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Hard times in the big league

All is not rosy in the IPL as the effects of the global economic downturn begin to make their presence felt

Ajay S Shankar

February 21, 2009

Comments: 19 | Text size: A | A


TV-rights money is the core element of the IPL's finances, but the economic downturn has not been good news for the rights holders © AFP
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The deepening global recession seems to have finally caught up with the IPL. With just six weeks to go for the league's second season, franchises are scrambling to sign up sponsors and question marks have been raised - though IPL commissioner Lalit Modi emphatically denied them on Friday - within the industry about some of the league's long-term sponsorship deals.

Consider this: Rajasthan Royals, the IPL champions, are yet to finalise a team sponsor this year after their deal with insurance firm Bajaj Allianz broke down; HDIL, a housing company, has pulled out of an agreement with Kolkata Knight Riders; and Deccan Chargers, who finished bottom of the table last season, have lost their team sponsor, the Jaypee group.

A basic costs-and-expenses sheet for the last IPL season by an independent industry analyst estimated most franchises were hit by a shortfall of around Rs 20 crore (US$4 million) or more. "We have not yet reached the potential we thought was there," an official from a leading franchise told Cricinfo when asked about the coming season.

"The purse strings are definitely tight. If the market situation was at least 20% better than last time, things would have been different. Now, though, the sponsors are sticking to their guns on pricing and are holding out till the very end. In normal circumstances most of the deals for the second season would have been struck by now. But we are still talking. We hope things will look up once the IPL nears and the hype starts."

Recent developments have suggested that the league itself is not immune to market turbulence. IPL officials say they are safe as long-term contracts are in place with sponsors. Besides, the league gets 20% of the media rights - sold for 10 years to the Sony-WSG combine for $ 1.02 billion - on an annual basis and 40% from the central sponsorship pool. That, though, is where the problem could lie. Some of the bad news is fact, some buzz in the marketplace, but none of it inspires confidence.

  • BIG TV, a DTH provider, has pulled the plug on a sponsorship deal worth $ 31.1 million.
  • A deal with Pepsi, originally the league's "pouring partner", worth around $2.5 million annually has been "decentralised", leaving Pepsi free to tie up with individual teams. Pepsi bought the on-ground rights to the IPL, after which Coca-Cola, its traditional rival, signed an on-air deal directly with Sony that gave them exclusive visibility on TV.
  • Apparently Sony itself is struggling with sponsors - Kunal Dasgupta, its former chief executive, is on record as saying not too many are coming forward for the IPL. "We have tapped many but they are just not interested since they do not have the monies," Dasgupta said this week on the sidelines of a business conference; days later, he quit the job, citing personal reasons.

    Sony is reportedly charging Rs 3.5-4 lakh ($7-8000) for a 10-second ad spot - a 100% premium on last year's rate - but is still caught in a no-win situation. The rates are believed to be too high in the current scenario, and even if they are met, it may not be sufficient to cover all expenses.

  • Reports also suggest the IPL's five-year, Rs 200 crore ($40 million) title deal with DLF, India's leading real estate major, has been restructured and diluted, but this has been denied by both sides. "I cannot say what will happen tomorrow," Sanjoy Roy, DLF's senior general manager (corporate communications) said. "The other sponsors may have pulled out, but as far as DLF is concerned, as of now the deal stands as it is."
  • League v franchises
    "The aborted Big TV DTH deal would have contributed to the IPL's central sponsorship pool from which the franchises get a percentage," a franchise official said. The eight franchises get to divide among themselves, on an annual basis, 72% from the sale of IPL's media rights and 54% from the league's central sponsorship pool.

    Franchise officials say that they have borne the brunt of the recession as the IPL is not out in the market talking to sponsors the way they are. "The BCCI [which runs the IPL] is aware of the problems we are facing; it should come forward and help us out of trouble," Ness Wadia, a co-owner of the Kings XI Punjab team, was quoted as saying last month. "The board must understand that these are difficult times and we need to work out ways to see that all franchisees survive. If we don't do well, the BCCI too wouldn't benefit. There are many financial and cricketing issues that need to be addressed."

     
     
    Ironically, franchise officials now say that the main factor that can help them tide over the current market dip is the one that was overshadowed by all the glitz and glamour last time: the cricket
     

    But the IPL's role is to act as a facilitator, says Sundar Raman, the league's CEO. "We have created more opportunities for the franchises to maximise their monetisation," Raman said. Among those opportunities is the provision for more in-stadia visibility for the franchises this year; franchises will also get to sell an entire stand each, naming it after a sponsor.

    Franchise officials say it is time the IPL enlarged their share of revenue, though similar demands made earlier have already been rejected by the league. "Given the circumstances, teams will be looking forward to favourable payment terms from the IPL, but we need to reasonable," Joy Bhattacharya, team director of the Kolkata Knight Riders, said.

    The IPL management is clear that the league's business model was made keeping in mind franchises not getting money in the first year. Their line is simple: if a franchise's business model is strong, there is no reason for worry.

    Some weather it better
    The franchises generally reckoned to have the stronger business models seem to have done better. The Rajasthan Royals franchise, bought by Emerging Media for $ 67 million, is now worth $ 140 million (based on the sale of a 12% stake for $15.4 million last month). Kolkata Knight Riders, co-owned by Shah Rukh Khan, is said to have taken the smallest hit after the first season, and last week signed a three-year associate sponsorship deal with Coca-Cola for a reported Rs 5 crore (around $ 1 million) every year.

    "Compared to last year, the sponsorship opportunities are much tighter this year," Bhattacharya said. "Sponsorship is all over the place; some are closed, some are not, some are waiting to close. It is not an overvalued league. There is a cash-flow crunch, not an endemic problem."

    He admitted, though, that the operational cost of running a franchise has increased and is now between Rs 80-120 crores ($ 16-24 million). "The extra expenditure that teams have picked up this time is that of running offices for one year," he said. "Last year everything was set up for about three months.


    Shah Rukh Khan's franchise is one of the few that has managed to keep its head above water to some extent © AFP
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    "Then comes the cost of foreign players: the dollar was at Rs 40 when you bought them last year, and that has increased. Also, there is a 20% rise in foreign players. In addition, some teams have spent an extra $2 million at the auction. Add that to the cost of running various camps here and abroad."

    Kolkata has banked entirely on the brand charisma of Shah Rukh to boost their balance. "Shah Rukh was the main reason why their merchandising strategy took off so well last year," a market analyst said. "Besides, Shah Rukh is also the brand ambassador for Nokia, which is a major Knight Riders sponsor. This creates room for adjustments. For instance, Shah Rukh can give time to Nokia and the revenue will go to Knight Riders."

    Delhi Daredevils have added Coca-Cola and the UB Group to their list of sponsors, but Amrit Mathur, chief operating officer of the team's owners, said the recession presented a tight situation. "We are impacted by what surrounds us in the industry and economy. But having said that, we have strong and enduring relationships with our sponsors. That has protected us when compared to some other franchises who may have had one-year sponsorship deals and are facing problems in finding new sponsors."

    Manoj Badale, who represents Emerging Media, said the recession was a challenge. "In these times, people tend to be more selective about what they look for," Badale said. "People will have less money to send. Match-day sponsors will want more for the same amount as their budgets will be squeezed. But the biggest income for the franchise comes from the television rights, and it is contracted for the next 10 years."

    Ironically, franchise officials now say that the main factor that can help them tide over the current market dip is the one that was overshadowed by all the glitz and glamour last time: the cricket. Asked how the recession could be countered, Badale said: "We have to focus on our cricket. If we do well on the field, the crowds would like to come and then sponsors may think too."

    Ajay Shankar is deputy editor of Cricinfo. With inputs from Nagraj Gollapudi in Mumbai

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    Posted by KTiwari on (February 23, 2009, 22:39 GMT)

    I don't know why people are getting so emotional here. IPL is commercial venture and I personally think that it has a good business model because it is able to attract people. It may be another question that some IPL franchise cost basis may be out of line. So what...they will have to adjust their cost. Some oweners will sell out or some palyer's contract will get terminated. I don't see this as reason for end of IPL. Haven't we seen sports club going bust. Does that led to the end of sporting league......There are some self-proclaime real cricket fans and they like test cricket. But they should accept reality that their numbers are few other wise why test cricket matches get played with almost empty stadium...

    Posted by Sanj747 on (February 23, 2009, 0:29 GMT)

    It was always a matter of time. I am not a 20-20 fan at all and couldn't think of a tournament of this type going on yearly for a period of 2 months. A commercial venture of this type would always be a risk to be able to sustain it's presence. Too much of this 20-20 is going to kill the game. Test cricket is the ultimate and you can be sure there are real cricket fans in the market place. The adminstrators need to understand that at first and ensure they protect the long form of the game.

    Posted by macmac10 on (February 22, 2009, 23:37 GMT)

    I can't understand why people are criticizing IPL.... no one is forcing anyone to watch it.... if you don't like it watch women test match cricket instead in April/May.... and support the real cricket...

    Posted by cricpolitics on (February 22, 2009, 21:29 GMT)

    DSACHIT:

    You have it the nail right on it's head, and that is pretty hard too for some. Dsachit has pointed out some very true facts and one can find many many examples of the Indian crowed's love/hate relationship with their team. When the Indian team win they make them GOD and worship them on the streets and when they lose there is no one more criminal in India than their own cricket team. Both IPL and ICL are just a bubble to burst.

    Posted by kingofspain on (February 22, 2009, 20:45 GMT)

    20/20 is by far the most boring form of cricket imaginable. Most genuine cricket supporter don't care for it. Its popularity was fueled by hype and interest from the casual fan, who'll move on to something else pretty quickly. Between this and Standford, the 20/20 bubble is well on its way to bursting. Sure, a place can be found for it but the wild predictions of the demise of test cricket were well wide of the mark. Test cricket has weathered recessions worse than this as well as two world wars.

    Posted by rinspin on (February 22, 2009, 11:40 GMT)

    This is an interesting article. The impact of the global recession has reduced consumer confidence and business confidence globally henceforth businesses are looking to cut their costs and get rid of projects that aren't financially viable. In 2008 the IPL gave commerical and corporate entities the oppurtunity to gain exposure in the Indian consumer markets, this year the challenge is to maintain that exposure in 2009 and profit in 2010

    Posted by pundit on (February 22, 2009, 8:25 GMT)

    I hadnt expected much from the inaugural Ipl t20 tournament. But I was in for a surprise as it totally captivated the nation of 1 billion with its glitz and glamour and some awsome cricket matches. Now the notion which is floating that this years tournament isnt going to be the same like before n IPL is soon gonna get flop just due the "opting out" of some players n recession may not come true. Ricky Ponting had a huge form dip in the tournament n so his exit didnt bother anyone much.Cricket flourished in absence of him also. Similarly pakistanis were also not playing their best except Sohail tanvir n umar gul. But this time we have the England guns coming up. Hayden is gona b there for whole. Eden Gardens will b jam packed to see their hero ganguly bat again and When Jayasuriya will be hitiing sixes, who will care if Clarke is there or not.Who'd like to miss Sachin vs Warne/Mc grath.This years IPL is sure to be yet another phenomenon n i think we're in 4 a treat. Cant wait 4 April 10

    Posted by Shafaet on (February 22, 2009, 8:01 GMT)

    I couldnt agree more wth DSACHIT. T20 is horribly boring if u watch 5-6 matches in a row. t20 is like chocolate, u cant eat it alltime. Moreover IL made t2o cinematic and histrionic. Cricket lovers dont want to see cheerleaders, dont wanna hear jmusic while watching cricket, they wanna enjoy the cricket not the colour and lights of the stadium. IPL degraded the honour of cricket, IPL tried to prove that only cricket is not enough no entertain, so they added dancers,musics etc. make no mistake, cricket lovers wont dance eith the hype, IPL and ICL will be rejected very soon. T20 dont deserve more than 1 or 2 matches in a full tour. T20 is the worst format of cricket (if u call it cricket). but 1 or 2 matches in a full tour can be entertaining. BCCI plz dont destroy cricket, ICC lz dont slee anymore,its time to wake up

    Posted by 9ST9 on (February 22, 2009, 5:09 GMT)

    The current IPL crisis is of course due to the recession,that is understood. But it is worth pondering how the IPL will fare in the future. Twenty 20 horribly lacks variation. Team A comes in Slogs their way to a total Team B tries to chase it. It's disgustingly too simple. T20 lacks the intricate details of test cricket,where varying strategies are enthralling to watch. Lets face reality: hadn't India won the 20-20 WC Indian fans would be basking in the sun for hours watching Tests and ODI's (Occasionally throwing stones when they are losing).Once the Indian Domination period ends(As it did for Australia),the popularity of IPL will invariably drop. Because the Indian fans are not fans of cricket,they are fans of success and glamor.

    Posted by ExCric on (February 22, 2009, 1:59 GMT)

    Ok everyone, we need be objective here. Yes there is uncertainty and sponsor wallets are not exactly bulging. What is really happening is that the SONY/IPL/Franchises on one side and Sponsors on the other are bargaining for the best bang for their buck. So the sponsors will moan about the economic downturn hoping the other side gives in. Yes! This is about who blinks first. Sponsors are interested but, they want to see how much they can squeeze out of the other party. Would you pay half a mill for a 2 BR house when you feel if you wait a couple of weeks there is a chance you could snatch it for 350k. As long as people are interested in the event and I am pretty sure they are, there will be sponsors. This is just good old fashioned haggling. One of the reasons dasgupta was sacked[yes, lets call it for what it is] is he gave the other side ammo to drive down ad prices further.

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