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IPL: cash spinner or simply cricket

By Shuchi Bansal & Aabhas Sharma in New Delhi
February 02, 2008 13:56 IST
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You walk into Wankhede stadium in Mumbai to watch -- what else? -- a cricket match, and a liveried attendant ushers you in. He walks you to your seat and offers you chilled beer. There are other spirits available as well, for a price. The box next door is high on the glamour quotient.

Top Bollywood stars and friends of SRK are cheering his Kolkata team, pitched against liquor baron Vijay Mallya's Bangalore club in the finals of the Indian Premier League (IPL) launched by the BCCI (Board for Control of Cricket in India).

To be honest, the feisty, fast-paced, three-and-half-hour Twenty20 matches are total paisa vasool. Watching Sourav Ganguly running between the wickets with Sri Lanka's Kumara Sangakkara at the other end of the crease in a high-powered game is testerone testing. Of course, that's if you manage to take your eyes off the cheering squad that does a gig every now and then.

And, thanks to BCCI, that gig is coming to a stadium near you in about 80 days. The Indian Premier League, for which cricket players will be on auction in the middle of February, takes off on April 18, 2008. Designed by the BCCI with the help of sports marketing agency IMG, IPL is BCCI's answer to media magnate Subhash Chandra's Indian Cricket League.

Of course, BCCI's vice president and IPL Chairman Lalit Modi denies this: "ICL has nothing to do with our strategy and it is completely different from what we are doing."

At BCCI, the IPL process started some years ago. "That is why we kept Twenty20 out of all our contracts with Nimbus, Zee, Nike or Sahara," he adds.

IPL is a new concept and Modi is pleased with the kind of revenue BCCI has managed to generate -- Rs 4,000 crore (Rs 40 billion) from television broadcasting rights and another Rs 3,000 crore (Rs 30 billion) from franchising the eight teams.

In a few days, the team owners will bid for players that they want in their teams. The estimated value of each player could range from Rs 20 lakh (Rs 2 million) to Rs 2 crore (Rs 20 million) depending on his experience and stature. Clearly, the money is serious and the game could only get bigger. But will IPL's untested formula work or will the league score a duck?

Who will get what

Television rights fee from Sony-WSG - 20 per cent of $ 918 m
Promotion fee from Sony-WSG - $ 100 m
Franchisee fee - $ 723.6 m
Central sponsorship money - BCCI will keep 40% of the total
Merchandising revenue - 12.5% of the total

Team owners (individually)
Broadcasting share - 10% of BCCI's TV rights
Central sponsorship - 7.5% of the total
Gate receipts - 100%
Merchandising - 11 % of the total
Stadium hospitality - 100%
Prize money - $ 3 m for the winning team

Auction money - Could swing from a few lakhs to crores
Salaries - Minimum to be paid $ 20,000 a year
Endorsements - Individual deals

Revenue from advertising (Rs 225,000 lakh per 10 seconds)
Subscription from cable TV viewers

For a start, the eight teams were picked up for a sum far higher than the reserve price of $50 million each. Observes the senior executive of a company that lost out to higher bidders: "People have paid 'ego premiums'. We bid closer to the reserve price and even that would have been a struggle. At current prices it is impossible that the franchisees will make money." Unless IPL becomes the only cricket event in India, he argues.

Even the winners are not sure. Says infrastructure giant GMR Holdings' spokesperson: "The picture will be clearer after the players' auction. We're aware that we will not be immediately profitable. But for us, it makes absolute business sense to promote our brand through this." GMR won the Delhi airport in the privatisation bid two years ago.

Owning a team is not cheap. Numbers crunched by media agency Starcom, which advised several bidders on IPL, show that the teams are likely to lose about Rs 45 crore (Rs 450 million) a year for the first three to four years. This is based on the cost of acquiring teams, players as well as other operating expenses.

Others estimate the losses for franchisees to be as high as Rs 60-80 crore (Rs 600-800 million). "We even identified two teams that would not make money for the entire 10-year duration," says Ravi Kiran, Starcom MediaVest CEO for South Asia, without divulging the names of the franchisees. "But then, not everyone has invested money for profit," he adds.

However, franchisees needn't worry too much about costs — BCCI has promised to share a percentage of its revenue with them. For instance, 80 per cent of the total TV broadcast rights will be shared with the eight teams. From media rights alone, each team is likely to get between Rs 10-12 crore (Rs 100-200 million) every year.

Explains Globosport CEO Anirban Das Blah: "The owners will get a cut from all the deals that BCCI strikes. It is a fabulous economic model."  Franchisees could also bring in other brands to sponsor the team and use their logos on cricketers' apparel. Else, the franchisees can cash in on brand visibility and brand recall through their teams.

The broadcaster, who will pay Rs 1,000 crore (Rs 10 billion) over 10 years, will not lose out either. NDTV Media's CEO Raj Nayak explains: "The numbers make absolute sense. At just $5,500 (Rs 225,000) per 30 seconds and with a 20 per cent rate escalation year-on-year, you can hit the number bid by Sony -- of course, with some additional programming woven around it."

NDTV, too, had put in a conditional bid for the television rights to IPL. Experts say that the broadcaster must ensure that subscription revenue is handsome -- close to about 30 per cent of the total income from IPL telecast.

Sony Entertainment Television's President (network sales, licensing & telephony) Rohit Gupta says that the broadcaster is ready to tap the advertising potential that IPL offers. Since the game is of a much shorter duration, it can sell only between 1,500-2,000 commercial spots per match.

So while an ODI can accommodate 30-40 brands during the commercial breaks, T20 will not be able to get more than eight or nine brands. Obviously, the channel will demand a premium over ODI rates, which are in the Rs 150,000 per 10-second range. "The beauty is that in the breaks during the match, an advertiser can enjoy almost 'solus' advertising," says Gupta.

It's easy to see why Sony is upbeat. In the T20 World Cup, the non-India matches got a rating of 2.7 or so, close to top-rated Hindi soaps. The India versus Pakistan final got a rating of 10. "With the BCCI, the broadcaster and the franchisees promoting the event, imagine the marketing frenzy," says Gupta.

There are other upsides to the IPL juggernaut as well. The game of cricket, feels Farokh Balsara, head of media and entertainment practice at Ernst & Young, was on a shaky ground and even losing out to shorter duration sports such as Formula One and football, especially among the young. "That is where T20 helps in targeting these viewers," he says.

Cricket's first man standing

Lalit Modi, the 44-year-old Vice President of BCCI, seems to be finally giving shape to his dream for a domestic cricket league for India. The scion of Modi Enterprises who also sits on the board of Godfrey Philips, on the League's prospects

Will you have only T20 in the IPL?
BCCI runs and will continue to run and invest in all forms of cricket. The Tests and One Days are all here to stay. We will continue to build on those. They will not be part of IPL.

What is the option for a franchisee if it finds the IPL team is not making money?

People have different reasons for buying teams. Not all teams globally make money or the same amount of monies.

Will IPL have a negative impact on the international careers of players? 

All boards support IPL. If one player strays and wants to play just for money and not for his country, then the country has every right to take the action it sees fit.

What is the role of ICC in IPL?

BCCI is part of ICC, so we do everything as per ICC rules. They will be providing us the umpires, anti-corruption units, anti-doping testing and so on.

Will you cap a player's maximum salary?
No. In fact, the players stand to benefit as well. Franchisees are mandated to spend $3.3 million a year on players' salaries alone. Plus, they will earn from the auction money and prize money -- the latter depending on how much the club owners wish to share with them.

League captain

Balu Nayar hasn't had a break in the past seven weeks, for the managing director of IMG India has been working closely with BCCI on the cash-loaded juggernaut, the Indian Premier League, rolled by India's foremost cricket body. "It's something revolutionary," says Nayar, keen to share the credit of designing the format with his team

Does the IPL take off from the English Premier League or NBA?

It's not a take off from either EPL or NBA. We went to New York, held talks with people who have been associated with the National Football League, NBA, National Hockey League and looked at how their system works. Apart from that, internationally, IMG has worked closely with the premier league teams in England, so we had a certain expertise in the format. At the end of the day, it's a league, and leagues across the globe work on a home-away format, which too has been incorporated in IPL.

Your take on IPL being a money-spinning venture from the BCCI.

The IPL is not only a money-spinning exercise but also aims to strengthen the position of cricket. However, globally, the theory of a stronger domestic league doesn't always translate into a national team's success. Look at the England national team's woeful performances despite having one of the most popular football leagues in the world. The BCCI's idea is to strengthen the national team and provide a platform for youngsters to showcase their talent and in the process learn with the best cricketers around.

With foreign players and big stars in the IPL, do the domestic cricketers stand a chance to make a name for themselves?

Nobody wants the "Galacticos" (synonymous with the mighty Real Madrid team early in this decade) culture to dominate IPL. We don't want a team full of big names, which would attract audiences but doesn't help the game. Therefore, the idea of having four local players and four U-21 players (which could overlap) in the starting XI. It's the team's prerogative to field foreigners but, yes, a team can have a maximum of four foreign players in the playing XI.

Observes joint MD, Percept, Shailendra Singh: "It will be a platform for lesser-known players to play and make a mark for themselves as well as a forum for retired players to showcase their skills and maintain their brand image in cricket."

Others feel that T20 could bring back the much-needed magic to Indian television. Post Doordarshan's Ramayana and Star Plus' debut Kaun Banega Crorepati, Indian television has been starved of a mega show. A huge traction for the T20 format is expected, especially since the matches will be played after office hours, offering tough competition to the general entertainment channels.

But here's the catch. Will T20 draw spectators to the stadia and viewers to their TV sets? Also, there's the issue of player burnout. IPL will be in addition to ICC's hectic cricket calendar.

"BCCI will have to schedule its matches very carefully," observes Singh. Agrees Zee TV's Executive Vice President Ashish Kaul: "Cricket in the subcontinent is a game of national pride. Indians like to win against other countries, especially, Pakistan. The fervour for the game comes from there."

IPL will essentially be an inter-corporate battle. "Will there be viewership for these games? Will they fetch high TRPs, especially if lesser-known international players come to play?" asks Kaul. "IPL will just be a star-studded extravaganza and not cricket."

Sceptics do not bother Modi, though. "As far as the game is concerned, it will be cricket and only cricket inside the boundary ropes. It has entertainment value, as it is unpredictable, fast-paced and riveting. Added to that will be entertainment around the ground for the spectators. So there will be something for everybody," he notes.

The only thing definite is high-action excitement on the pitch.

How European football league works

Having "premier league" in their titles is not the only similarity between the Indian Premier League and the English Premier League. While EPL clubs are not "franchisees", the big ones like Manchester United, Chelsea and Liverpool do have individual owners. Manchester United was brought three years ago by American owner Malcolm Glazer (who also owns NFL team Tampa Bay Buccaneers) for $790 million dollars.

The EPL is supposed to be the most cash-rich league in the world as would be IPL -- in terms of league cricket. The EPL's broadcast deal is reported to be worth $1.4 billion. According to a report released by Deloitte, EPL accounted for 23 per cent of the entire European football market. Back home, BCCI is also the largest revenue earner for international cricket.

But how do these clubs generate money? From TV rights and sponsorship deals, gate receipts and merchandise. Add to that the money received from player sales, transfers and from winning trophies. Manchester United revealed a record turnover of £245 million in 2007.

It owns a TV channel, MUTV, which is a massive revenue generator. It has co-branded credit cards and mega stores to retail its merchandise. The club has big bucks sponsorship deals with Nike and AIG. The English Football Association gets a cut from the ticket sales as well as the TV deal but the clubs stand to gain the most.

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Shuchi Bansal & Aabhas Sharma in New Delhi
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