SMARTPHONES: Oppo Shows India Resolve with Cricket Deal

Bottom line: Oppo’s major new cricket sponsorship deal shows its commitment to India, but may have to be renegotiated if and when the company’s fortunes decline in the next 1-2 years following its meteoric rise.

Oppo in India cricket deal

Smartphone high-flyer Oppo is trying to show the world it’s serious about India, with word it will pay 1.1 billion yuan ($160 million) for rights to sponsor the nation’s national cricket team. News of the deal comes just three months after China’s top smartphone brand announced plans to build a production facility in the hotly contested India market, which has become a magnet for Chinese brands over the last year.

All that raises the question of whether Oppo is for real, or just another passing fad in China’s constantly changing smartphone landscape. That landscape has seen players like Lenovo (HKEx: 992), Xiaomi and Huawei become dominant players in the world’s largest smartphone market one day, only to rapidly fade the next. It’s obviously still too early to say if Oppo will follow in that trajectory, though my educated guess would be the answer to that question is quite possibly “yes”.

All that said, this particular deal does provide a nice opportunity to take a closer look at Oppo, which has come from nowhere to take both the China and India smartphone markets by storm. The company ended last year as China’s leading smartphone brand with 18 percent of the market, and also surged to become India’s fourth largest brand with 8.6 percent share, according to IDC. That’s not bad for a company whose name was virtually unknown to many just a year earlier.

Last December Oppo announced plans to build a $200 million manufacturing base to further shore up its India position, and now this latest sponsorship deal shows just how serious it is about the market. According to media reports, Oppo is paying 10.8 billion rupees, or about $160 million, for the 5-year sponsorship deal for India’s national cricket team. (Chinese article) Local media reports say Vivo, China’s other fast-rising brand, also bid for the rights, but ultimately lost out with a smaller bid of $116 million.

The deal means Oppo’s name will appear on the jerseys of India’s national team players for 14 domestic and 20 international matches starting April 1. The reports point out that Vivo also won some sponsorship rights, but not for the coveted placement of its brand on team jerseys. For those who don’t follow the sport too closely, we should point out that cricket is a national obsession for many Indians, and is the equivalent of American football or NBA basketball in the U.S. or Premier League soccer in Britain.

This particular deal extends a series of sporting-related sponsorships by Chinese brands hoping to tap such deals to promote their brands globally. The granddaddy of those was e-commerce giant Alibaba’s (NYSE: BABA) announcement in January that it would sponsor the Olympics in a 10-year deal said to be worth $800 million.

Latest Sports Deal

Others to engage in sports sponsorships over the years include ZTE (HKEx: 763; Shenzhen: 000063), which at one point sponsored the NBA’s Houston Rockets, and Huawei, which sponsored Italy’s AC Milan. No price was given for either of those deals, which both occurred around the same time 4 years ago. But it’s a bit dubious whether either was that successful, since ZTE’s brand hasn’t made much inroads to the U.S., and Huawei is hardly a household name in Italy either.

Of course ZTE’s deal looked a bit shaky to start with, since it was only sponsoring a single local team, which hardly looks like a good strategy in such a big market as the U.S. Huawei’s deal was also a single team, though a bit higher profile. Oppo’s deal is also just a single team too, but obviously one with huge national exposure.

From a purely financial perspective, the $160 million that Oppo paid certainly looks a bit pricey, especially when one considers that Vivo offered far less. Chinese companies are often famous for such aggressive bidding, and as a result create bubbles in various asset classes both inside and outside China. Such is the case in their recent bidding for global soccer clubs, and also for broadcasting rights for various global sports leagues.

I suspect the same thing is now happening in India, since nearly all of China’s major smartphone brands have piled into the market over the last couple of years and are looking for ways to differentiate themselves. This latest commitment means that Oppo has now pledged $360 million to the India market for construction of a plant and this sponsorship deal, which is no small amount of money. The company is clearly on the up-and-up, but then again so was the now-rebuilding Xiaomi, which is also moving aggressively in India.

At the end of the day, I suspect that Oppo’s meteoric rise could be followed by an equally rapid decline, similar to what we saw with Xiaomi and Lenovo. When that happens, look for this expensive sponsorship deal to be renegotiated or possibly dropped after a year or two, and also a potentially large scale-back for the factory plan.

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