Money’s no object in this business


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In the world of cricket, nothing elicits more debates than the Indian Premier League (IPL). Not the Ashes, not even an India-Pakistan series. What’s more, the debates have been raging every year, starting 2008, when it first began in the manner of a mega opening of a starry show. In the years since, many other sports have tried to go the same way, but they have not scaled the same heights or matched the same pomp, show and controversy. In all aspects, they have been poor imitations.

Players are criticised, as are team-owners, and Board officials are pilloried the most. Everyone is categorised as “greedy” and seen to be “damaging” cricket. The game is being made to “lose its beauty”, it is being “butchered”. But for a generation that never saw a certain Sunil Gavaskar pad up and score 36 runs in 60 overs or save countless Test matches with his defensive bat, and has heard the same legend extol the virtues of each cricketer who comes out in these games with the sole intention of hitting the ball out of the park, they care little. They love this slam-bang and everything about it.

Who doesn’t want to know how a cricketer can make up to Rs 10, 12 or 14 crore for a single season lasting 40-odd days? Who doesn’t like watching pretty cheerleaders swaying their hips every time the ball touches the boundary rope or disrupts the timber?

Big money always makes big news. Just as football fans want to see what makes Real Madrid shell out €100 million for Gareth Bale, and so turn up in huge numbers to watch him in action, wearing Real Madrid and Bale T-shirts, Indian cricket fans can’t wait to find out why a Karn Sharma, who was earning Rs 17,000 a month in his job with the Indian Railways until a month ago, has now fetched Rs 3.75 crore for playing a month and a half of cricket. They will show up in numbers to see him, that’s for sure. And the reason why Bale was transferred is the reason why Sharma gets so much. It is, after all, business. Of course, there is a small matter of playing too.

In India, however, it is also a matter of pride, ego and a bit. So when the IPL auction was in progress last week, fans and experts on TV channels were discussing how the Pathan brothers dropped from a combined ‘take-home’ of almost Rs 20 crore to around Rs 6 crore this time. There was also the astronomical figure of Rs 14 crore that Royal Challengers Bangalore dished out for Yuvraj Singh to contend with. As was the drop in the price of Virender Sehwag.

Big money, as said earlier, gets big attention, but in the case of the IPL, is it good business? Is the expenditure worth it?

If it has lasted seven years — this being the seventh edition — it sure must be. If all except one of the original buyers are still in the game, then business must be good. Also, there have been many more on the sidelines, waiting to get in. Sure, controversies and losses have taken a toll on Deccan Chargers, one of the original eight buyers, and newer ones like Kochi Tuskers and Pune Warriors, but the others have hung on.

The point being, even if there have been losses, they have not been the kinds to scare these business moguls away. Some of them have been brazen, like Royal Challengers Bangalore owner Vijay Mallya, whose airline has been grounded, but it did not stop him from bidding for Yuvraj Singh at Rs 14 crore. One only hopes Yuvi and others in his team get paid, unlike the Kingfisher pilots, who have alternately been praying and protesting.

The IPL is “recession proof”, goes a common jibe, said half in jest and half seriously. Frankly, no one knows which side to veer to, simply because the money side of the event has mostly been shrouded in mystery.

It probably is 50-50. The business has been hugely profitable for the Board of Control for Cricket in India (BCCI) and the players — Indian and foreign — who otherwise would never have imagined such riches.

Claims of some teams that they have “broken even”, or even made profits, are hard to believe. Yet, one could also ask, “Why should they lie?”, because there is also something called “intangible benefit”. If not for Delhi Daredevils, would you have ever stopped to see a GMR hoarding? Probably not, but now you do, because of Virender Sehwag or a Kevin Pietersen.

Whether or not the IPL has been profitable for the team owners is a subject that will continue to be debated till we actually get to see the balance sheets. Since there is no hope of that, we can only speculate. The spends have always been enormous. It would appear the IPL is not a business for the weak-hearted, but frankly, in comparison to the main businesses most team owners have, it is really no big deal!

In 2014, each team was expected to spend a maximum of Rs 60 crore on the players, plus tidy sums on high-profile support staff, including coaches, trainers, mentors and marketing teams. Then, there are salaries of the staff down the line, the expenses on staging matches, travel, training and so on. An official from one of the team reveals that on the higher side, this sum would be as much as the cost of the team itself and about two-thirds at the lower end.

So, a team ends up spending anything between Rs 100 crore and Rs 120 crore. Make that Rs 150 crore, if you’re one for rounding things off. But, do they get that back? Sketchy reports and extrapolations reveal that sponsorships make up for almost Rs 40- Rs 60 crore, depending on the star value of the team, besides anything between Rs 20- Rs 30 crore from tickets.

The other major component of the expenditure column is the fee that has to be paid to the IPL/BCCI as part of the arrangement when the team was first bought. The teams, which were bought in 2008, do so for 10 years and the others have bought it for lesser periods — since they came in later. But the teams, which came in later, got the teams for a price way higher than the original ones.

Bigger and higher profile teams like Delhi, Mumbai, Chennai and Kolkata rake in higher sums as sponsorships and the same holds for ticket sales. On the other hand, Punjab, Rajasthan, Hyderabad — and Pune last year — had smaller inflows in both sponsorships and ticket sales.

One of the big revenue streams for the teams has been a share of the TV rights and that is crucial for the team owners. There is also the revenue from central sponsorships — deals that the IPL strikes on behalf of all teams. The BCCI (the IPL management) keeps a part of it and the rest is divided among the teams.

Some of the other sponsorship comes in the form of barters, apparel, air tickets and so on, and the merchandise is too small to have any significant effect on the bottom line.

All told, teams were expected to break even after five or six years and hopefully get into profit by the sixth or the seventh year. That some claim they have done it earlier is a matter for debate, or maybe they have been better managers and kept a tight leash on expenditure.

Of all the years so far, the second edition in 2009 was an odd one — the event was taken lock, stock and barrel to South Africa. The revenues dropped. Ticket sales were lower, sponsorships were lower, and local sponsorships, which take place each year, disappeared.

The same could happen in 2014, when the General Election, as in 2009, may force the IPL, or at least a part of it, to be taken out of India. Five years ago, when Lalit Modi did it and cocked a snook at the Indian government, he made a lifelong enemy in P Chidambaram. Many sided with the minister, because they felt an ‘Indian’ Premier League could not be held outside India.

Current BCCI chief N Srinivasan would certainly have learned lessons from it and, therefore, the Board and IPL management is waiting for the election dates to be announced before taking the next step about the venue for this year. The buzz is that a part of the event could be held outside, but only after consultation with the government, because many of the disputes arising out of the 2009 IPL are still in the court.

But in the meantime, teams have already begun making a noise about the possibility of losing revenues if the event travels outside India. Some teams have claimed they could lose as much as 40 percent of their revenue if the event slated from 9 April to 3 June is held in South Africa or the UAE, though the latter seems doubtful simply because the spectre of betting and fixing would start reappearing.

Apart from the loss of ticket sales, sponsorship fee is also dependent on the venue being India, because the companies can then use the players to further their brand in the principal market, which is India. When the event is in South Africa or elsewhere, the players would not be available for promotions and that would be a dampener for sponsors.

But above all, as a former sponsor pointed out, the negative sentiments arising from the event has dissuaded many potential sponsors. There is a clamour for primacy as too many competing brands appear as sponsors of different teams and they all seem to share the same space.

Finally, how much do the sponsors actually suffer if they lose a big chunk of their revenue? Even after assuming their spend is Rs 120- Rs 150 crore and the revenues drop to Rs 75- Rs 100 crore, the losses would be 50 crore. That’s not even $10 million. For that amount, you couldn’t buy Gareth Bale’s left shoe! And remember, Hero MotoCorp is said to have paid $2.2 million (Rs 15 crore) for one day with Tiger Woods.

In the final analysis, does it really make a dent for owners like Reliance or GMR or India Cements or even Shah Rukh Khan and the now-under siege Vijay Mallya (for that amount he would not even be able to buy fuel for his F-1 cars)? Apparently not.

Therefore, it seems the rich will continue playing with their expensive toys and get their superstars to pose with their kids at birthday parties and we will continue to debate the profitability of the IPL! To each his own.


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