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Stratagem
 
IPL 4: FINANCIAL SCORECARD
IPL 4: On a Gravy Train?
In its Fourth Edition now, The IPL Continues to Grow even though Franchises Need to look for and Exploit Alternative Revenue Streams.
Issue Date - 09/06/2011
 
Analysts are often flummoxed as to why successful businessmen don’t mind throwing huge sums of money to buy franchisee teams of the Indian Premier League (IPL). In January this year, two new teams in the IPL fray were snapped up for mind-boggling sums: Subroto Roy of Sahara Group bought Pune Warriors for $370 million and a consortium of businessmen forked out $333 million for Kochi Tuskers. In 2008, when the IPL was launched, one puzzled analyst asked India Cements’ Vice Chairman N. Srinivasan, owner of the Chennai franchisee, about his rationale in shelling out $91 million for buying a cricket team, which apparently did not make any business sense to his core activity of cement manufacturing. But for Srinivasan, investing in IPL was a very clear decision taken solely with a view to building his brand visibility throughout the country. For quite sometime, India Cements had been trying to shed its conservative image and grow beyond its traditional southern markets. Buying into IPL could prove to be a brilliant marketing strategy if the company is able to leverage this association for growing its core business and become a pan-India entity.

It’s not just companies like India Cements that stand to make hay from the shining IPL sun. IPL-4 saw close to 120 brands piggyback on its popularity and make this annual mixture of fun, entertainment and cricket a perfect pitch for brand activation. Tata DOCOMO, Godrej, Volkswagen and many leading brands have taken various marketing initiatives exclusively for the latest edition of IPL-4. Digital imaging brand Canon also joined the IPL bandwagon this season and launched its new range of cameras supported by a campaign featuring its brand ambassador Sachin Tendulkar. Others like Vodafone and Videocon, joint presenting sponsors for the tournament, allocated up to Rs. 600 million each in media spends for 180 seconds of commercials per match. And a record 11 associate sponsors – Samsung Mobile, LG, Hyundai, PepsiCo, Tata Photon, Havells, Cadbury India, L’Oreal, Godrej, Volkswagen and Hyundai – dished out Rs. 400 million each for 120 seconds of commercial time. Every IPL season generates around 12,744 10-second slots but this year it was more as the number of matches were up to 74 from 60 last year.

Also, while IPL-3 had a TV viewership of around 143 million for its 60 matches, this year the figure was already 170.5 million viewers for the first 43 matches in IPL-4. As advertising rates were up 15-20% this year to Rs .65 million for 10-second spots, tournament broadcaster Sony Entertainment Television, which paid $1.64 billion for a 10-year deal, expects to recover Rs 10 billion through channel advertising from IPL-4 itself. The government, too, expects to haul in Rs 3 billion in taxes as compared to Rs 1 billion it raked in from IPL-3.

The growth in this innovative cricketing property over the years has been a source of delight for millions of cricket-loving fans and IPL stakeholders as well. Despite recent controversies and allegations of money laundering by some team owners and the ignominious exit of former IPL commissioner Lalit Modi, the brand has continued to grow. There were more teams (from 8 to 10), more matches (74 compared to 60 last year) and even higher TV revenue (an expected Rs 10 billion compared to Rs 7 billion last year) as IPL-4 season kicked off in April with a better TV rating as compared to the last season (7.14 compared to 5.9 last year for the opening game). Brand Finance, a global consultancy, pegs the overall brand value of IPL at nearly $3.7 billion today, a surprising drop of 11% since last year when it was valued at $4.13 billion. “The fall in IPL’s brand valuation is directly correlated to the controversies that the tournament has faced over the past few seasons,” says cricket expert & commentator Gautam Bhimani.

 
While IPL has continued to grow on most parameters of success and popularity, lower TRPs for many of its recent matches should make the organisers sit up and take corrective action. According to TAM data, the average TV rating for 2011 IPL season hit rock-bottom at 3.84 as compared to the previous three seasons. It is expected that ad-rates for the next season could take a plunge as viewers’ interest appears to wane with every passing edition of the tournament. “IPL franchisee owners need to create alternative source of income with a view to expand their IPL mother umbrella if they want to stay profitable in the long-run. But even before that, the teams should focus on creating a loyal follower-base that will eventually support the new sources,” says brand expert Harish Bijoor.

As far as the IPL pricing structure is concern, the tournament is predicted to bring the Board of Control for Cricket in India an income of approximately $1.6 billion, over a period of five to ten years. All of these revenues are directed to a central pool, 40% of which will go to IPL itself, 54% to franchisees and 6% as prize money. The money is to be distributed in these proportions until 2017, after which the share of IPL will be 50%, franchisees 45% and prize money 5%.

A research by IIFL, a leading Indian financial services player, points out that the most profitable franchises will earn Rs 1.08 billion, spend Rs 650 million, thus making a profit of Rs 430 million while the least profitable will earn Rs 1.14 billion and spend Rs 950 million, making a profit of Rs 180 million. It is also felt that IPL continues to be a significant contributor to the bottom line of the team-owning companies. Analysts estimate that the respective IPL teams contribute 5-10% of profits for GMR, United Spirits, India Cements and Deccan Chronicle.

In owning a piece of the IPL, which is still far from realising its potential, these team-owners, like India Cements, should let their core business piggyback on the visibility provided by the tournament. As the sources of income for teams are guaranteed and stable, and avenues for expenditure limited and fixed, teams- owners can keep going without bleeding money. Until a few years from now, when, hopefully, the time will be ripe to go for a killing and mint a fortune.

Pawan Chabra           

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