Monday, May 2, 2011

The League of the Indian Premieres

Having completed just three seasons with fourth on the way, the Indian Premiere League has become the highest-flying league in sports entertainment in the world. Right from its inception IPL has grabbed the eyeballs and imagination of not only the viewers and cricket enthusiasts but of the business houses, industrialists, celebrities, Bollywood and media. The mixture of glamour, money, entertainment coupled with the slam-bam shorter version of the game has paved the way for the success of IPL in the cricket frenzy nation.

It’s all about the money

The Board Of Control For Cricket In India (BCCI) valued at a staggering $1.5 billion (by Forbes in 2006) is the richest cricket association in the world. In the same valuation, Forbes pegged International Cricket Council (ICC) at $200 million only whereas the England and Wales Cricket Board and Cricket Australia were valued $270 million and $225 million respectively. It is no surprise that BCCI alone contributes approximately 70% of the cricket expenses incurred by ICC.

Stirred by the growing potential of the T20 format of cricket and inspired by the club model of the English Premier League, Subhash Chandra of Zee TV with an initial investment of US $23 million and assistance from Kapil Dev created the Indian Cricket League (ICL) in 2007. Though receiving a lot of accolades and hype, the ICL ceased to exist in 2009 after just two seasons. There are many reasons cited for its demise such as restrictive media rights and financial issues and lack of transparency but the major reason for its fall was the lack of support from the BCCI and ICC.

Sighting a good opportunity for achieving its financial and sporting objective, BCCI initiated the Indian Premier League in 2008. The IPL involved not only the cricketers from across the globe but also the leading Indian corporate houses and businessmen who were able to induce money in the mega-event. From the very first season, the money involved in the IPL has grabbed headlines across the world, not only the franchises but the astronomical sums of money used to buy individual players has caught the fantasy of people. But are these huge sums of money truly justified, let’s look at the revenue and cost drivers of the various franchises. 

Central Media rights: Shared between the IPL and the different franchises.
Team franchising costs: Each franchisee has to pay 10% of its total team costs every year to IPL.
Central Sponsorship rights: Around 60% of the amount is distributed among the franchises.
Marketing costs: incurred for the team promotion.
Stadium contract expenses
Franchise level sponsorships: varies drastically for franchises from sponsors to team partners to entertainment partners.
Player costs: along with the cost of managers and coaches. (Each franchise has 18-22 players on a 3-year contract and tradable after a year)
Gate receipts: collected by franchises, they form a major source of revenues.
Administration expenses around the conduct of matches.
Merchandise: range from apparels to memorabilia to souvenirs and gift items.
Other event management expenses.

The huge costs have kept the financial pundits busy in calculating whether the model is feasible, when the new franchises that have paid huge sums of money (Pune $370 million, Kochi $333 million) would be able to breakeven. But perhaps the entity that has been most excited with the event is the Income Tax Department, who has not only received loads of earnings from the franchises and the team player auctions but has kept its officials busy with doing the background check on the various parties involved. 

The huge influx of money has affected many other aspects of the society. The increased number of promotional activities has given a new dimension to the Indian events management industry. Parental groups are more open to children taking up sports as a career and this has also triggered an increase in the cricket coaching and practices in the country. On the other side, it has put another stab in the ailing condition of other sports in the country. A similar model was adopted by hockey, through the Premier Hockey League (PHL), but apparently the national sport was not able to get enough support and is now defunct.

Advertisements and the ICC World Cup 2011
The IPL has been positioned as an entertainment source rather than a cricket event (‘Manoranjan ka Baap’). The success of this can be gauged from the viewership that IPL garners which is from a much wider demographic set, as opposed to a male-dominated World Cup viewership. Result, a large number of FMCG and women-focused brands are focusing on IPL 2011 instead of WC 2011. 

But is the high ad rate in IPL really justified, in IPL- 3, the ad rates later escalated to approximately Rs 8 lakh and Rs 10 lakh per 10 second slot from the initial rate of Rs 4-5 lakh. Advertisers argue that during the IPL, viewership on other entertainment channels on television drop by 20-25%) restricting the alternatives for them. This belief has further been reinforced by the increasing number of sponsors for IPL. But studies have shown that the investments made by advertisers do not necessarily lead to heightened visibility or increase in awareness of the brand. As per a report, “Out of 65 brands that were associated with IPL 2010 in some form or the other, only four brands garnered unaided awareness of 25 per cent or more.” This is a clear indication that just buying an advert during the matches or acting as a sponsor to the IPL or any of its franchise does not result in greater visibility. Greater return on investment will depend on a combination of factors like overall media visibility of a brand, likeability of the television commercials, and advertising proposition among other factors.

In conclusion, it may be premature to predict the sustainability of the IPL model as of now, but one thing is for certain that it has seen an unprecedented initial response and the immediate future seems bright. A lot would depend on the fourth edition of IPL this year that follows the World Cup. It can be said that IPL-1 was a more of an experiment, IPL-2 held in South Africa did not provide a good basis for future evaluation, IPL-3 though should have been a good peek into the future, the changes brought in IPL-4 with 10 franchises (10 teams, 94 matches, over 60 days in all; against the present 8 teams, 60 matches, 37 days) competing for IPL media, sponsorship revenues and resources will truly set the standard for any extrapolation of IPL revenues and valuations, and also answer the apprehensions raised around the economic uncertainty, overdose of cricket and the possibility of saturation from the T20 format.

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