Business Today

Let the game begin

The Indian Premier League has mobilised Rs 7,000 crore for BCCI even before the first team has been announced. Why are hard-nosed businessmen betting billions on a still unproven concept? Tejeesh N.S. Behl & Anusha Subramanian find out.

Tejeesh N.S. Behland Anusha Subramanian | Print Edition: February 24, 2008

The game begins
IPL franchisees will lord over the superstars
Roman Abramovich, Alexandre Gaydamak and deposed Thai premier Thaksin Shinawatra now have Indian clones, aka Mukesh Ambani, Vijay Mallya, Shah Rukh Khan and Preity Zinta, among others. For, the last four are among the chosen few granted franchisee rights over teams in the Indian Premier League (IPL) that will “own” the demi-gods of Indian and world cricket like Sachin Tendulkar, Rahul Dravid, Sourav Ganguly, Yuvraj Singh, Mutthiah Muralitharan and Adam Gilchrist.

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 spoils

Franchisees 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.

Money talks

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.

Indeed, nothing sells in India like cricket and Bollywood—and mixing the two is any marketer’s aphrodisiac. This, perhaps, explains the presence of Shah Rukh Khan and Juhi Chawla, who along with her husband Jay Mehta, now own the Kolkata team, which they bought for $75.09 million (Rs 300.4 crore). “King” Khan, the shrewd marketer that he is, has already roped in Anaita Shroff Adajania as the uniform designer for his team—perhaps pinning hopes on adding a dash of Bollywood bling to cricket.Given that it will be a Twenty20 format, adding the glamorous blurbs like cheerleaders will come naturally in a bid to attract greater hordes—both in stadia and television. “We are looking at this venture as a serious business proposition and we will be fielding all our creative and marketing resources— a necessity for us, as we don’t have deep pockets,” asserts Fraser Castellino, CEO, Emerging Media, the London-based Manoj Badale-promoted company that partnered with Lachlan Murdoch’s company Illyria, to win the Jaipur franchise for $67 million (Rs 268 crore). Emerging Media has been a long-standing investor in cricket through its subsidiary Investors in Cricket (IIC).

The company has a partnership with Leicestershire County Cricket Club and had staged the first ever international club Twenty20 championship in 2006 and will be counting on this expertise to see it through in this new venture. Branding, of course, will get a major leg-up in this whole carnival. Says Vijay Rekhi, MD & President, United Spirits: “For us, this is going to be a great marketing platform. It will be a brand promotion and marketing vehicle to mount one of our various brands.” He adds that since the group owns so many brands, it will not be looking at thirdparty brands for sponsorships. And Burman says IPL will also be a good platform for Indian brands to tap the overseas market, given the fact that the league’s main attractions will be the presence of internationallyrenowned cricketers playing in the domestic circuit.

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

  • Mukesh Ambani/ Mumbai/$111.9 million (Rs 447.6 crore)/Reliance Industries

  • Vijay Mallya/ Bangalore/$111.6 million (Rs 446.4 crore)/UB Group

  • T. Venkattram Reddy/ Hyderabad/$107.01 million (Rs 428.04 crore)/Deccan Chronicle

  • N. Srinivasan/ Chennai/$91 million (Rs 364 crore)/India Cements

  • G.M. Rao/ Delhi/$84 million (Rs 336 crore)/GMR Holdings

  • Preity Zinta/Ness Wadia/Mohit Burman/Karan Paul/Mohali/$76 million (Rs 304 crore)/Consortium

  • Shah Rukh Khan/Juhi Chawla/Jay Mehta/Kolkata/$75.09 million (Rs 300.4 crore)/Red Chillies Entertainment

  • Lachlan Murdoch & Manoj Badale*/ Jaipur/$67 million (Rs 268 crore)/Emerging Media

*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
According to BCCI’s Modi, franchisees are free to rope in PE investors to bankroll their initial investments and at a later stage, even float equity. “It’s their asset and team. They are free to operate it as any other business,” he says, adding that there’s no bar on the franchisees selling their teams to another buyer should such an offer come their way. There were even media reports saying that some such offers had been made. But all the franchisees that BT spoke to dismissed these as rumours. Castellino of Emerging Media says: “No one has approached us to buy the Jaipur team.”

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.

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