In today’s Finshots, we explain why the Board of Control for Cricket in India (BCCI) might have taken the edtech firm to a special court — the National Company Law Tribunal (NCLT)!

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The Story

Let’s take it from the top.

In 2017, Chinese phone maker Oppo won a 5-year deal to stamp its logo on the front of the Indian cricket team’s jersey. It spent a whopping ₹1,100 crores. But just a couple of years into the deal, Oppo had second thoughts. It felt that it had overpaid. We don’t know why but it probably didn’t see a big boost to its market share even after this prestigious sponsorship. Its other Chinese rivals seemed to be getting ahead. So Oppo looked for an exit.

Enter Byju’s, the most valuable edtech in the world. It promised to take over the rest of the contract. And Byju’s would pay the millions to BCCI.

Why though? If Oppo had already felt that the deal was too expensive, why would anyone willingly jump into the fire?

Well, maybe Byju’s had its rationale. After all, Oppo was a Chinese brand trying to appeal to the Indian psyche. Byju’s on the other hand was a Made in India brand that had already become the most valuable edtech in the world by then. It was valued at $6 billion and investors were lining up to deposit even more cash in Byju’s’ bank account.

Also, don’t forget that Byju’s was spreading its tentacles back then. It was expanding internationally to the UK, Australia, and New Zealand. Now these are cricket-loving countries too. Also, there’s a large Indian diaspora here. So you’d imagine there’d be a lot of eyeballs too.

But why spend all this money on a sports sponsorship? Why not just advertise on TV?

Well, as Andreas Kitzing, CEO and founder of sports sponsorship marketplace Sponsoo puts it:“TV advertising just informs someone that a startup exists, but sponsoring a football club creates an immediate emotional connection with the brand.”

Replace football club with cricket team and it just might be the same thing. Maybe Byju’s felt that it could create that emotional connection in the minds of Indian kids and their parents. Get them to open up their wallets more this way and rake in the money.

And within a few months of striking the deal, the pandemic hit. Everyone turned to learning online. And investors rushed to pump in more money to accelerate the company’s growth. Maybe all this money in the bank meant that, unlike Oppo, Byju’s didn’t bother about calculating the Return on Investment (ROI). After all, the valuation had soared further — even hitting the $20 billion mark. So when they had to renew the jersey sponsorship contract in 2022, Byju’s didn’t think twice. It offered a 10% higher price to the BCCI and extended the deal till November 2023. This way, the Byju’s name would still feature prominently on the Indian jersey during the T20 World Cup and the ODI World Cup. That would probably be a huge branding boost.

But as luck would have it, shortly after it signed on the dotted line, everything began to come crashing down.

See, Byju’s took 1.5 years to publish its financial accounts for FY21 (the year ending March 2021). And when it finally made this public in September 2022, everyone was in for a rude shock. While Byju’s was busy projecting revenues worth ₹4,400 crores, in reality, the revenues were only ₹2,500 crores. But what was even worse? The losses! It surged to a whopping ₹4,500 crores — 20 times higher when compared to FY20. People began questioning what was going on at the company. Investors didn’t want to put up more capital.

It had to cut costs quickly. And the jersey deal didn’t look attractive anymore. So in November 2022, Byju’s tried to wriggle its way out. It wanted to cancel its deal. Get out of it early.

And here’s where the crux of this dispute lies. See, BCCI knew it couldn’t find an alternative quickly. It was only in July 2023 that Dream11 finally came on board. Now apparently, Byju’s hasn’t paid its dues. And that’s probably why the BCCI took Byju’s to the NCLT. At least that’s what media reports indicate.

But wait…isn’t NCLT a bankruptcy court? And Byju’s isn’t actually bankrupt. Not yet anyway. So why did BCCI approach the NCLT for its ₹160 crores?

Well, NCLT might have started life under the Insolvency and Bankruptcy Code 2016 (IBC). And IBC’s raison d’etre is to salvage companies or liquidate them entirely before their assets lose all value. But here’s the thing — people have been using NCLT as a debt recovery platform.

See, there are two types of creditors to a company — a financial creditor and an operational creditor. The former are entities that lend money to the company i.e. banks and financial institutions. The latter are entities to whom money is owed in the course of normal business. It could be vendors or suppliers of goods. Or it could be someone like the BCCI which entered into a deal to supply part of the jersey for Byju’s logo in exchange for money. Now if Byju’s doesn’t pay up, BCCI will try to recover it. And since NCLT basically deals with company disputes, it ends up being the court of choice for money matters..

Also, here’s something Mint wrote in 2017, a year after NCLT was established.

Operational creditors have finally gotten hold of a useful tool to get their dues back from defaulting companies. When the bankruptcy code is triggered, an insolvency professional is given charge of the business and the management of the company can be temporarily dispossessed. The prospect of losing control is causing defaulting companies to settle, especially in cases where the dues are relatively small.

Basically, if the NCLT believes that this a case of a company fighting insolvency, it could trigger the IBC code and take over the management. Byju’s wouldn’t want that, right? After all, there’s plenty of news suggesting it hasn’t been able to pay employees or raise fresh capital. So it might fear that the NCLT could take a drastic step. Byju’s might try and settle the dues faster. Or at least part of it.

Maybe that’s why instead of giving a usual “No comments” statement about this matter, Byju’s actually said that they’re trying to settle the matter with the BCCI.

Now we’ll just have to see how this plays out for Byju’s. All we can definitely say is that the sponsorship which was supposed to be a branding exercise has probably done more harm than good.

Until then…

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