April 11, 2013

When cricket goes corporate

Amrit Mathur
Among the IPL's most distinctive achievements is how it has brought the world of Indian business into the game

Five seasons on, the hype and the noise surrounding the event have obscured the IPL's identity as a fully functioning business enterprise. The league's alliance with the Indian corporate world has set up for Indian cricket a multi-layered partnership with industry, giving private entrepreneurs unique access to Indian professional sport on a scale not seen before.

Judged from the business standpoint, the IPL is brilliant - a cricket tournament developed primarily as a valuable commercial property. Through its yearly summer carnival, the IPL has given corporate houses a chance to promote, push, advertise and aggressively market their businesses.

Fundamental to the IPL's business plan was the idea of inviting private enterprise to own a slice of the cricket business - which had till then been a closed club. When franchises were sold in perpetuity, at a steep entry price, the corporate world was told it could invest in, own, and in future even trade on key components of Indian cricket. This proposition turned out to be a commercial masterstroke.

Until then all domestic T20 teams around the world were merely first-class teams renamed but still controlled by cricket associations. South Africa had the term "franchise" in cricket before India did. In 2003-04, Cricket South Africa decided to concentrate the resources of 11 provincial teams by merging them into six franchises, but those were still managed by the folks running cricket in Durban or Johannesburg or Cape Town - only with sponsor names tagged on to the team names.

Before the IPL, Indian cricket had no real, meaningful relationship with industry and commerce, though there were big TV deals and sponsors paying serious money to put their logo on Tendulkar's chest. The BCCI was quite content to let a few big sponsors (the ones who could afford to pay the asking price) compete for the available rights.

By creating an arm of Indian cricket that could be run as a purely commercial enterprise, corporate India was allowed to enter Indian cricket's dressing room. The sale of the IPL franchises was the game-changing moment.

Limiting the number of teams in the tournament maintains a simple economic balance - that of demand outstripping supply, translating into rise in value. The side benefits that come with owning an IPL team are social status, and opportunities for image-building and networking: good for business, priceless for bragging rights.

Whatever happens to the franchises, the BCCI's own revenue is secure. Every year it gets franchise fee payments ranging from US$37 million from Sahara Pune to $6.7m from Rajasthan Royals. There is also its share of central revenue, mainly from broadcast rights and from commercial sponsorships (this year from Pepsi, Yes Bank, Star, Vodafone and other partners).

With the BCCI protected from risk, it is essentially the franchise owners who carry the heavy financial burdens in the IPL. They have committed expenses (franchise fees, player costs, the costs of running, managing and marketing the team and of staging home matches). All of this could touch Rs 150 crores (about $27m) every year for a franchise.

The franchises' lifeline is their share of the central revenue generated by the IPL from the collective sale of broadcast and sponsorship rights. Central sponsorship is distributed to teams through a complex formula - a team's league standing has a bearing on what the franchise receives - and the average annual figure is approximately Rs 50 crores ($9m) per franchise. Given that there is a difference in revenue distribution of approximately Rs 1 crore (about $180,000) between each of the nine ranks in the league standings, the margin of earnings between the IPL winners and the bottom-placed team works out to about Rs 9 crore.

To break even, let alone make a profit, a franchise team has to strenuously work the assets available to it. Selling branding space on team uniforms is a major revenue stream. Logo branding has obvious media value, given live television coverage; everything starts with the team shirt.

Each franchise sells as many as ten properties on its team uniform. If marketed well, this could raise close to Rs 60 crores ($10m). The big money comes from the main team sponsor slot - the 206 square cm space across the front of the shirt, which can fetch about Rs 20 crores ($3m) per year. The six other logo spaces on a team jersey are expensive; the ones on the trousers and helmet fetch lower prices. Other licensing arrangements - which involve the use of the franchise's logo - come at more affordable prices (around 50 lakh or $92,000 a year).

Ticket revenue from home matches form another chunk of revenue. Some teams, Mumbai, Chennai and Delhi among them, will target ticket sales in excess of Rs 40 crores ($725,000) this season. (This is after 20% of the ticket inventory has already been given, as part of the franchise contract, to the IPL.)

The side benefits that come with owning an IPL team are social status, and opportunities for image-building and networking: good for business, priceless for bragging rights

The rules of engagement between cricket and industry have now changed to a more equal working arrangement - as against the BCCI's monopoly position. Due to the financial requirements of every franchise, commercial partners are no longer unwelcome guests, to be tolerated as long as they fork out the cash, but allies who deserve respect. Each IPL team has, on an average, 25 commercial partners - sponsors, licensees and suppliers.

The IPL has given everyone, from an MNC like Nokia to a local hosiery company like Lux Cozi, room to hawk their goods. The advertiser need not have a well-recognised pan-Indian presence. For instance, Manyawar, a brand headquartered in Kolkata, which sells formal Indian clothes for men, is now Kolkata Knight Riders' "ethinc wear partner". There is something for every size of corporate player.

It is the combined energy of approximately 250 such entities, all of whom are now players in the business of Indian cricket every summer, that fuels the IPL's economy. These new stakeholders drive growth by injecting resources and creativity into the system.

This is why the IPL is much more than a cricket carnival. Surrounding the action on the field, beyond the boundary is an entire world. A whirl of promotions, product launches, events, contests, road shows, celebrity appearances, meet-and-greets, fashion shows, movie tie-ups, and more.

As part of their outreach efforts aimed at building a fan base and at positioning their brand right, teams have organised cricket tournaments for slum kids, visited hospitals, led advocacy campaigns against disease, supported UN programmes for the girl child, and so on.

Cricket has for long been a big part of what connected corporate India to its customers, but before the IPL, corporate India did not have the kind of access to Indian cricket it now does. Due to this altered grammar, where the game is commercially driven, franchisees are in the business of reaching out and engaging with fans.

Five years since the IPL began, teams now have a better grasp of what needs to be done. The league is now firmly integrated into the Indian economy, and its financial results will reflect larger commercial dynamics at play, impacting all of the IPL's stakeholders - teams, players, sponsors and fans.

To an extent cricket, and the IPL, has not been much affected by the recession. There is still money being spent, but perhaps not as freely as before - questions are asked, concessions negotiated. The IPL is like a batsman who earlier hit through the line but now has to graft for runs and struggle on a track that is getting increasingly tricky.

The next article in this series will look at the impact of the IPL on players, what team owners look for, why they pay what they pay, trading, and emerging trends

Amrit Mathur is a former manager of the Indian cricket team and currently a consultant with Delhi Daredevils