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| Padding up for profit |
| Surajeet Das Gupta & Shuchi Bansal / New Delhi Apr 17, 2009, 00:34 IST |
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Relocating the second edition of the Indian Premier League to South Africa won't throw team owners into the red, thanks to a lucrative new broadcasting deal.
Finally, after headline-grabbing controversies, the second edition of the Indian Premier League (IPL) takes to the field tomorrow in Cape Town , South Africa. But even before the first ball is bowled between Rajasthan Royals and Royal Challengers, owners of the eight franchisee team are laughing all the way to the pavilion.
Indeed, experts who were associated with designing the tournament said the teams might break even this year instead of by the third edition of the tournament, as originally expected.
Surprised? After all, what with the costs of flying the entire team, support staff and gear to South Africa and paying for additional hotel and associated costs, you’d think team owners would have taken a huge hit.
Not so, thanks to IPL Commissioner Lalit Modi’s move to re-negotiate the broadcasting rights of the matches, the key revenue earner for SET MAX (Sony), for Rs 720 crore a year for nine years after a bitter court battle. This is double the annual amount the broadcaster had agreed to pay last year, that too for a five-year deal. The Board for Control of Cricket in India (BCCI), which organises the IPL, had cancelled the original contract with Sony, citing breach of agreement on various counts.
The reason this is great news for franchisees is that they get 80 per cent of the broadcasting cash. That means, each of them will get over Rs 90 crore each, more than double their revenue share last year of Rs 41 crore.
That money more than covers the relocation costs for franchisees (see table) after the tournament was shifted to South Africa owing to security concerns in India as a result of the attack on Sri Lankan cricketers in Pakistan last month. Most governments in states in which the matches were located expressed their inability to provide adequate security for players and spectators since IPL would coincide with the general elections, which began on April 16.
Franchisees agree that they will hit pay dirt as a result of the new contract. “Yes, we will make money since central revenues will go up,” said Rajasthan Royals chief marketing officer Raghu Iyer. Added Rakesh Singh, marketing head, India Cements (which owns Chennai Super Kings), “Shifting the venue to South Africa will not make much of a difference to our costs versus expenditure.
Since Sony is paying more for broadcast rights, the central revenue is up 60 to 70 per cent. So my share is also up.” He also pointed out that BCCI had agreed to compensate the teams for gate collections based on team earnings last year.“In short, the central revenue is up, my gate collections are intact, I have more sponsors this year and my costs are more or less the same. So, overall, South Africa is good news.”
True, companies might not be spending as much as they did last year on advertising or brand building. Last year, sponsors were willing to pay Rs 5 crore to Rs 6 crore. This year the rates are down to Rs 3 crore to Rs 4 crore. But the rules of the IPL sponsorship game have shifted to longer innings and a longer line-up.
For instance Chennai Kings had three or four sponsors last year; this year it has about 12 partners. “We also have a three-year deal with Aircel, our main sponsor, so we have not been affected by the downturn. But I must admit that we have no shortage of sponsors and will make more money than we did last year.”
Many also argue that franchisees would be in a position to go for an initial public offering (IPO) on the stock markets after the third year of operations. The first stake-sale has already demonstrated that valuations will be attractive. This was the purchase of an 11 per cent stake by celebrity Shilpa Shetty in Rajasthan Royals, a deal that valued the company at Rs 681 crore in just one year — double the Rs 325 crore the team's promoters paid for buying it. “Teams can recover the cost from the revenue BCCI shares with them. The rest that they make, on merchandise and logos and uniform sponsorships, is profit,” said a former senior executive of a TV channel associated with the IPL.
“Over the years each team will have a huge valuation — each brand will be worth $400 million to $500 million. Once they go for an IPO, sceptics will realise the worth of these teams,” the executive predicted. With those numbers, franchisees have a pretty good opening score to build on.
Additional reporting: Ashish Sinha
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