventus,” the partner noted.
“Another factor is that IPL franchises are a 10-year commitment, after which the franchise holders retain ownership in perpetuity. After that point, there will be no losses for CVC or Goenka.”
The two new IPL franchises were snapped up for an average cost of more than USD 830m, up from USD 90m when the eight current franchises were established in 2008. This implies a more than ninefold increase in value over 14 years. CVC’s return on Formula One was 4.5x.
Should other franchises become available – in the IPL or, potentially, in other sports leagues – there are plenty of likely suitors, according to the investment bank managing director. US-based Silver Lake, Platinum Equity, and GTCR, and Canada’s Onex Corp all have experience investing in sport. Domestic private equity firms might also get involved as minority partners alongside corporates.
Bureaucratic bottlenecks
Of the various obstacles that investors face in India, bureaucracy might be the most significant. Sport is overseen by both the central and state governments, and then there is a multiplicity of federations and organizations claiming to be the nodal body for a particular activity.
The Indian Hockey Federation (IHF) and Hockey India (HI) were involved in a seven-year battle for recognition as the sport’s official national body. The dispute was finally resolved in HI’s favour by the Court of Arbitration for Sports (CAS) in 2015.
“Private equity investors will also have to balance their financial interests with the emotional connection of fans to their clubs and players when making decisions,” Koshy added, pointing to the protests following the sale of Lionel Messi by La Liga’s Barcelona due to financial difficulties.
Corporate governance is another potential problem. There is a history of bad actors funnelling money into Indian sports teams to serve personal agendas. Strong due diligence is paramount to “dodge those bullets,” the sports-focused partner at the Indian law firm said.
Even geopolitical tensions can play a role, with Chinese sponsors departing India following border skirmishes between the two countries. Vivo, for example, suspended its involvement in IPL for a year.
Nevertheless, these challenges are not expected to deter investors who recognize the commercial appeal of sport in India. “It is a lucrative industry in India because all sports are growing nationally and regionally, driven by rising real-time in-person and online viewership. Fan bases, market size, prestige, and brand value are all increasing,” Koshy said.
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