Tag: Venky Mysore

By Ravi Teja Sharma

 

Beyond the brawls and the bustups, there was cricket. And business, which became steadier and better. As millions continued to watch the cricket, IPL 5 strengthened the league’s business credentials.

 

Franchises

Their costs are mostly fixed and they are squeezing more out of each revenue stream. In the humdrum of IPL3, the operative word was ‘valuation’. The then-IPL chief Lalit Modi proudly announced two new franchises, Kochi at $333 million and Pune at $370 million.

 

In other words, Pune’s owner, the Sahara group, was paying 3.3 times the priciest original franchise (Mumbai, $112 million), setting a new benchmark for valuing a team.

 

More insanity followed: Modi was dismissed by a tweet, Kochi imploded, and Sahara had second thoughts about its $370 million investment. Sanity returned in season five. “Initially, it was more about valuations, not viability,” said Venky Mysore, CEO of the Kolkata team. More than any other season, IPL 5 has been about viability.

 

Not of the surviving kind, but of the thriving kind. “For the first time, most of the franchises will be financially better off,” said IPL commissioner Rajeev Shukla.

 

“Many have become profitable after IPL 5.” Like Kolkata. “We reduced our combined losses by about 50 per cent in IPL 4,” said Mr Mysore. “This year was equally good or better than last year…we should wipe out the remaining losses.” Chennai and Delhi say they have been profitable since season three, and that this year was better.

 

The economics for a franchise are simple. Every franchise incurs two kinds of costs, and both are essentially of a fixed nature: the licence fee and player costs.

 

For a metro franchise, the licence fee is around Rs35 crore a year, while the player cost is Rs55 crore. Add sundry expenses, and a franchise is looking at total costs of Rs100-120 crore. On the revenue side, there are essentially three revenue streams.

 

The biggest revenue contributor is the ‘central pool’. All the money the BCCI raises by selling broadcasting rights and sponsorship goes into a common pool. The BCCI keeps part of this and distributes the rest among teams.

 

With the BCCI negotiating hard with the broadcaster and sponsors, each franchise’s share of the central pool has steadily increased-from Rs29 crore in season one to Rs40 crore in season four.

 

“The central payout will increase to Rs 50-60 crore this year,” said Mr Shukla. The franchises have no control over the central pool. They do have control over the other two main revenue streams: ticket sales and sponsorships, from where the good franchises raised, on an average, Rs30 crore and Rs30-40 crore, respectively.

 

In both these areas, IPL-V saw the franchises, with one eye on growth and another on the bottom line, pushing new levers. Teams say they increased ticket prices and reduced the number of passes, and consequently made more.

 

“Gate collections in season five would have doubled compared to earlier years,” said Rakesh Singh, joint president, India Cements, the South-based cement company that owns the team, without giving specific numbers.

 

Amrit Mathur, CEO of the Delhi team, too declined to share numbers, but described ticket sales as “phenomenal”. “We limited passes only to our contractual agreements,” he said. What teams did more was to reach out to the paying fan.

 

Kolkata, for example, had 10 cars going around the city and doubling up as ticket counters. The team also did corporate sales to fill up the 80,000-seater Eden Gardens.

 

For next year, it is looking to convert some of those seats into hospitality boxes, whose revenue potential is 20 per cent more. Teams earned more from sponsors too by selling advertising on 10 designated spots on a player’s uniform.

 

“We expect it (sponsorship revenues) to be 50-75 per cent higher than year one,” said Mr Mathur. Chennai’s strategy was to cut back on sponsors. “We wanted to clear the clutter and charge more instead,” said Mr Singh of the Chennai team, whose sponsors include Aircel, Gulf, LifeOK, Amrapali and Usha.

 

Some other nascent revenue streams are gaining ground, like merchandising. “About 10-12 per cent of our revenues this year came from licensing and merchandising,” said Colonel Arvinder Singh, COO of the Punjab team. And the Delhi Daredevils is looking to lend its name to sports bars, the first of which has come up at the Delhi airport.

 

For teams owned by corporates, in addition to a tangible payback, there’s also an intangible one for the main business. For example, all the branding on the Bangalore players is from the liquor and airline brands owned by team owner Vijay Mallya.

 

“That has been our main priority,” said Russell Adams, vice president-commercial operations for the Bangalore team. Similarly, India Cements has used IPL to drive into markets other than the South.

 

Besides the visibility from player jerseys, it has been wooing cement traders in cities in Gujarat, Madhya Pradesh and Rajasthan with a package of an IPL match in Chennai and a pilgrimage to Tirupati.

 

“This was a masterstroke for us: to enter a market dominated by biggies like Ultratech,” said Mr Singh. It all contributed towards viability-of the long-term kind. And valuations, today, stand forgotten.

 

Broadcaster

Viewership addition tapered, but it’s still a critical mass watching. There’s pressure on two of the numbers that matter for SET Max. According to TAM, which tracks TV viewership, the number of people who tuned into IPL grew just 0.4 per cent this year, against 12.9-19.8 per cent in the previous ones. And they watched less.

 

If they saw 4.5 per cent of all the minutes they could have in the first three years, they saw 3.5 per cent in 2012, the same as in 2011. Or, a TVR (television viewership rating) of 3.5 per cent. That said, even a TVR of 3.5 per cent is top draw, more so if it comes with a reach of 162.9 million.

 

“No programme will give the pan-India reach that IPL does for two months,” said Nandini Dias, COO of media-buying house Lodestar Universal. It is why, she added, SET Max commands a 60-70 per cent premium in pricing over another programme with an identical TVR.

 

This year, SET Max charged Rs5 lakh per 10 seconds, the same as in 2011 and 150 per cent more than in 2008. “Ratings fell, but we did not drop our price,” said Rohit Gupta, president of Multi Screen Media, which runs SET Max. Mr Gupta declined to disclose revenues, though he admits it is “lower than 2011”.

 

A senior official from the channel, not wanting to be named, said revenues from IPL-IV crossed Rs1,000 crore, against Rs800 crore in IPL 3and Rs260 crore in IPL 1. SET Max’s original deal, struck in 2008, was for $1.02 billion (about Rs 4,000 crore) for 10 years.

 

This was revised in 2009 to $1.64 billion (Rs 6,560 crore) for nine years. When the number of matches increased from 60 to 74, in 2010, this number increased further, said Mr Gupta, on a “pro-rata basis”. Back-of-the-envelope calculations show the current deal would be for about Rs 8,000 crore and that SET Max needs an average of Rs 1,050 crore a year over the remaining five years to break even.

 

“IPL has become a brand that is big enough to sustain for many more years,” said Piyush Pandey, executive chairman of Ogilvy & Mather India. Added Ms Dias: “If IPL remains in the top five programmes through the coming year, it could still command its 60-70 per cent premium.”

 

The other broadcaster, Times Internet, which owns the rights for international broadcast, Internet, mobile and valueadded services, and radio, expects to break even this year. According to CEO Rishi Khiani, Times Internet is paying Rs 67 crore a year to BCCI.

 

It reached 26 million viewers this year-an increase of 55 per cent over 2011. “If you sell it right, there is an opportunity,” said Mr Khiani.

 

Sponsors

They got their bang, in different ways. For more, they will likely have to pay higher. IPL’s main sponsors only have good things to say about their pricey tie up. The established talk about reaching a wider audience.

 

“We were well-known in the north, but now have spread awareness in other parts as well,” said Rajeev Talwar, group ED at DLF, which paid Rs 40 crore a year for the title sponsorship. The fledgling talk about IPL as the main piece of their brand strategy.

 

Karbonn Mobiles started in 2009 and tied up with IPL in 2010. Sashin Devsare, ED, said IPL put Karbonn “in the consideration set of a mobile buyer.” Likewise, Volkswagen, which came to India in 2007.

 

“We needed to raise brand awareness,” said Lutz Kothe, head of marketing and PR, Volkswagen Passenger Cars. “All these sponsors would have got five times worth exposure for every rupee spent,” said Hiren Pandit, managing partner with media-buying agency Group M.

 

“But over a period of time, that exposure becomes a blind spot if there is no other engagement.” For example, Vodafone used ad campaigns to push specific business ideas: ‘happy to help’ in 2008, the Zoozoos in 2009 and 2010, 3G in 2011, and Internet services this year.

 

In contrast, DLF was content being the title sponsor and having an on-ground presence. All sponsorship deals are due for renewal.

 

“Most were done on an anticipated performance of the league,” said Basabdutta Chowdhury, CEO of Platinum Media, a unit of Madison World. “Now that it has a proven record, BCCI would be looking at higher value.” The season of BCCI hardball is beginning.

 

Promoter

BCCI’s golden goose is IPL and it is making it work overtime. Just how important the IPL is to the entity that runs cricket in India can be gauged from one statistic. In 2010-11, the IPL accounted for 48 per cent of the revenues of the Board of Control for Cricket in India (BCCI).

 

Add revenues from the Champions League Twenty20, which owes its existence to the IPL, the figure shoots up to 60 per cent. IPL is BCCI’s golden goose, and the board is making it lay as many eggs as it can.

 

This means birthing new revenues streams by adding more dates to a packed cricketing calendar or earning more from existing streams by negotiating hard with those who want a piece of the IPL. Both have yielded smart financial payoffs for the BCCI.

 

Thus, in 2009, was born the Champions League, which essentially gives the BCCI and the top four IPL finishers a revenue kicker. The same year, BCCI renegotiated the TV deal with Set MAX and squeezed out 78 per cent more.

 

In 2011, it added two teams to the IPL (one has since folded) at a valuation that was about thrice the maximum from the initial lot in 2008. Overall, the number of matches increased, which translated to higher TV and sponsorship revenues.

 

The BCCI earned more. So did the franchisees, as the BCCI shares some part of its broadcast and sponsorship revenues with them. BCCI’s ‘surplus’-the equivalent of a corporate net profit-has increased from Rs 11.6 crore in 2008 to Rs 118.8 crore in 2010.

 

Numbers for the last two years are not available, though the BCCI had forecast a surplus of Rs 209.9 crore for season four.

 

“BCCI revenues have gone up,” is all that Rajeev Shukla, commissioner of IPL and vice-president of BCCI, is willing to disclose. Revenues could increase further as all sponsorship deals are due for renewal now. And even as it says it will address scheduling concerns, the BCCI has allowed all franchisees to play three T20 matches with teams from tier-II cricketing nations like Canada, the US, Netherlands and Ireland.

 

“This will spread awareness about IPL and improve the league’s reach next season,” said Mr Shukla. And also improve the BCCI’s financial health.

 

Source: The Economic Times
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