Economics of IPL-2
As far as high drama is concerned, the second edition of the Indian Premier League (IPL) definitely scored over DLF IPL-1. Whether it was the excitement over renegotiated TV rights for a record $1.6 billion (Rs 8,200 crore) by Sony or the uncertainty over DLF IPL-2 taking place at all due to security issues and subsequent shifting of the venue to South Africa, or the audacity of telecaster Sony Max which raised the asking price for 10-second advertising spots from Rs 2.25 lakh to Rs 3.5 lakh, the run-up had its share of extremes.
But, will IPL-2 replicate this showing in business terms as well? By Business Today’s calculation, the game is expected to end on a financially good note for many of those involved. Here’s how: According to AdEx India, a division of TAM Media Research, average television ratings for DLF IPL-2 till May 18 stood at 4.2 per cent, compared to 4.73 per cent last year. But says Nandini Dias, COO, Lodestar Universal, “Considering that IPL moved out of the country, it has held out very well. In terms of television rating points (TRPs), the numbers may look marginally lower than last year. But, this is not indicative of the actual number of people watching it, which is significantly higher.”
A study, conducted by Lintas Media Group, across 15 cities puts IPL viewership at 82 million in the first 20 days this year—it was 71 million in 2008 in 20 days. The study also reveals that viewership in a city swings when a home team is playing—suggesting that turf loyalties are building up. The swing was highest in Bangalore when Royal Challengers were playing.
This means gains for Sony Max. According to media estimates, the telecaster stands to earn Rs 480 crore—which should make it comfortable, though the exact contours of the renegotiated terms are not available at this stage.
As for franchisee revenues and costs, some changes were expected this year. According to Balu Nayar, former Managing Director, IMG, which helped BCCI put together IPL, franchisee revenues would increase by at least 60 per cent due to the renegotiated broadcaster deal. “On the cost front, the big change will be the amount spent by various teams based on their individual decisions,” he says. But the net impact relative to IPL-1 is definitely positive, he feels. “It will move most teams on an accelerated path to profitability relative to earlier business plans,” he adds.
However, BT, for its analysis, which has been put together with the help of GroupM ESP (Entertainment, Sports and Partnership unit of WPP), has assumed the same level of expenditure as last year’s. The overall value of Indian Premier League (IPL) is already worth $2.01 billion, according to UK-based brand valuation consultancy Brand Finance, which has put the IPL’s brand valuation at over $311.94 million. At $42.1 million, Kolkata Knight Riders (KKR) is the most valued team, followed by Mumbai Indians ($41.6 million), Rajasthan Royals ($39.5 million), Chennai Super Kings ($39.4 million), Delhi Daredevils ($39.2 million), Royal Challengers ($37.4 million), Kings XI Punjab ($36.3 million) and Deccan Chargers ($34.8 million) at the bottom. “IPL will create substantial value, which does not get captured in a routine profit /loss estimate. This will be seen when the teams manage to build fan loyalty and performance and choose to list,” says Unni Krishnan, MD, Brand Finance. |
The teams also managed to rack up a decent number of sponsors (see charts). Then, the Board of Control for Cricket in India (BCCI) has apparently stated that it will compensate the teams for the increase in travel bills and hotel stays. Besides, most teams have sought to cut down on their promotional costs. Delhi Daredevils, for instance, did not renew its contract with actor Akshay Kumar, and Royal Challengers went slow on the celeb quotient along with others. Only the team owners and players themselves, such as Shah Rukh Khan, Shilpa Shetty and M.S. Dhoni, among others, were seen doing the work.
Gate receipts are expected to be decent given the fairly reasonable turnout at the matches in South Africa. “One can expect each team to earn a nominal level of shared gate receipt of $1 million each. But the negative is that the dollar has hardened and the estimates were initially made on a lower value,” says Hiren Pandit, Managing Partner, GroupM ESP.
Though dollar appreciation is expected to increase the fixed cost of franchises, according to Dushyant Singh, Director-Advisory, KPMG, the renegotiation of the media rights will provide a significant boost to their earnings. “Profitability position of most of these franchisees will not be very different from last year,” he says. The tax googly might also end up pinching the franchisees. “It would mean added potential direct tax consequences for the BCCI, franchisees and the players and indirect tax consequences in the form of VAT for BCCI and franchisees in South Africa, in addition to the Indian tax consequences,” says Rakesh Jariwala, Associate Director, Media & Entertainment Tax Practice, Ernst & Young.
“The immediate impact on earnings of players and teams could be 10-25 per cent, depending on the circumstances,” he adds. Though later, this might get sorted out, as there is the Double Tax Avoidance Agreement that essentially seeks to determine taxing rights between contracting countries and provides tax relief to entertainers, sports persons and artists. So, which franchise would gain the most? It looks like Rajasthan Royals, which has made good on its performance last season. It has already got in new investors in actor Shilpa Shetty along with UK-based entrepreneur Raj Kundra, who have taken a 12 per cent stake, valuing it at $140 million. Kolkata Knight Riders, too, has made good ground. Yet, both these teams will have tougher positions next year due to the reversals suffered in their actual performance this year. Chennai Super Kings and Delhi Daredevils, who have largely stayed the course, are likely to see huge improvements next year, as also Deccan Chargers, whose performance has inched up. But it won’t be surprising if Deccan Chargers’ owner T. Venkattram Reddy; Kings XI’s Ness Wadia and Mohit Burman and Kolkata Knight Rider’s Shah Rukh Khan seek to divest their stake, at least in part.
