Zee-Star $940 million arbitration: A precedent in the making?

The ongoing $940 million arbitration between Star India and Zee Entertainment Enterprises Limited (ZEEL) over ICC TV rights is set to have significant implications for India’s sports broadcasting landscape. Star has accused Zee of breaching a sublicensing agreement for ICC TV rights, with analysts estimating that the dispute would result in annual losses of Rs 1,520 crore for ZEEL in FY25 .

As the dispute unfolds, industry experts believe the outcome could set new precedents for future sports rights deals, with both parties considering a negotiated settlement to avoid prolonged legal and financial turmoil.

In August 2024, Star India initiated arbitration against Zee, seeking $940 million in damages for alleged non-compliance with their 2022 alliance agreement. This came after Zee reportedly missed a crucial payment of $203.56 million in December 2023, prompting Star to claim a breach of contract. Following this, Star terminated the agreement, leading to a flurry of legal actions and counterclaims.

According to Kushagra Sharma, partner at KP Associates, this dispute highlights the complex nature of high-value broadcasting rights agreements in India. “The outcome could significantly impact the sports broadcasting landscape and set precedents for future deals,” he said.

“In this case, both parties will likely explore all available legal and business options to protect their interests.”

Sharma suggests that both parties may ultimately benefit from exploring negotiated settlements to protect their interests and avoid protracted litigation. “The final outcome will depend on the specific contract terms, the nature of Star India's alleged non-compliance charge, and the quality of evidence presented by both parties. Given the high stakes and potential for protracted litigation, a negotiated settlement may be in both parties' best interests,” he shared.

Saurav Agrawal, an advocate at the Delhi High Court, notes that there will be significant financial implications for Zee. Agarwal highlighted that though Star India-Zee dispute would ultimately get resolved in arbitration, the incident will leave behind significant financial and business repercussions. “It is certainly not good for the businesses. Going forward the stakeholders should negotiate more commercially sound and workable terms, including creating windows for parties to come out of the agreement if the deal is not going well.”

He also added that as regards the arbitration, it’s in its nascent stage and would take about two years. “Zee would surely be contending that termination was improper and may be making a counterclaim,” added Agarwal.

In the immediate aftermath of Star's arbitration filing, ZEEL announced a series of investor meetings in Singapore from September 25 to 27, 2024. This move comes as part of their strategy to reassure investors and communicate their position amidst the turmoil. In a regulatory filing to the Securities and Exchange Board of India (SEBI), ZEEL has categorically refuted Star's claims, asserting their commitment to contest all allegations vigorously.

With their shares recently dropping 56% from a 52-week high, the ongoing dispute is expected to result in annual losses of Rs 1,520 crore for ZEEL in FY25, according to analysts, primarily due to high content costs and diminished sports ad revenue.

The dispute also comes at an interesting time, where Star is in the process of merging with Jio in an unprecedented merger in the media and entertainment sector, said Shri Venkatesh, Managing Partner, SKV Law Offices. He added that while it is too early to understand the outcome of the dispute; the quantum of the damages sought paired with the much-coveted ICC broadcasting rights being in the balance would mean Zee may face turbulent market reactions throughout the course of the dispute.

In a regulatory filing made to Securities and Exchange Board of India, Zee has stated its intent to contest “all unfounded claims by Star”, while categorically refuting the claims and assertions made by star. The LCIA Arbitral Tribunal is yet to determine if the company is liable in any manner.

“We believe that the not-for-profit entity will pass an award considering it’s understanding of the dispute, which may or may not follow post-award proceedings. Given Zee’s previous statements saying, “sports as a strategy is not there for us.”, it would be in the interest of all parties to mediate and settle the dispute. However, given costs arising from the previously failed merger between Zee and Sony may mean trouble for the media giant,” said Venkatesh.