Introduction
Formula 1 (F1) has witnessed a significant rise in popularity in India over the past two decades. This surge in viewership can be attributed to various factors, including increased accessibility to broadcasting, the rise of Indian motorsports talents, and the advent of social media platforms.
However, the sport has also faced challenges, particularly regarding tax implications that have
affected its operations in India.
Rise of Formula 1 Viewership in India
Early 2000s: The Initial Spark
Globalization and Cable TV: In the early 2000s, the globalization of sports and the increasing availability of cable TV brought F1 into Indian households. Also, Key broadcasters like Star Sports and ESPN played a crucial role in introducing the sport to Indian audiences.
Emerging Indian Talent: By March of 2005, Narain Karthikeyan made his debut in Formula 1 at the Australian Grand Prix, driving for the Jordan Grand Prix team., making him the first Indian driver to compete in Formula 1. He was then followed by Karun Chandhok who went on to make his Formula 1 debut as well. The emergence of the Indian talent brought more eyeballs towards the sport and helped in building it’s base in the country.
2010-2013: Initial Boom and Indian Grand Prix Era
2011-2013: The introduction of the Indian Grand Prix at the Buddh International Circuit in 2011 sparked significant interest. The first race attracted over 25 million viewers on TV, marking a substantial increase in the sport's visibility in India.
Peak Viewership: During these years, F1 races regularly garnered millions of viewers, with the Indian Grand Prix itself seeing TV viewership of around 30 million by 2012.
Post-2013: Decline and Recovery
2014-2016: After the discontinuation of the Indian Grand Prix in 2013, there was a noticeable dip in viewership. The absence of a home race and changing broadcasting rights affected the numbers.
Digital Engagement: Despite the dip in traditional TV viewership, digital engagement began to pick up. Fans increasingly followed races through online streams and social media platforms.
2017-2019: Digital Transformation
Streaming Services: The rise of OTT platforms like Hotstar (now Disney+ Hotstar) started to play a significant role in how Indian fans consumed F1 content. The accessibility of live streaming boosted viewership numbers.
Drive to Survive Impact: Netflix’s "Drive to Survive" series, launched in 2019, significantly boosted global interest in F1, including in India. The show’s behind- the-scenes look at the sport attracted new fans and reignited interest among lapsed viewers.
According to a 2019 Nielsen survey, India ranked among the top five countries for F1 fans, boasting a staggering 31.1 million enthusiasts.
2020-2022: Sustained Growth and Increased Engagement
Pandemic Effect: The COVID-19 pandemic saw a surge in viewership for many sports, including F1, as people turned to televised sports during lockdowns. Digital viewership saw a significant increase.
2021 Statistics: According to Formula 1’s own reports, the 2021 season saw a global TV audience of 1.55 billion, with India contributing a significant share to these numbers. For instance, the 2021 Abu Dhabi Grand Prix, which decided the championship, saw one of the highest viewership figures in India.
2022: The popularity of F1 continued to grow, with an increased presence on social media and sustained engagement through streaming platforms. According to Mint. F1 races by now attracted around 6 to 8 million viewers per race in India through TV and OTT platforms. Beyond just watching races, Indian fans have been highly engaged through social media, official F1 apps, and fantasy sports platforms, contributing to a vibrant F1 community in the country.
The Blip
At the end of the 2022 season, The viewership rights for Formula 1 were pulled back from Disney+ Hotstar & Star Sports. Starting in the 2023 season, Formula 1 moved to its own OTT platform, F1 TV Pro for the Indian market, as no traditional broadcaster secured the rights for the 2023 season.
The primary issue was the inability to agree on the value of the broadcasting rights between Formula 1 and traditional broadcasters like Star Sports and others. Formula 1’s director of media rights, Ian Holmes, mentioned that traditional platforms did not value the rights in a way that matched Formula 1's expectations.
The specific viewership statistics for India in 2023 are not widely reported, but the general trends and feedback suggest that there has been a decline in viewership. Several factors contribute to this decrease:
High Subscription Costs: The transition from Hotstar to F1 TV Pro significantly increased the cost for viewers. While Hotstar offered a wide range of sports and other content for INR 1,499 annually, F1 TV Pro charges INR 2,999 per season exclusively for F1 content.
Lack of Broadcaster Support: Previously, ESPN and later Star Sports offered additional pre and post-race programming that engaged fans. The lack of such comprehensive coverage from F1 TV Pro has further diminished the appeal. Moreover, the absence of a traditional broadcast deal means the sport has lost its visibility among a broader audience
Market Focus Shift by Broadcasters: Broadcasters in India have shifted their focus towards owning and promoting domestic sports leagues, which offer higher returns on investment compared to renting rights for international sports like F1.
Tax Pit Stops: F1's Tax Implications from Hotstar to F1 TV Pro
The tax implications for F1 differ significantly when the broadcasting rights are with Disney+ Hotstar (operated by Star India) compared to when they are with F1 TV Pro (F1's direct-to-consumer streaming service). These differences arise due to various factors, including the nature of transactions, the applicable tax laws, and compliance requirements.
Broadcasting Rights with Disney+ Hotstar (Star India)
When broadcasting rights are licensed to Disney+ Hotstar, the transactions primarily involve royalty payments for the licensing of these rights. This arrangement triggers specific tax obligations under Indian tax laws.
Section 9(1)(vi) of the Income Tax Act, 1961 - Royalty Payments
Description: Section 9(1)(vi) deals with the income deemed to accrue or arise in India by way of royalties. The term "royalty" includes consideration for the transfer of rights in respect of any copyright, literary, artistic, or scientific work, including cinematograph films or tapes used for radio or television broadcasting.
Application: Payments made by Star India for broadcasting rights are classified as royalties. Star India must withhold tax on these payments, and F1 must report this income accordingly. Misclassification or disputes can lead to additional tax liabilities and penalties.
Section 195 of the Income Tax Act, 1961 - Withholding Tax
Description: Section 195 requires any person responsible for paying to a non- resident any interest or other sum chargeable under the Income Tax Act to deduct tax at source.
Application: Star India, when paying F1 for broadcasting rights, must deduct withholding tax on these payments. The tax rate depends on the nature of the payment and the relevant Double Taxation Avoidance Agreement (DTAA) between India and the UK, where F1 is based. Typically, royalty payments are subject to a 10% withholding tax under the India-UK DTAA.
Sections 92 to 92F of the Income Tax Act, 1961 - Transfer Pricing Regulations
Description: These regulations ensure that transactions between related parties are conducted at arm's length prices.
Application: If Star India and F1 are considered related parties, they must comply with transfer pricing regulations, ensuring the price for broadcasting rights is at market value. Non-compliance can result in adjustments and penalties.
Double Taxation Avoidance Agreement (DTAA)
Description: DTAA is a tax treaty signed between two or more countries to avoid double taxation of the same income in both countries. It provides specific provisions regarding the taxation of income such as royalties, interest, and technical fees.
Application: India has a DTAA with the UK, where Formula 1 is based. The DTAA provisions can reduce the withholding tax rate on royalties and other payments. However, complexities and disputes over the interpretation and application of these provisions can lead to challenges in tax compliance and increased costs.
Broadcasting Rights with F1 TV Pro
When F1 directly sells subscriptions through its F1 TV Pro streaming service, the revenue model shifts from licensing agreements to direct consumer sales. This change alters the tax implications.