Zee Entertainment’s (ZEEL) board approved the sale of its sports biz (which includes the TEN brand) to Sony Pictures Networks for an all-cash consideration of $ 385 million (Rs 25.78 billion), implying valuation of over 4x FY16 sales. The deal comes with a four-year non-compete agreement and should get consummated over the next 4-5 months.
With rights for five not-so-strong cricket boards (South Africa, West Indies, Zimbabwe, Pakistan and Sri Lanka) and properties such as WWE, UEFA Football and US Open tennis, ZEEL never managed to challenge Star’s and Sony’s sports supremacy. Thus, we believe in Sony it has found the perfect suitor.
Sports remains a value-dilutive proposition in India as viewing largely remains restricted to cricket and value by-far resides with the BCCI, which sells satellite rights at prohibitively expensive prices. Due to this and amoebic ARPUs, the return on sports investments has remained elusive.
ZEEL has been stepping up its focus on regional and international channels. Use of proceeds from the sports biz sale toward these core segments should improve capital allocation, in our view. ZEEL maintained that proceeds from the sports biz sale would be used either for: 1) retirement of Rs 20b preference share liability, 2) investment in existing biz (maximum cash requirement ~Rs 10-12b), 3) international expansion, or 4) alternative means to return cash to shareholders.