Luck & A Little Wager

First came the radio, then the extended empire of television. Live matches on apps and online sites are a few years old. Currently, though, it’s fantasy sports firms that’s hoping to entice en masse millions of diehard cricket fans. Advertisements of one firm feature cocksure, fanatical cricket fans and their sudden comeuppance when accosted by stars like Rashid Khan and Shane Watson on the Maidan and streets of Calcutta. Then there is Dream11—the most prominent of ’em all, the latest sponsor of the IPL—the fantasy sports platform wherein users can play ‘fantasy’ cricket, hockey, football, kabaddi and basketball. A shadow, however, hangs over it, what with talk of hefty Chinese funding, something that is looked at askance in the backdrop of a decisive worsening of India-China ties.

“We do not disclose our capitalisation table and prefer not to talk about it.” Harsh Jain, CEO and co-founder of Dream11, replied when asked about the Chinese link in a recent interview. Yet, Crunchbase data clearly shows that the $100 million funding Dream11 raised in September 2018 was led by Tencent, a Chinese holding and investment company.

Meanwhile, the company is trying to raise an additional $50 million, which will supposedly reduce Tencent’s stake further. Considering Dream11 is a loss-making company that has bid Rs 222 crores for being the title sponsor of IPL 2020, it needs the money.

Funding is only one aspect. The company itself has been associated with a form of betting. Although defined as an Online Fantasy Sport Game (OFSG), Dream11 had managed to dismiss multiple pleas against gambling (and GST evasion) filed against it. By now, we know the argument the OFSG segment uses to work around the law: that the game is of ‘skill’, not ‘chance’.

Interestingly, Dream11 has gone to great lengths to prove the point, roping in M.S. Dhoni for brand advertisements, using the hashtag #KheloDimaagSe (play with your mind). The company also works on a ‘freemium’ model, which essentially means that paying is optional for users, further strengthening its argument that it does not encourage using cash. However, the number of paid users as a percentage of total users is 15 per cent, much higher than the industry average of 3 per cent for other ‘freemium’ apps.

Although revenues trebled to reach almost Rs 775 crore in FY19, Dream11 spent Rs 785 crore on ads and promotions alone. Why does it need to spend so much? For starters, the app is not allowed on the Google Play Store, because it hosts cash contests, which is against Google’s T&C. Such things are allowed on Apple iOS devices but, with Android having over 95 per cent market share in India, it’s mostly a closed option.

Driving potential users to its website is one part. How do you motivate them to grow through the hassle of installing the APK (android application package) on their device? You entice them with ‘referrals’. Here’s how it works: If an existing user successfully refers someone to the app, both receive Rs 100 in their Dream11 account as gift. It’s an ingenious ploy: not only does it make sure the referrer helps another user to go through the installation process, it also goads the new user to use the free cash to try his luck.

Naturally, the business model of Dream11 is dependent on more users playing it. As more people refer others, the circle widens. A huge number of contest participants means a larger prize money (currently around Rs 2 lakh). A chance to win a greater sum will pull in new users without the referral ‘hack’—the so-called ‘network effect’.

Is it working? The numbers surely indicate that. Out of an entire base of 50 million users, Dream11 added 33 million last year. With the lockdown and the added exposure through IPL, this number is well on a trajectory to reach over 100 million by the end of 2020.

This s how the unit economics works out for Dream11: with Rs 785 crore spent to acquire 33 million customers in 2019, the CAC (customer acquisition cost) comes to around Rs 237. The ARPU (average revenue per user), calculated by dividing the revenue (Rs 775crore) by the total number of users (5 crore), comes to Rs 155. When CAC is lower than ARPU, like in this case, it means the company is losing money.

How does Dream11 plan to battle this? Recall the referral hack. A new user gets Rs 100 to use, while entry to a paid contest ranges between Rs 30- Rs 60. Given Dream11 lets 50 per cent of the participant pool win prizes, a user can easily play two games with the initial cash, drawing him in the ecosystem. Some users win an amount lower than the entry fee, but it still offers an ‘illusion’ of winning, driving him to play more. Additionally, the minimum withdrawal amount is Rs 200, so a user tends to revisit the game until he crosses that threshold. Significantly, the entire prize money is not distributed; Dream11 retains 15 per cent as “platform fee”.

Amidst all this, the BCCI has its eye on the moolah too. After claiming that the highest bid will not necessarily be the winning one, Dream11’s winning bid was exactly that. BCCI secretary Jay Shah stated in a press release: “BCCI’s decision in this regard will also depend on a number of other relevant factors, including but not limited to, the manner in which the third party intends to exploit the rights and the potential impact of the same on brand IPL” One wonders how a company banned in several states, with an opaque investor list, manages to tick all the “relevant factors” for the BCCI.

Dream11 has been an ‘official sponsor’ since last year, slated to pay Rs 161 crore annually for a four-year period. Obviously, that deal is suspended, since one cannot be both an official and a title sponsor. IPL has two official partners now—EdTech firm Unacademy and credit card payment firm Cred, both to pay Rs 60 crore each.

Considering how Vivo had become synonymous with IPL—as per agreement, no commentator/announcement can use ‘IPL’ without preceding it with the name of the title sponsor—Dream11 is poised to become a household name too.

Who, indeed, is the true gainer from the Dream11-BCCI deal for the IPL? It can’t be the Board, who is losing an aggregate amount of at least Rs 259 crore because of the pandemic-related closures and cancellations (Rs 218 crore from the title sponsorships and Rs 41 crore from official partnerships).

Is it Dream11? Though one can claim that the sudden catapult to fame will allow it to garner more users, it is definitely losing out in the short-term, having overbid by Rs 21 crore, with the second highest bidder (Byju’s) bidding Rs 201 crore. Apart from this ‘buyer’s remorse’, the bid amount makes up 30 per cent of its FY19 revenue for a 45-day event. It is a steep price to pay for a loss-making company, which is desperately banking on an additional round of investment to survive in the near term.

Or is it China? A portion of profit that Dream11 hopes to make through the IPL will be ploughed back to the country through Tencent. While we keep lauding the government’s efforts to limit China’s growing influence on our economy, it may, after all, be having the last laugh.

(Views are personal)

The author is founder/ author, Bank on Basak