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The Roaring 20s

Cities have teams, and teams have owners. Can club culture take root in cricket and rake in the dough?

The Roaring 20s
The Roaring 20s
outlookindia.com
-0001-11-30T00:00:00+0553
The Business Models...And The Potential Googlies

Revenue Streams
  • Each team can expect around $6-7 million in annual revenues
  • Considering cricket's pulling power, TV rights can be major revenue source
  • Merchandising of memorabilia is done by clubs globally
  • Local sponsorships, gate collections can bring in significant revenues
But...
  • Annual revenues will be offset by marketing, administrative costs
  • Year-round international cricket on TV can hamper interest in local games
  • Not a craze yet, local market fakes can be fatal to such ventures
  • Sponsors may choose to look at the larger, international scene

***

Even for a cricket-crazy nation, the hype has been, well, a bit crazy. That's what happens when the suits and stars start padding up for the Indian Premier League (IPL), the Twenty20 cricket tournament that starts in April 2008. A call to a top GMR Holdings official has a noisy meeting in the background. No, it's not the latest at Delhi's mega airport project being discussed—it's about cricket. Elsewhere, Dabur's Mohit Burman is excited about setting up a new sports marketing and entertainment company.

And the latest buzz from Mumbai is that Shahrukh Khan is busy getting a music composer to prepare a theme song for his team.

The New Cricket Czars

Company/Owner - Team
1. Reliance Industries - Mumbai
2. UB Group - Bangalore
3. Deccan Chronicle - Hyderabad
4. India Cements - Chennai
5. GMR Holdings - Delhi
6. Wadia-Zinta-Burman-Paul - Chandigarh
7. Red Chillies Entertainment - Kolkata
8. Emerging Media Consortium - Jaipur

Call it sportainment or the birth of a new age for domestic cricket, there's no denying that IPL is off to a grand beginning. What began as the BCCI's answer to Zee supremo Subhash Chandra's Indian Cricket League (ICL) is now Indian cricket's biggest money-spinner of all time. With a staggering $1.7 billion (Rs 6,693 crore) committed till now from the sale of global media rights and team franchisees, BCCI and World Sport Group (WSG) are already in the black. Says Piyush Pandey of O&M, which will advertise the league: "IPL has the potential and the raw material to become the world's biggest league. The onus is on all the parties involved to fulfil that. It depends purely on how best they build their brands."

The focus now shifts to IPL's eight team owners—who, between them, have paid $723.69 million and will shell out more to pick players of their choice from an auction in early February. Even though IPL has BCCI's backing, many analysts aver that making money is not going to be easy. In this age of back-to-back international cricket, will spectators, viewers and sponsors warm up to domestic cricket? Will IPL give birth to a genuine club culture in a country where, barring pockets, none has existed? Sandeep Goyal, chairman, Dentsu India, warns: "I think the sentiment is seriously overheated. It's going to be an uphill task breaking even for quite a while."

The new team owners, obviously, disagree and insist they have business plans in place. For a Reliance or UB Group, who spend crores on advertising, it's an extension of the corporate brand. Ravi Nedungadi, chief financial officer, UB group, which has bagged the Bangalore team, says, "There are three key streams of revenue—broadcast, sponsorships and gate money. We can also use the IPL platform to promote our entire spirits portfolio." Adds GMR Holdings spokesperson Vijay Vancheshwar: "Obviously, there is a business proposition for us, otherwise we wouldn't have come into this. We want it to touch our business and contribute to the brand."

For other team managers, it has more to do with the excitement generated by the Twenty20 format. Says Fraser Castellino, CEO, Emerging Media, which will manage the Jaipur team: "We see Twenty20 as the game of the future. Sponsorship deals and broadcast rights are obviously the icing on the candy." And then there's the plan to mesh cricket with live 'family entertainment'. Says Dabur's Burman, who is in a consortium with actor Preity Zinta and others for Mohali: "In addition to the matches, we plan to have live entertainment shows for a wholesome experience for both TV and stadium audiences."

Experts, however, warn that making money is not always the primary reason for owning a sporting club. Dentsu's Goyal says, "Some just want the glamour, the glitz and may not be averse to writing off a few crores in losses every year." Santosh Desai, CEO, Future Brands, adds, "There is an implicit one-upmanship in owning a team. In other countries, there is a revenue stream from club membership and merchandise. We don't understand the value of clubs here."

Also on everyone's mind is the failure of ICL in November 2007. Of course, BCCI's diktat against ICL players didn't help matters. But the Essel Group's decision to telecast the matches only on group-owned channel Zee Sports did not go down well with advertisers, even after ad spot rates were cut. Ashish Kaul, executive vice president of Essel group, feels cricket is driven by national pride. "Indians would want to watch Sachin against Australia or Pakistan rather than teams of Ambani or Mallya." Another worry is audience fatigue, given the high number of international matches in a cricketing calendar. P.R. Mansingh, former secretary of the Hyderabad Cricket Association and manager of the 1983 World Cup winning Indian team, is pessimistic: "With India playing about 12 Test matches and 25 ODIs a year, who would watch league cricket?"

Then there are the hard numbers. According to Sunder Raman of Mindshare—in charge of the media buying for the league—the revenue share guaranteed for each team is around $6-7 million annually. The teams would have to spend a minimum of $3.3 million in players' salaries (as prescribed by IPL). Adding publicity and marketing and operational costs—the total annual costs would be around $7 million. So where would the additional revenues come from? Says Raman: "A big thing for local teams would be gate collections which, at around Rs 200 a ticket, could be significant for seven games. Licensing and merchandising can also fetch revenues."

But that would come only when IPL assumes the proportions of an English Premier League or NBA of the US. That is a far cry considering a genuine club culture doesn't exist in India beyond football. Warns Venu Nair, CEO, WSG, which has got the global media rights for IPL: "League owners have to realise that Indian spectators will not pay huge amounts of money to watch a game. If they want full stadiums, they'll need to provide affordable tickets." He says English football league owners make money by booking large corporate boxes at a premium.

According to market estimates, an average Twenty20 match commands advertisement rates at Rs 1 lakh per 10 seconds. Even if IPL matches that rate in the initial season, say experts, will it be able to get viewers—and advertisers? Says Nair: "Given that all matches would be held after 5 pm, we are looking at prime-time eyeballs." For now, advertisers are weighing their options. V. Ramachandran of LG Electronics says, "We have to see if IPL's timing benefits us and also the return on investment." LG spent Rs 300 crore on marketing in 2007, and is a potential bidder for IPL's title sponsorship. BCCI joint secretary M.P. Pandove said different strategies were being worked out to generate "city loyalties".

Obviously, sports marketing companies are upbeat. Anirban Das Blah, CEO, Globosport says, "The valuations show a clear business case for IPL. On an operating basis, the teams should break even in the fourth year. There are enough revenue streams to achieve this." The key bet here is that the ODI format would die out and be replaced by Twenty20. Adds Goyal: "The better ones will break even in four or five years if run prudently and intelligently. Others will struggle, lose money, exit to new owners." Clearly, BCCI will ensure that IPL will get off to a flying start. But it's a long slog ahead. Remember, the "glorious uncertainties" of cricket extend to business as well.




By Arindam Mukherjee & Shuchi Srivastava with Madhvi Tata in Hyderabad
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