From the iSport IPL Paddock, we bring to you an IPL special as iSporter Maharshi Vaishnav gives a practical perspective to the IPL and it's rise from season I till date. Read more to know more about the numbers, valuation and a concept that is now an exciting business proposition!
My cousin hails from a small town in Saurashtra in Gujarat. A huge cricket devotee, he had cricketers’ photographs pasted all over his wall. As a kid, while playing cricket, he would make a conscious attempt at imitating the inimitable batting styles of Sir Viv Richards, Mohd. Azharuddin, David Gower etc.
Now, he called me last night and expressed his desire to visit Mumbai and watch ‘just 1 match’ of the 2010 Indian Premier League at the Brabourne Stadium. I promptly checked out the IPL ticket site and realized that if the 2 of us have to watch ‘just 1 match’ in a decent grandstand at Brabourne, it will cost us something in between Rs. 6,000-10,000.
I did a quick math and realized that if I were to visit only the 8 home matches (Brabourne & D.Y. Patil Stadium) of the Mumbai Indians through Season III, I may end up spending close to Rs. 30,000.
Since when did cricket become an elitists only sport? I mean Rs. 30,000 is still quite a lot of money for majority of Indians. We aren’t necessarily a sporting nation where a sizeable chunk of an individual’s wallet goes in watching their favorite team / sportsperson in action. And even in a sporting nation – lets take England here, a season pass at Old Trafford for all home matches (minimum 19) of Manchester United cost anywhere between Rs. 35,000 – Rs. 60,000 for adults and Rs. 17,000 – Rs. 28,000 for senior citizens.
We are predominantly a cricketing nation where affordability is one of the foremost criteria while selecting a sport for watching or as of that matter for even taking it up as a career. This actually makes me wonder if the brouhaha around the Indian Premier League is really worth.
Is it a Midas touch or is it a chimeric fallacy?
Last year, post the Season II, Brand Finance – a UK based consultancy had pegged IPL’s total enterprise value at US$ 2.01 billion or roughly at Rs. 9,100 crores and the IPL’s standalone brand at US$ 311 million or Rs. 1,400 crores. This year, its valuation is expected to increase by at least 50%. And yes, we should not forget that a little known Kieron Pollard has been bought by Mumbai Indians for a massive US$ 1.8 million in Season III auctions.
So where does it derive this humongous value from? Let’s look back at its genesis and its journey just in case it helps us understand this ever burgeoning business better.
Destiny’s child since conception
The Board of Cricket Control of India (BCCI) was caught napping. Its fiefdom was suddenly threatened by Subhas Chandra’s renegade T20 Indian Cricket League (ICL). ICL’s impact and influence on international cricket was gradually growing and it was imperative for the BCCI to pursue some restorative course.
The IPL was an experiment - a hastily concocted format – an attempt at redemption and to combat the ICL. Season I passed with flying colors with stupendous corporate investments, massive advertisers’ commitments and amazing brand salience.
Season II saw Messrs Chidambaram and Co. springing a surprise. Citing national elections and non-committal security, the BCCI was declined permission to host the event as per schedule. This plus a legal squabble between the BCCI and its broadcast partner in India, Multi Screen Media Pvt. Ltd (MSMPL), added to the confusion.
It was only when Lalit Modi, Chairman & Commissioner IPL and the force behind IPL, quite astutely, shifted the entire event to South Africa, that the world got to see another spectacle. Critics had attributed Season I’s success to the novelty factor. Now, it had to excel and succeed in Season II in order to redeem itself.
And boy it did! IPL Season II turned out to be the bete noire of its harshest critics. The spectacular show in South Africa and the exciting cricket played by all the 8 teams had put brand IPL on a firm pedestal. More importantly, it had meant great business for those who played on the ground as well as off it too.
IPL Season II not only attracted record viewership, it generated immense response from advertisers and sponsors too. Despite the tournament being played outside the country, all teams had increased brand sponsorships and associations backing them.
The data on television viewership trends and reports of packed stadiums highlight the fact that the shift to South Africa was, in retrospect, a pragmatic one. It proved to be a win-win solution for almost every stakeholder—the tournament didn’t suffer, Indian fans got to see competitive, world-class cricket, and a new set of international fans got hooked. The only glitch was the Indian cricket fan who was denied the pleasure of watching a match live in the stadium. But then it couldn’t have been helped. Then there was a definite surge in revenues despite the shift to a neutral venue, because these are generated largely through media rights and sponsorships.
Quantity over quality
Television research data by TAM Media Research Pvt. Ltd., indicates that the average television rating points, or TRPs, were lower for matches in Season II. But the heartening fact was that the overall number of viewers was much more than Season I.
TRP is a simple calculation that takes into account the total number of viewers watching a particular programme for at least 1 minute. According to TAM, the average TRP in 2008 was 4.8%. In 2009, it was 4.04% for the first 35 matches. Considering that the 2009 Lok Sabha elections were a big distraction during Season II and viewers may have been switching channels to find out what was happening on the political front, this marginal dip is more than acceptable.
The total number of people who watched Season II, however, was 109.7 million, compared with 85.6 million in Season I, according to Audience Measurement and Analytics Pvt. Ltd, or aMap.
According to data from TAM, the top three programmes in terms of TRPs between 18 April and 24 May during Season II were IPL matches. The TRPs of Top Programmes indicates that when the IPL matches were on, other programmes took a back seat.
While the ad rates for Season II went up at least 35-40% compared with Season I, MSMPL has the room to hike them further in 2010, since the reach and attractiveness of IPL has been reaffirmed.
It’s raining money….
The IPL as a business has primarily 5 modes of making money
Broadcast deal
Before Season I, Multi Screen Media Pvt. Ltd (MSMPL) and World Sports Group (WSG) signed the IPL broadcast deal with BCCI for Rs. 4,048 crore for 10 years. But it was renegotiated just three weeks before Season II to Rs. 8,700 crore for 9 years.
There are rumours that around 80% of this fee will have to be paid by MSMPL. Media strategists are skeptical and feel that it may be tough for the network to generate profits from the deal. The more than overwhelming interest from marketeers / advertisers in last 2 seasons of IPL, however, indicates it may not be so.
During Season II, MSMPL’s 10 seconds ad spots for the semi-finals and the final went for Rs. 10-12 lakh; 150% more than the opening rate of Rs. 4 lakh per 10 seconds in Season II itself, and 20-50% more than the Rs. 8-10 lakh for the semi-final and final in Season I.
According to estimates by media buying agencies, MSMPL grossed around Rs. 300 crore in Season I in ad revenues. The IIFL report says that in Season II, the broadcaster may have raised around Rs. 700 crore. Although, MSMPL will only be able to make handsome profits if they are able to consistently sell ad rates at a premium. So far they have managed to do so even under uncertain market conditions.
Franchise fees
Be it the Manoj Badale / Shilpa Shetty owned Rajasthan Royals (incidentally the cheapest franchise) or the Mukesh Ambani owned Mumbai Indians (the costliest franchise); the BCCI will receive around Rs. 333 crores per year from all 8 franchises.
Central sponsorship revenues
Central sponsors have currently spent a huge amount for each sponsorship slot. The likes of DLF, Hero Honda, Pepsi, Citi, Vodafone, and Kingfisher have been tied up for varying periods with IPL, at approximately Rs. 100 – 120 crores per year. With the league expected to expand to 10 teams by 2011 and with newer audience joining the bandwagon, the sponsorship rates are bound to go further up.
Global theatre screening
As if the record audience on television wasn’t enough, the IPL has sold the theatrical rights to Entertainment Sports Direct (ESD) for around Rs. 350 crores for 10 years. ESD has a joint venture with UFO Moviez to screen IPL matches in HD quality across 1,000 cinema screens across India. The IPL will share the revenue ensuing out of this with ESD at a flat 50:50 basis.
Online streaming rights and GEC partnership
In a move not appreciated with MSMPL (Set Max), the IPL has joined hands with YouTube (the most popular online video sharing site) for live online streaming telecast and the General Entertainment Channel Colours for launching various entertainment shows around the IPL.
While the IPL matches on YouTube will be aired after a lag of 5 mins, Colours would be telecasting the post match party, fashion extravaganza, its popular Indianized Fear Factor a.k.a. ‘Khatron ke Khiladi; with IPL cricketers etc. to target the women viewers.
The biggest concern with the YouTube deal however is going to be bandwidth issues that plague most Indian online users.
The teams aren’t that lucky though….
And each IPL team has more or less the same sources but aren’t too sure of it…
Central broadcasting revenue
The new deal that BCCI signed with World Sports Group (WSG) and Multi Screen Media Pvt. Ltd (MSMPL) was an unexpected bonus for teams. The details of the deal between the 3 partners were not made public, but according to a report by IIFL, the institutional equities arm of brokerage firm India Infoline Ltd. The new contract ensures that MSMPL will pay BCCI in excess of Rs. 650 crore for each of the first four years and around Rs.1,100 crore for each of the next five years.
This means that the amount that the WSG-MSMPL combine pays to BCCI will increase in later years, though franchisee share in television revenues will come down from the current 80% for years 1-3 to 70% in years 4 - 5 and 60% from the 6th year onto 10th year.
Central sponsorship revenue
Through Season I & Season II, the IPL management could not find new takers for the three vacant central sponsorship slots. BCCI earned around Rs. 100 - 120 crore from sponsorships and 60% of this went to the teams. So the revenue from this kitty for each franchisee is likely to be around Rs. 9 crore. If each slot is valued at Rs. 20 crore, there is an opportunity loss of Rs. 4 crore for each team and Rs. 60 crore for BCCI. However, it is expected that these slots will definitely contribute to revenue in future seasons.
Local sponsors
While in Season I, when most teams managed to get between 3 and 6 sponsors, Season II saw each team having at least 9 sponsors. Chennai Super Kings led the list with 14 sponsorship/brand association deals. Royal Challengers Bangalore was an exception, with only one deal. The franchisee, however, said it was a deliberate strategy not to share the platform with any other brand and to use it to promote its own in-house brands.
Franchisees resorted to 2 types of sponsorship deals in Season II: fixed amounts and barter deals. According to media strategists involved in sponsorship deals, the value of such deals went up at least 30-40% in Season II. While the teams had generated around Rs. 15-20 crore through individual sponsorship in Season I, revenues went up from a minimum of Rs. 50 crore to a maximum of Rs. 110 crore in Season II.
The wide reach of IPL, especially among the hard-to-reach, atrociously disloyal youth and male audiences, and the presence of iconic players and Bollywood stars in various teams, is expected to continue to drive sponsorship income for individual teams in future.
Ticket sales
In Season I, ticket sales accounted for only 7-25% of total revenues. Season II saw most teams planning an increase in ticket prices and adopt a no free tickets policy. But with the tournament shifting to South Africa, the efficacy of these strategies could not be tested. Season III will see teams focusing on this aspect to enhance revenue. The IPL management is also doing its best on media to motivate stadium viewership and promote ticket sales.
Licensing and merchandising
IPL and the franchisees haven’t reached the dizzy heights that international soccer clubs have reached. For clubs like Manchester United, Real Madrid etc. this is a huge chunk of moneys coming in. However, this hasn’t been a major revenue stream for any of the franchisees. It has almost been a non-starter so far. Of what the teams make through merchandising, approximately 80% is kept by the teams; the rest goes to the IPL management.
The tournament’s short duration affects merchandise sales too, for these are highest during a tournament and then taper off. In the near term, the ability to earn significant merchandising revenues is almost dismal.
Conclusion….
Well, I am mighty impressed with Lalit Modi’s wizardry, the big bucks being spoken and the new lingo like ‘cricketainment’ being introduced. So far so good!!
Has the IPL captured the interest and imagination of the masses or is it just mass hysteria? Well, let us wait and watch. The challenge is to be able to sustain this early traction and run with it for years to come while creating newer avenues for revenue generation and tapping newer audiences while keeping the essence of cricket intact.
What I am more interested in and would like to relook at the end of lets say 5 years of IPL is that how interesting it is still going to be for the viewers and how viable would it be for the investors.
Till then, my cousin and I are going to sit back and watch the spectacle unfold from the cozy confines of our homes as both of us don’t seem to have managed the compelling desire to spend a seemingly large amount and watch an IPL match in the stadium.
Maharshi has also spent valuable time in assessing the valuation of each IPL team. To know more, download the IPL Franchisee Valuation presentation here.
Subscribe to this comment's feed
Show/hide comments
Jigar Mehta
said:
 |
... BROOOOOO absolute gr8 article really gr8. enjoy the ipl in theaters with a huge bunch of friends, i m going to the stadia definitelyyyyyyyyy |
Saurabh Joshi
said:
 |
... Nice one... buy your point on it being a moolah game... but i dont think anybody is hiding it..... as far as going to Stadia concerened... I honestly wouldnt mind watching my heroes live.... only if the authorities treat us as spectators and not prisoners... |
Show/hide comment form
| < Prev | Next > |
|---|
