By the time this issue hits the stands, cricket’s (or, at least, IPL’s version of it) new owners will be getting ready for a huddle with the Board of Control for Cricket in India (BCCI) on February 8 and 9 to discuss the modalities for player auctions. These won’t come cheap—the 80 ICC-ranked players already contracted by BCCI will cost $100,000-400,000 (Rs 40 lakh-Rs 1.6 crore) per season. Lesser mortals, like the Ranji players, can expect $50,000 (Rs 20 lakh), while rookies will pocket $20,000 (Rs 8 lakh).
This begs the question: apart from lording over some deified sports superstars, what exactly are the franchisees looking for? Admits Mohit Burman, Chairman, Dabur Pharma, who, along with Apeejay’s Karan Paul, Bombay Dyeing’s Ness Wadia and Bollywood glamour girl Preity Zinta, won the bid for the Mohali team for $76 million (Rs 304 crore): “This will be a good marketing platform for any company that associates itself with IPL and we will associate the team with whichever company makes sense and not only with brands owned by any consortium member.”
Milking the game
Shares of spoilsFranchisees have two streams of revenues— central and local. The first (which the BCCI will share with teams) includes media rights and sponsorship, while the second (teams keep the entire amount), includes stadium ticket sales, local sponsorship, concessions, merchandise, et al.
It is apparent that until the league, which kicks off on April 18, picks up critical mass and builds equity in its local markets (this takes anywhere from 5-10 years in an evolved market), the teams will be heavily reliant on central revenues to sustain themselves. This includes 80 per cent of TV revenues for the first five years and 60 per cent for the next five—split eight ways for the eight franchisees.
Fixed expenses for the franchisees includes 10 per cent of the winning bid payable annually for 10 years. In addition, each franchisee has to spend a minimum of $3.3 million on its team—which will comprise at least 16 players.
What’s ICL up to?
Probably stung by the hype over IPL, ICL has been galvanised into action. According to Himanshu Mody of Zee, ICL is also looking at roping in corporate sponsors and the option of companies owning the respective ICL teams. “We have our sponsorship plans in place and will hit the market soon with these plans,” he says, refusing to reveal much else.
Clearly on the backfoot, Mody though puts up a brave front. “Not having BCCI’s support or its recognised players is not a hurdle for us. According to me, every product has a place and eventually it will find its due recognition,” he points out.
Player fee: Each player will be up for grabs on an annual basis. A rookie will pocket a minimum of $20,000, a Ranji player a minimum of $50,000 and ICC ranked players from $100,000-400,000. “Icon players” (Tendulkar, Ganguly, Dravid and Yuvraj) will not be auctioned and will have to play for their “home” cities. They will be paid 15 per cent more than the highest paid player in their respective teams.
Prize money: IPL will offer $5 million (Rs 20 crore) in prize money; the winners will pocket $2 million (Rs 8 crore). Key factor: Where IPL scroes over ICL is in the number of international cricketing legends, among them Sachin Tendulkar, Mutthiah Muralitharan, Shane Warne, Glenn McGrath.
Sunil K. Alagh, Chairman, SKA Advisors, a marketing consultancy firm, explains: “There is definitely scope for Indian brands to ride IPL into foreign markets. For instance, the team that has Sachin Tendulkar can leverage his goodwill to take brands overseas.”
It’s not just the franchisees, but even BCCI which stumbled onto a sitting duck of a gold mine. “Globally, owning teams is a big business. In India, too, we feel this sector will emerge as a thriving business in future,” says Lalit Modi, Vice President, BCCI, Chairman of its Marketing Committee, who expects each of the franchises to be worth $400-500 million (Rs 1,600-2,000 crore) after 5-10 years. Indian cricket’s pashas, of course, also need to thank the Subhash Chandra-promoted Indian Cricket League (ICL) for rousing them from their slumber.
Will it be profitable?
It may well be a case of sour grapes, but one of the losing bidders insisted that making money on IPL will be a big challenge. “For one, the bids are too high. Secondly, there’s not much scope of leveraging your brands as the title sponsorship of the team is not in the bidder’s name,” says Kishore Biyani, Chairman, Future Group, which lost all the five teams it had bid for. Biyani’s charge does hold water. While all the franchisees were unanimous that it will take at least 3-4 years for them to break even, Modi pointed out that none of them could name a team after themselves. “No corporate names will be allowed. Teams will have to carry the name of the city followed by another name,” he asserts.
For all those multi-hued jerseys and pyjamas on and off the field, it will be the colour green that will matter most. Most franchisees, still recovering from the euphoria of their wins, are at the drawing boards, busy finalising their revenue streams in accordance with BCCI’s directives. Explains Farokh Balsara, Head (Media Practice), Ernst & Young: “Apart from the revenue streams chalked out by BCCI, franchisees can explore the medium of internet and mobile games, music and other merchandise and revenues through special TV programming.”
Television rights, gate revenues and sponsorships will form the bulk of the revenues for the franchisees (see Shares of Spoils), though the returns may not be huge initially. Himanshu Mody of Zee Sports and the man at the helm of ICL, is not very sure how IPL can become an economically viable proposition.
He says: “I am not sure if there is any financial sense in the broadcasting rights and franchisee rights sold by IPL. They claim the broadcast rights have been sold at $1 billion (Rs 4,000 crore) for a period of 10 years. Of this, the rights for the first five years is worth only $305 million (Rs 1,220 crore), while those for the sixth to the tenth years are $613 million (Rs 2,452 crore).” Mody’s assessment may not be entirely free of bias, but it does seem to warrant creases on the foreheads of the franchisees.
The shopping cart
The eight successful bidders have paid $723 million for the right to own teams in IPL.
Franchisee Owner/Team/ Cost
*Badale is Chairman of Emerging Media
|The top cricketers are Sachin Tendulkar, Rahul Dravid, Sourav Ganguly, Yuvraj Singh, Glen McGrath, Shane Warne, Adam Gilchrist and Mutthiah Muralitharan|
Stock analysts tracking the media sector, meanwhile, are waiting and watching how IPL pans out. Girish Swar, Senior Analyst tracking the media sector at Anand Rathi Securities, says: “I have not yet studied how the EPL (English Premier League) model or the NBA (National Basketball Association) in the US works. But honestly, I do not see a point in these teams getting listed on the stock market as the revenue potential is very limited. It is just one game and one team. Maybe after five years or so, if these companies expand their scope to include other sports, then their listing will make sense.”
This may be an extreme view, but most analysts feel that it is too early to speculate on these aspects and every player will have to wait and watch to see how the business aspect of team ownership progresses. But the one party that is merrily giggling away to the banks is BCCI, which has pocketed a neat $1.75 billion (Rs 7,000 crore) by way of television rights and franchise bids.
Lessons for Indian sports
Team buyouts may be old hat in the US and Europe, but the phenomenon is still a nascent phenomenon in India. “It will mean reach and support for local-level sports teams in future and while a good beginning has been made with cricket, we will hopefully see this happening in other sports in the country as well,” says Mahesh Ranka, General Manager, Relay Worldwide, the sports arm of media-buying firm Starcom Mediavest.
According to Anirban Das Blah, Vice President, Globosports, a Bangalore-based sports management company promoted by tennis star Mahesh Bhupati, outside of the World Cup, IPL is the biggest cricket property and can be equated to the NBA league in the US and major European soccer leagues like the EPL and the German Bundesliga. “It’s the beginning of corporatisation of sports and professionalisation of players in India,” he says.
So, will the model be replicated for other sports, which are, literally, cricket’s poor country cousins? “I think a lot will depend on the success of this venture. More investors will take to other sports like football and hockey if IPL is successful,” says Burman.
Will IPL work? We’ll have to wait for a definitive answer to that. But given the passion that cricket ignites in India—and given the fact that some of the country’s most successful businessmen have invested money upfront— it’s fair to say that it has a better than fair chance of hitting pay dirt.