March 25, 2010
It's a heady cocktail of sports, entertainment and business and no matter how much India imbibes, it refuses to get a hangover. The third year of the Indian Premier League (IPL) saw the arrival of two new teams, Pune and Kochi, for a combined $700 million, almost seven times what Mukesh Ambani paid for the Mumbai Indians in 2008.
Sahara India and a hastily-assembled conglomerate of Anchor Switches, a diamond businessman, two builders and a ship-breaking sultan are only the latest in a long line of businessmen, actors and men married to or dating actors who arrived at the same realisation.
IPL chairman and commissioner Lalit Modi has made another Rs 54 crore by selling 150 seconds of airtime on SetMax by carrying ads on the scoreboard during an over. Why, even the air above a stadium can be sold: after all, it costs MRF Rs 15 crore to have its blimp in the sky for 24 matches.
New on-ground sponsorships for the strategic time-out and a new central sponsor give teams additional earnings from the central revenue pool. Last year the pool was restricted to broadcasting rights (Rs 67.5 crore for each team). Now with Internet rights,
theatrical screenings in bars, after-match parties Colors' IPL-related programming (see box) cricket and entertainment are stretched to breaking point.
The total worth of the IPL industry today is estimated at $4 billion, according to a Brand Finance study of what it calls the event's 'eco-system.'
In a tense battle that reached the court, Modi asked Sony to raise its $1 billion rights ownership of the IPL to $1.6 billion. Sony raised the revenue it earned from advertising on Season 1 (Rs 450 crore) to Rs 700 crore by opening up sub-categories to competing brands.
It was possible because the ratings remained steady, allowing Sony to charge Rs 4-5 lakh per 10 seconds, (top soaps charge Rs 1.5 lakh per 10 seconds). According to Television Audience Measurement (TAM), the average Television Rating Points (TRP) of the first 14 matches in Season 1 was 4.97; in Season 2 it was 4.52, and in Season 3 it's grown to 4.69. If IPL 2008 reached 77 million people in the first 14 matches, IPL 2009 went to 96 million and IPL 2010 is at 108 million. The ratings have also raised team earnings.
The crowds are swelling, with experts estimating a 25 per cent jump in gate money. In Season 2008, higher-end ticket sellers like the Mumbai Indians and Delhi Daredevils earned Rs 15 crore each. Gate money for bigger franchises could hit Rs 20 crore this season. The gross revenues from gate money, television advertising and sponsorships on an IPL double-header day, industry experts say, could touch Rs 40 crore.
Modi told INDIA TODAY that the new teams, "need to understand that the model we have built is very different from all other models in the world. They need to embrace it and not only think of their team but of the whole league as one. Once that realisation sets in--it will be win-win for all."
As the new teams scramble, Modi will continue to venture further. New media rights include live streaming on mobiles, mobile Internet, mobile scorecards and smart phone applications, which he hopes will explode once 3G technology is introduced in India. He also hopes to tap into international audiences, changing the IPL's platform in the UK in Season 3 from the bankrupt Setanta to free-to-air ITV 4.
Yet it is not always about the money. For Kingfisher, the premium is a pittance compared to the ban on liquor advertising Vijay Mallya is circumventing. For GMR, the association with a city whose new international airport they are racing to complete before the Commonwealth Games is worth the $84 million they paid for the Daredevils. At a board meeting of India Cements, who own the Chennai Super Kings (named after the Super Kings cement brand), consensus was that owning a franchise was worth the cost when treated like a brand marketing expense.
The IPL is also turning out to be a party for the wives and children. Whether it is young Siddharth Mallya or Gayatri Reddy who switches from a serious journalistic career at her father's newspaper to hang out with global celebrities at the IPL auction, the league is the ultimate celebutante ball.
No wonder ship-breakers, diamond dealers and real estate magnates teamed up to buy the Kochi franchise. "I'm just a businessman and have absolutely no interest in cricket," consortium member Mukul Patel was quoted in a newspaper.
Patel and partner Vipul Shah own Gujarat-based Shree Ram Group of Industries, which is in the ship-recycling business. To him and the rest of the Kochi franchise called Rendezvous Sports World, led by Shailendra Gaikwad and Pooja Gulati; Dilip Mehta, owner of Rosy Blue Diamond and jewellery brand Orra; and Mehul Shah of Gujarat-based Anchor Switches, the IPL is the first step into cricket's IP-El Dorado.
What awaits them are finding revenue streams to flood the franchise coffers and a diplomatic maze that is the multi-owner group. Yes, the valuations do
receive a real boost.
Modi ignores all criticism, excited at the idea of running the semi-finals and final in 3-D in theatres.
The IPL has been Modi's making. Globally, he is now India's best known sports official (Suresh Kalmadi, eat your heart out) sought after by media from San Francisco to Sydney. Ever since the IPL bloomed in 2008, though, he is now the Modi family's most-noticed and best-known son.
The success of IPL Season 2008 was the honeymoon phase, Season 2009 a bold experiment that deserved support, and now Season 2010 is the return of the native. What about Season 2011? Will the two new teams make money?
They will have to pay the IPL $37 million a year or at least $33.3 million a year, besides paying players, management and other costs. Even a successful franchise like the Mumbai Indians pay
$11 million a year to the IPL under the conditions of the bid and, spend another $8 million as player fees, $2 million on other expenses. It earns $15 million a year from the central revenue pool and $11 million a year from local revenue.
Hiren Pandit, managing partner of GroupM ESP, says the maths shows that a price point of about
$310 to $320 million can be earned in 10 years, but with a strong focus on local earnings. "If the new bidders are relying only on central revenue to prop them I see this as a struggle. Learnings from international leagues clearly shows us that teams that build a strong local base can extract the maximum from local revenues."
The valuation business itself is notoriously cryptic, more so in a league where rules change rapidly. The IPL 's success, some experts say, is not dependent on consistent quick profits but on the very idea of growth. This is why many believe Season 2011 will make Season 2008 look as eventful as a kitty party. It is going to take us all--cricketers, cheerleaders, critics--to a new level.
Ask the two new teams. Maharashtra Cricket Association (MCA) President Ajay Shirke's office made presentations on Pune to prospective bidders. "We knew that if we missed this boat, it would have been a tragedy of sorts."
The MCA is building Pune's new stadium on their own land, designed by British architect Michael Hopkins, the man behind the new-look Lords and on London Olympic projects. Shirke says Pune's stadium will be "the Mercedes Benz of all cricket grounds in India".
As Pune celebrated, Kochi surprised. Now Kochi's Nehru Stadium has to be slapped into shape, returfed, given a roof to cover spectators' heads and the KCA's district academy programme fast-tracked.
BCCI President Shashank Manohar, also a member of the IPL governing council, is pragmatic when it comes to IPL 2011. "I don't think of the IPL as a danger. People are still interested in ODIs and Tests." So Season 4, with its 10 teams, will be held in 54 days, he says. Allowed to play in only a maximum of 14 games, players will be rotated.
Still, the IPL has won over hearts, minds and pockets. If Modi and his league want to take over cricket as it exists, all they have to do now is take over the calendar.
MORE IN SEASON FOUR
TEAMS: From 8 to 10
MATCHES: From 60 to 94
DURATION: 54 days
End of the icon: All 'icons', superstar cricketers, are in the common wash again. The 15 per cent salary hike given to them in the first auction in early 2008 will end. Franchises can retain four Indians and three overseas players but must offer them fat wages.
Total salary cap: The world's single largest sports auction with a total salary cap of Rs 35 crore ($7million) per franchise will be held this year. In 2008, the cap was Rs 20 crore. Pune and Kochi are expected to lure big ticket players with high salaries.
Rotating roster: No one can play more than 14 matches, the number they do now, in order to prevent burn-out. With 10 teams scrambling for at least 25 players each, unknown domestic Indian cricketers will be desperately sought.
Breakthroughs: Selling of space on the purple and orange caps for Rs 12-15 crore each, and the development of new media rights using 3G technology takes off.
New stadia: Pune's new ground, 'once the Mercedes Benz of Indian cricket grounds,' should be up and running by March 2011. Kochi says the Nehru Stadium, where its ODIs are held, is the second largest after Eden Gardens. It is being returfed and roofed.
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