IPL is just not Cricket !!!

Hello friends.....

Yesterday as usual I was going through different news channels to know what critical things are happening arnd us but to my astonishment it was not election, it was IPL 2009. I thought why there is so much of hype & hoopla arnd IPL which was dominating across all channels than anything else:

I did some research on IPL & money involved & to clear certain questions which were coming to my mind:

Why entrepreneurs to celebrity were involved?
Why Dhoni or a Symonds was bought for such huge sums?
What exactly are the revenue streams of the franchisees?
What are their expenses apart from the cost of franchise paid to IPL and player fees?
What are their chances of breaking even?

This is what I came to know:

There will be eight franchise teams to start with & two more to be added over the next six years, for a maximum of 10 teams only.

The main revenue streams for the franchisees:

Sale of broadcast rights (Franchise:IPL - 80:20)
Sponsorship
Gate receipts in matches & In stadium Advertising
Team sponsorship

All of these, except for the team sponsorship, have to be shared with IPL in pre-determined ratios over the next 10 years.

Broadcast rights:

Earlier the broadcast rights have been sold by IPL to Sony for $1.02 billion for 10 years but now due to recent controversy, braodcasters will be paying whooping Rs. 8200 cr.

Sponsorship: The title sponsorship fee of Rs 40 crore per annum for the next five years to be paid by DLF will be shared with the franchises. IPL will retain 40 per cent of this with the balance 60 per cent to be shared between the franchisees equally. While these revenues accrue from the central pool to the franchisees, they will generate team sponsorship at individual levels. For instance, Nokia is the team sponsor for Kolkata Knight Riders while Aircel sponsors Chennai Super Kings. This revenue will remain wholly with the franchisees. Some teams such as Mumbai Indians have multiple sponsors in MasterCard, Bajaj Allianz and Royal Challenge, all of which are endorsed on team jerseys.

Ticket sales: The final revenue source, of course, is ticket sales at home stadiums. Each franchise will get seven matches at home and the revenues from ticket sales will be shared with IPL, which will get 20 per cent, with the rest going to the franchisee. There are also other smaller revenue sources such as from in-stadia advertising a part of which will go to the franchisee.

Now to the expenses:

The two big ticket expenses are player costs and the franchise fee payable to IPL. The franchise fee will be payable in equal sums over a 10-year period. For instance, the Mumbai Indians franchise, which is the most valuable one in the IPL at $111.9 million, will have to pay $11.19 million every year to IPL.

Next come the player costs which was determined in the auction that was held before the League began.

The franchisee has to pay players who are available even if they are on the bench. Players have a three-year contract with the franchise that bought them but they can be traded at the end of the first year between the franchisees. On an average, each franchisee must have spent about $4-5 million in the inaugural tournament on players, coaches and support staff.

The franchisees are also expected to pay for the use of the stadiums for which they have to enter into contracts with the local association. For instance, the Kolkata Knight Riders franchisee, Sharukh Khan-owned Red Chillies Entertainment, will have to pay the Cricket Association of Bengal for the use of Eden Gardens. There are also other marketing costs such as events for promotion of the team, star ambassadors, and so on, which the franchisees have to bear.

Let come to my critical question: Will the franchises break even?

The answer could differ across franchisees as the sponsorship models that they have assumed are different. While some of them have gone for straightforward team sponsorship, others have taken sponsors on board as partners. The revenue streams could be different in the two examples. On the expenditure side, the money they have spent on acquiring players and the franchise itself also varies widely. A lot would also depend on the accounting policies that they adopt as, for instance, in amortising player acquisition costs. It would largely be safe to assume though that most of the franchises would end up with a surplus at the operating level in the first year.

Other benefit could be:

The more successful teams could be prime candidates for listing, especially if player trading takes off aggressively. That is when the franchisees will feel the need for more capital and what better place to raise it than the stock market.

IPL is an unscripted soap opera: The Indian Premiere League is really a television league, as it's not only about the fans in the stadium but it is also about the TV fans. People now know when to watch theses matches and where they are being held. It exactly follows the principle of a soap opera.

The first three matches of IPL pulled in 18 million viewers & IPL has drawn more women viewers than cricket used to. Nearly 8.2 million women across Delhi, Mumbai, Kolkata, Chennai, Hyderabad and Bangalore watched the first two days of the league.

Conclusion

IPL is not just about making short term-gains. They will be able to make much more money than that. The crux of this model is: Spectators and viewers form the base. At the second level is the BCCI, using its might in getting big Indian and international players to play in the IPL. At the third level is the broadcaster, whose seed money has been leveraged well. At the top of the deck are the franchises. But the foundation of the base is India’s cricket-hungry public. If they fill up the IPL stadiums and stay glued to Sony’s live coverage, the base will stand. If they stay away, the model could come crashing down. If that happens, BCCI will suffer the least, financially at least. Sony-WSG will take the biggest blow because it is the biggest financial investor in the IPL. And the franchises may get away with a few millions in losses.

In some ways, the business model of an IPL franchise won’t be too different from a conventional infrastructure project—big initial investments, long gestation, initial losses perhaps, but good, steady payback in the long run.

In this country of cricket mad people should also understand that this kind of concept is not just a tool of mass entertainment but some real hardcore business & that is the reason that so many from entrepreneurs to celebrities are trying cash on as the risk involved is minimal........

IPL is all about Show business now, cricket is about to loose !!! . This is what I think of now...........