Safeguarding Investments in Sport – The Role of Law
By Nandan Kamath
Since its launch in 2008, the Indian Premier League (IPL) has witnessed some of the biggest financial investments in sports in India. In line with international leagues and tournaments, concepts such as player auctions, the franchise model and corporate ownership, have made an entry into the Indian sports market and the sports business vocabulary.
The success of the continuing seasons of the IPL has provided but a glimpse of the immense potential for sport business in India. The willingness of investors, the value of broadcast rights, the marketing juggernaut and enthusiasm with which much of this has been lapped up by the public have been noteworthy features of the four seasons of the league.
The major sources of revenue for any sporting events are broadcast rights, sponsorships, merchandising and ticket revenue. It is generally observed that higher viewership reflects in increased willingness on the part of advertisers to buy TV ad spots and this, in turn, raises the value of broadcast rights. Also, TV broadcast generates interest among sponsors to associate themselves with the teams, and even the players. Therefore, viewer engagement and participation are the central drivers for promoting any sporting activity.
While it is evident that successful business models have been established around cricket in India, the marketing of non-cricketing sports events will be successful depending upon the performance of Indian sportsmen, sportswomen and teams in those disciplines. The success of sports stars will encourage entrepreneurs to show an interest in marketing and investing in those disciplines.
It could be argued that some other developed markets have far more actively engaged sports fans, by dint of the sheer numbers of its population, India has the potential to build one of the largest sports industries in the world. It is but obvious that size can be a tremendous boost, as sustained viewer engagement and participation is the source of most of the value in sports. A significant portion of the revenue is premised on eyeballs and engagement. With a billion plus population, while ours is certainly an avid sports-watching nation, the industry would really transcend to the next level in our country as we transform into a successful sports-playing nation.
As the Indian sports ecosystem expands and grows in size and stature, and attracts huge financial investments, the Indian legal system should try to meet the challenges. The success and sustainability of sports will, in large part, depend on the ability of the law to meet the challenges posed.
There are several challenges to attracting investments in the Indian sports industry. Much of this comes down to having legal and other mechanisms in place to protect the return on investments. If the law can protect the returns, it will incentivise more and larger investment. The primary challenge for the legal system will be in limiting revenue leakage. Once law can ensure that large portions of the revenue from sport remain in sport, more is also available for re-investment in sport. Good laws and enforcement can thereby spur further growth. On the other hand, if the law doesn’t protect the investment and the returns, we may still see growth but it may not be at optimal levels.
One of the significant issues of concern for investors is the quality of sports federation governance. Accountability and transparency are vital to incentivise investment and often these are areas of concern when it comes to local sports bodies. Sanctity of contract is a key matter of concern, especially in public-private partnerships that can play a significant role in the development of sport. A number of sporting disciplines have much promise, including commercial potential, but this promise can be actualized only with investment and effort in talent development, promotion, marketing and fan engagement over a number of years. If the investor in the sport does not have the certainty that he will be able to reap the rewards of his investment in the long run, it is unlikely he will invest with confidence. The Indian sports market has seen a few instances of large privately funded sports projects being taken over by federations just as the models were beginning to bear fruit for those that had funded them. An increased respect for long-term contracts that have been entered into and mechanisms to effectively and expeditiously resolve disputes would be a welcome development to set this record straight.
There are also a number of associated operational concerns which need to be addressed adequately by the legal system: ambush marketing, broadcast piracy, counterfeiting of merchandise, ticket scalping/black marketing, intellectual property theft and other acts of commercial free riding. All these acts divert money from the sport to private parties who have no interest in its long-term development. The law on the books, and in practice, must step in and protect leagues, teams and players from these infringements as the integrity of the sports system is at stake. In order to foster the growth of the sports industry with the inflow of investment, the law should try to crack down on such activities. The enforcement of copyright, trademark and other intellectual property laws remains rather lax and the awareness and respect for these among members of the public leave room for improvement. As the industry and collateral markets grow, the participating athletes will also need specific legal protection. A large revenue driver, in the future, is going to be professional leagues/team/player merchandising, where names and logos are placed on clothing, memorabilia, gadgets, digital goods and the like. Therefore, introduction of legislation concerning individuals’ publicity rights, which currently fall in a grey area, will protect the players against the unauthorised commercial use of their names, images and likeness in the growing merchandise market.
The guiding principle should always be that those who haven’t invested in sport should not gain from it. Having said that, sports will always remain part of the culture of any nation and in the name of protection it is impractical and undesirable to completely close off opportunities for sports viewers and members of the public to interact with content. Over-reaching laws can backfire as the core value remains user engagement. This means that, whether or not for commercial gain, user-generated content, fair uses of content and journalistic reporting may need legal protection rather than prohibition as they add to the grandeur and the fanaticism that make for great sport.
As the Indian sports industry evolves, the increasing maturity of the legal system can go a long way in fostering and encouraging its continued growth.
© The Sports Law & Policy Centre