Following the new taxation policy, most e-gaming brands have paused advertising and are exercising caution. Brands will likely stay away from the ICC World Cup, say industry insiders.
E-gaming brands have become one of the biggest advertisers in recent times. These brands tend to spend more than 50% of their revenues towards advertising, especially during the Indian Premier League (IPL) and other important cricket tournaments. However, it has all come to a standstill due to the government’s new taxation policy for the e-gaming sector.
On July 11, 2023, the government announced that it has decided to levy a 28% tax on online gaming. This means, the total tax collection on player winnings, will go beyond 50%, including GST, platform commissions and income taxes.
The decision has shook the young and booming industry. Players are urging the authorities to relook into the decision, while working on their business models, and have cut down all expenses, including advertising, with immediate effect.
Vinit Godara, co-founder and CEO, MyTeam11, says, “If this new taxation proposal goes through, it will adversely impact the cash flows of the business. Also, advertising spends will have to be severely curtailed. We have currently paused all our campaigns. I believe it’s not just us. Many other players have also done so across platforms - social media or television or digital.”
“Digital contributes more than 50% of our marketing spends. Pausing campaigns on digital is sure to impact new user acquisition and growth. However, unless there is more clarity on the decision, going forward, we will be left with no choice but to be cautious,” he adds.
Another spokesperson from a leading media buying firm, states that their client has given them a 30-day notice to pause all their ads.
E-gaming platforms to stay away from ICC World Cup?
MyTeam11 has been a regular IPL advertiser for the past few years. However, the company will not advertise during the upcoming ICC World Cup.
“After a successful IPL, we were looking forward to the festive season, as well as the Asia Cup and the World Cup to acquire, and engage with, new users. But now with this decision and the resulting lack of clarity, we have had to put our plans on hold. At this moment, we will just wait and see how things unfold. If it is implemented in its current form, then we will have to revisit our plans and see how we, as an industry, plan ahead,” shares Godara.
According to Sahil Shah, president at Dentsu Creative, advertising is a huge expense and, unfortunately, a liability at the moment for these brands. “Nobody will spend Rs 50 crore during the festive season without knowing the outcome.”
“Purely from a digital point of view, these brands will spend Rs 400-500 crore in the second half of the year. Festive season will take up 40-50% of these spends, TV spends will be 4x of digital spends,” Shah reveals.
The ongoing India vs West Indies test series also did not have any ads from e-gaming players. A source from a leading digital media company says that the absence was a result of the regulations that restrict such advertisements. They say, because of the government norms, questions are being asked whether it would be judicious to spend money on the Asian Cup and World Cup.
“Brands cannot take the risk of going all out in advertising. The uncertainty surrounding the sector calls for a cautious approach,” they add.
Rammohan Sundaram, president, integrated media at DDB Mudra Group, says that the situation will lead to cost-cutting.
“The first item on the platter which was earlier considered as an investment, now becomes a cost and, naturally, will be shaved off from your expenses. So, one will be cautious, going forward.”
However, Sundaram also suggests that brands that have cut down their expenses at the moment, may return during the World Cup. “There is a lot of cricket to be played in the calendar year and one has to be prudent on the investments one does. This year’s second half is when the World Cup is, which also coincides with the festive period in India. Naturally, people will be more interested in the World Cup that is happening in India.”
What does this mean for the industry?
E-gaming players have spent humongous advertising dollars on cricket in recent years. According to Fintrackr, the ad and promotional spends for these startups grew 27% year-on-year to Rs 5,191.3 crore in FY22, up from Rs 4,197.9 crore in FY21. Dream11 is the biggest advertiser in the sector. The company spent Rs 2,158 crore on advertising, accounting for 41.5% of the overall ad spend by the top 15 e-gaming companies in the list.
Gaming companies have reportedly put in almost Rs 2,000 crore in this year’s IPL marketing. Unlike 2021 and 2022, this IPL saw newer categories of gaming advertisers like Winzo (social gaming app) and Cybeart (gaming chair brand) emerge as new advertisers.
With the World Cup and the festive season coming together, these expenses were expected to rise. Moreover, this year, Disney+ Hotstar announced that the Asia Cup and World Cup will be made available as free-to-view to all mobile phone users accessing their application.
Shah of dentsu Creative states, “You may see media owners (TV and digital) turning up to other advertisers for the World Cup and, if that is not picked up, there may be a situation where some inventory could get discounted.”