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Franchisees have forked over big money for the privilege of owning IPL teams. A look at how they'll be hoping to earn their money back
January 25, 2008
Father Christmas usually arrives in December, but it's been a windfall January for the BCCI. Two deals, one for television rights and the other for eight city-specific franchise teams, have fetched the Indian Premier League (IPL) close to $ 1.75 billion.
Of course, that figure is not as dazzling as it looks. Part of the TV rights money will go to the eight teams and so the franchise bids need to be discounted to that extent. That aside, these are ten-year agreements: it's not as if the IPL - or its promoter, the BCCI - is about to encash one mega cheque.
Even so, the bid winners could just have hit the jackpot. Mukesh Ambani has agreed to commit Rs 441 crore to an idea, a Mumbai-based team that will take part in a midsummer Twenty20 league. Tomorrow, or three or five years down the line, he could be controlling India's biggest sporting club, located in India's business capital, for as little as Rs 40 crore a year. He could use the players he signs - Sachin Tendulkar, of course, since the big Indian stars are promised to their "home" clubs, and even international names such as Shane Warne - to promote Reliance Industries' business interests, make Vimal the official kit supplier, make Reliance Retail the team's sole memorabilia seller, set up theme-based restaurants. Once the business model is established, Ambani - or for that matter Vijay Mallya's UB Group, which has won the rights for Bangalore, or GMR Holdings, the Delhi franchisee - could sell stakes to foreign investors, invite private equity, plan an IPO and tap the stock market.
As an investment banker from New York who showed interest in the IPL model and compared it to the business of American football pointed out: "Even when a team is not doing well, there is a certain cachet attached to owning a sports club. It's high profile and there'll always be a market for it. The supply is limited, so the demand will never go away." There may be a point there. English football is an example: even as careful a businessman as Lakshmi Mittal has bought himself a 20% stake in Queen's Park Rangers, hardly a top-class team.
Essentially, the IPL bid winners have on their hands an eight-team monopoly. Even if the league is expanded to other cities later, there is going to be no second Mumbai or Delhi or Hyderabad franchise.
Three things emerge from the January 24 auction. First, not one of the winners is a fly-by-night operator. They are all established business houses (Reliance, India Cements) or have access to cash on the basis of personal earnings and credit-worthiness (Shahrukh Khan).
Perhaps the luck of the draw has favoured the Mohali winners, a consortium of Preity Zinta and the scions of the Bombay Dyeing, Dabur and Apeejay families. They have picked up north India's emerging economic hub for Rs 300 crore. After all, the Mohali franchise also means access to Chandigarh's business and cricket potential. Insiders in the cricket industry say it will be easier to build loyalties, stage events and create a buzz around a city team in smaller urban centres like Jaipur and Chandigarh/Mohali than in Delhi or Mumbai. "In the larger metros, there's too much happening," says one sports-television executive. "Also, the urban sprawl is huge. Smaller cities may have fewer distractions."
|Preity Zinta may be her team's face and mascot, but the nitty gritty of the franchise is going to be looked after by the men in suits. They will negotiate "official t-shirt sponsor" deals, manage customer/client or member/fan relations, and in general enhance the value of the franchise. They will be cold-blooded professionals, not honorary BCCI folk on a busman's holiday from politics|
Second, cricket fans and BCCI critics - for decades the two terms have been synonymous - have long bemoaned the fact that the Indian cricket board is not a professional body, that it doesn't have a paid CEO, a proper communications/media manager, a cutting-edge website. As it happens, the IPL clubs should fulfill these aspirations. Ambani and Mallya and Shahrukh Khan and Ness Wadia and the others would want a return on investment. They would be looking to set up separate companies - Reliance Mumbai Warriors Ltd or Kolkata Tigers Ltd, to pluck names out of the air - and hire professional managers, a qualified CEO, infotech specialists, to exploit the revenue possibilities online, marketing teams to expand the ambit of the franchise.
Zinta may be her team's face and mascot, but the nitty gritty of the franchise is going to be looked after by the men in suits. They will negotiate "official t-shirt sponsor" deals, manage customer/client or member/fan relations, and in general enhance the value of the franchise. They will be cold-blooded professionals, not honorary BCCI folk on a busman's holiday from politics.
Three, expect a tussle between the local cricket associations and the new IPL clubs. While the cricket market is going to expand, there's little doubt that Twenty20, played in the evening and under floodlights, is a hotter property than the Ranji Trophy. If the Red Chillies franchise does well in Kolkata, the Cricket Association of Bengal (CAB) may be financially hurt.
No one looks forward to being a poor cousin. Teething troubles are already apparent, say BCCI sources. In the first season, aside from showpiece foreign stars, the bulk of the franchise teams is going be made up of cricketers already under contract with the local BCCI affiliate, the state/city cricket association. Further, infrastructure will have to be borrowed or hired.
Who will take precedence: Red Chillies or CAB, Reliance or Mumbai Cricket Association, GMR Holdings or the Delhi and Districts Cricket Association? In theory it should be a seamless partnership. In reality there is bound to be a turf war. The new avatar of Indian cricket has arrived while the previous one still walks the earth. Is there space for both?
Ashok Malik is a senior editor at the Pioneer in Delhi
© ESPN Sports Media Ltd.
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