Indian Premier league may be a heady cocktail of glamour, commerce and cricket, but nine years down the line, experts tell MEENAKSHI RAO that the sustainability of the brand’s business model continues to worry and that despite the hype, the fact is that it has not shown the growth it should have
It has made heads turn. It has also made heads roll. It has attracted wonderment. It has also attracted disdain at its wanton richness. It has thrown up glamour in sport as never before. It has also thrown up mega money in all directions of cricket as never before too.
The nine-year-old richie rich Indian Premier league (IPl) has, over the years, been the hottest topic of discussion among all strata, mostly unsavoury the anti-corruption unit, the Enforcement Directorate, the tax sleuths, the Government and also the judiciary, not to mention the tch-tching cricket boards of other nations, bigwigs of glamour, moneybags as also some serious-thinking corporates.
From wonderment at the league’s prosperity to baffling questions around its fund power, to transparency issues, to money trails, to viability issues many have fallen into its mesmerising web of billion-dollar dreams which, incidentally, are much more than dreams; they are a stark reality of perhaps flawed investment and secret capitals. And yet, IPl is a business masterstroke which has powered research papers in several Ivy league universities around the world, like Harvard Business School.
A KPMG Sports Advisory Services study concluded last year that through its 2015 edition, the IPl contributed Rs1,150 crore to the nation’s GDP. On the other hand, the American Appraisal Valuation Services Company estimated that the IPl had done business worth $3.5 billion, which it said was a rise of 9 per cent over 2014.
Talk has been that IPl masters cast a tantalising net of money and glamour in such a complex weave that it will take years and yeomen effort to fathom the source, intricacies and cleanness of IPl currency, if at all.
Actually, that’s just a veneer, or you may say something of a monster that the innocent baby is perceived to have grown up into. Deep down, if one were to look at the IPl business model, it is so simple that one might just accuse the founders of economic naiveté.
That it quickly grew out of hand on the wings of public imagination and the very lucrative but empty space of live TV evening sport entertainment is something that surprised all, even those within it. No wonder then that when, way back in 2008, India Cements MD N Srinivasan decided to buy the Chennai Super Kings franchise for $91 million, he put the deal as a marketing spend and treated the move as a mere brand-building exercise with no profits, much to the chagrin of cynics within his conglomerate who wondered why he would digress so wildly from his core business.
Years have passed since then and founder chairman lalit Modi has been incarcerating in london over corruption charges after launching the glitziest baby in sports with much style and originality.
Despite much concern over the source of money IPl dabbles in, its business model, studies confirm, is based on economics’ simplest tenet the input-output model. Broken down to its basics, it goes something like this:
A. FRANCHISEES
OUTPUT: The franchisee buys a team from BCCI at a particular sum. He has to pay only 10 per cent of the total money in a yearly instalment to BCCI. For example, the Mumbai Indians franchise was sold to the Ambanis for a total sum of $ 111.9 million. It pays the BCCI 10 per cent of this amount ($11.19 million) every year.
The franchisee’s other spends include: Payment to players, looking after the squad’s stay, travel and other logistics; payment to State cricket boards for using their stadium facilities; spends on brand building and marketing initiatives of the team.
INPUT: Money comes in from multiple sources, including the prize money if they win the Cup. These include:
Media rights: The main chunk of the money for franchisees and the BCCI (reportedly almost 70 per cent of the total earnings) comes from the media rights that the BCCI sells to the broadcaster.
Sony, which holds the broadcasting rights for the IPl telecast till 2017, is in a whopping Rs8,600 crore 10-year deal with the BCCI. This is the upgraded amount that the TV company will be paying the BCCI after it lost a 2008 court battle to hold on to a $1.026 billion deal against which the cricket board went to court.
In the revenue sharing agreement in the first three years, the franchisee was given 80 per cent of the share while the BCCI took home 20 per cent; in the fourth, fifth and sixth years, it was a 70-30 arrangement, and from 6-10 years, it gets reduced to 60-40 in BCCI’s favour.
Sponsorship money: The BCCI distributes 60 per cent of the total central sponsorship money collected for the IPl brand for each season among the franchisees.
Ticket sales: This is another money-making exercise for the IPl. In home matches, each team gets to take home 80 per cent of the total gate receipts with the rest going to the board.
Team sponsorships: Jersey branding gets the franchise owner big-time money. With wide visibility over all mediums like TV, YouTube and social networking platforms, more and more corporates, start-ups and other businesses, including ones in the educational sector, have been tying up with teams for a presence on their jerseys, shoes, bats and event hostings.
Take the case of Ask.Me Grocers, the hyper local grocery delivery arm of the AskMe Group which recently partnered with Kings XI Punjab as an official sponsor for the team. It has otherwise nothing to do with cricket. But for Group CMO Manav Sethi, it meant mass basing the brand.
“As we aggressively drive scale in India, cricket and T20 is the right vehicle for us to get brand recognition at the mass level. AskMe Grocery is essentially a brand that is about value and incredible convenience, while leaving the consumer free of the groceries chore to do things they really enjoy, like watching cricket. Also, Punjabis being traditionally associated with the love of food and celebration, we thought it was an interesting brand fit,” he explains.
Cricket sponsorships contribute to 51 per cent of the Rs5,185.4 crore sports sponsorships and IPl makes for a major chunk of that. No wonder then, it is the second richest professional league in the world after NBA at a brand value of $4.3 billion, contributing $172 million to India’s GDP.
Prize money: The winning team gets to take home Rs20 crore as prize money this season.
B. BCCI
It earns all the money from broadcast rights, central sponsorships for the brand, selling teams to franchisees and by taking a share of ticket sales. The latest earning platforms both for the broadcaster and the board are the digital media and mobile app rights which have given a boost to sports sponsorships.
Star India’s Hotstar is touted as the fastest growing mobile app in this context, having won the rights to delayed live telecast of the T20 World Cup matches recently.
C. PlAYERs
Depending on the base prize the players garner at the auctions, they get a fixed salary, bonus and a cut of prize money if the team wins the tournament. Other than that, they get to take home Man of the Match and Player of the Tournament, best bowler, best batsman, best fielder prize money amounts.
D. SPONSORS
These are the main spenders but gain profits through aggressive and far-reaching brand building and visibility drives for their products.
E. BROADCASTER
Sails high on spot sponsor revenue which it shares with the BCCI.
Though the IPl has sustained for nine years now, there are many reasons to question the business model’s sustainability. A top notch broadcaster in the know of TV sporting rights sees a three-fold snag in what looks good right now with IPl.
“Over the years, IPl has shown a worrying stagnation. One, the strength and number of teams has not grown beyond the original 10. This, in a way, limits its fan base too though the potential of a vertical growth has always been there, considering the nation’s affinity to the sport of cricket,” he points out.
Other than that, though IPl has borrowed its model from the English Premier league (EPl), the fact is that unlike the 35-week rotation that EPl is on every year, the IPl is fast and furious and ends within seven weeks, which is too short and limiting.
Also, the BCCI launched IPl advertisement rates at a very high level at inception itself. As the years have gone by, the advertisers are finding the rates unsustainable. “That may be the reason why many of the big central sponsors to the IPl title break away after a year. If it was DlF one year, Pepsi the other, then it is Vivo this time. This means even brands with deep pockets are finding it difficult to renew their association with IPl,” the broadcaster says.
Broadcasters also feel that since DTH etc are regulator controlled, they can only do that much to develop sporting infrastructure and business models for live telecasting. “This also limits all league action on TV,” says another expert not wanting to be named.
Indeed, an unstable spoke in the IPl model is its major reliance on broadcasting ad revenues from where almost 70 per cent of its earnings come. So, if there is a fall in TV ratings due to some external reasons, it directly amounts to a fall of earnings for the IPl brand.
A research paper titled ‘How sustainable is the strategy of the IPl A critical review of 10 key issues that impact the IPl strategy’ by Shashi Kadapa, published in the International Journal of Scientific and Research in 2013 put IPl’s brand value reduction from a high of $4.13 billion in 2010 to $2.92 billion in 2012.
“A number of reasons are attributed for this decrease. Since 2011, scandals have hit the game and with charges of spot fixing coming up, the game seems to have lost some legitimacy and authenticity. Intense infighting among the board members, leading to the ouster of lalit Modi, and subsequent charging of Gurunath Meiyappan, owner of Chennai Super Kings, in a betting scandal, the involvement of a huge betting syndicate has further eroded the game’s authenticity.
“Another factor is that there is too much cricket with almost 80 IPl matches, then international tours, and this has caused viewers fatigue. The very high value paid to the players is one cost factor and the high franchise fees is another factor that reduces viability.
“When TV ratings come down, sponsors and advertisers withdraw and that removes a great funding source. All these factors raise uncertainty and the viability of the game and its sustainability is in doubt. It is up to franchisee owners to decide if it helps their corporate and personal brand to support a franchise,” the paper concludes.
Financial experts insist that to make the IPl model 100 per cent viable, the BCCI needs to institute an expert body of finance experts and accountants to analyse various cost structures, make predictions about revenue generation and then place a cap on the franchisee fees and wages paid to players.
Kadapa admits that if “wages would be reduced drastically, foreign players who are attracted by the high fees may choose to drop out. But once a rational and acceptable fee structure is created, one can design the game formats, number of matches to be played and so on. Another recommendation is to play the game every two years, as this will revive flagging interest”.