Sponsors cautious as BCCI looks to restore faith in IPL

A few days after the Lodha panel's verdict in the IPL 2013 corruption scandal - in which the panel suspended the owners of the Chenai Super Kings and Rajasthan Royals franchises for two years - sponsors and commercial partners of the tournament are waiting to see the steps the BCCI will take as it attempts to restore confidence in the IPL brand. There is little doubt, among industry experts, brand managers and a few BCCI members, that the IPL has been affected adversely after one of the biggest crises since its inception in 2008.

"If I were to put a number around the reputation loss, if 100% is pure reputation, it [the current reputation of the IPL] is around 60%. There is a 40% loss of reputation owing to all the controversies," Anisha Motwani, director at Max Life Insurance and an expert on brand reputation management, said.

The tournament has also been hit in terms of financial valuation. "I would say it has taken a beating of 10 basis points [10%]," R Ramakrishnan, director and co-founder, Baseline, a sports marketing, entertainment and licensing firm, said. "The IPL is still in its infancy compared to other global leagues. The brand is still growing and learning. As long as there is match-winning on-field performance and a loyal fan base, the valuation will have a steady rise. We are still eight months away from the next IPL."

A dip of 10 basis points for a league that is valued between $3-4 billion by various finance firms is a setback, and it will only drop if the market sentiment continues to drive sponsors and prospective bidders away from the league.

Over the last three days, PepsiCo India, the title sponsor of IPL, has been reportedly considering not to renew its deal after the 2017 edition. Aircel and Ultratech Cements, the main sponsors of the two suspended franchises, are reconsidering their association with the IPL. The JSW Group, which was interested in buying an IPL franchise until last week, has decided against it due to the "negative aura" surrounding the league.

"I think it's a 'No' at this point of time, purely based on the whole negative aura that has been generated," Parth Jindal, who oversees JSW's sports interests, said. "We don't want our brand to be associated with a league that is so tainted at the moment."

Executives from various companies that are sponsors of the IPL say they have taken a "wait and watch" approach, but admit their managements might reconsider the association with the IPL given the "negative publicity".

Even some of the BCCI officials admit this is the biggest crisis for the tournament. "The brand of the IPL has definitely been affected. Some of the sponsors are reportedly drifting away from the IPL. It will be a more than challenging task for everyone in the BCCI to restore the faith of the market in the brand," Ajay Shirke, an IPL governing council member, said.

However, IPL chairman Rajiv Shukla is still upbeat over the future of the league. "We are always concerned about the IPL, and let me assure you the next edition will be a bigger success. The IPL is a robust product and this judgement [suspension of teams] should not affect IPL as a product," says Shukla. "The idea is to have the tournament in full format with a minimum of eight teams. We can't hold the event with six teams."

Shukla's confidence is based on the tremendous response for IPL 2015. The tournament has been embroiled in controversy since the arrests of players and team officials in May 2013, but the eighth edition saw a surge in advertising revenue and viewership figures. While television ratings rose considerably, MSM India Pvt Ltd, the official broadcaster of the tournament, reportedly generated in excess of Rs 1000 crore [approx. $165 million] from advertising revenue.

"When you look at last year's [IPL 2015] statistics, IPL as a sport is an established property," Motwani said. "Despite all the controversy around the BCCI, the IPL ratings grew from 3.1 to 3.7 TV hours. The [ad] rates went up by 20%. The viewership time per match went up by around 45-46 minutes, which was significantly higher."

Shukla's clarification that the BCCI is not looking at a six-team IPL, will have come as a relief for MSM India. A six-team IPL is not a viable option since MSM India has paid more than $800 million for a nine-year broadcast deal running till 2017 with a minimum of 60 matches per season.

Even if broadcast fees were lowered with a six-team IPL, MSM India will take a huge hit in terms of revenue. "The broadcaster will be in a tight spot if the IPL takes place with six teams. Then there is certainly a revenue loss," Ramakrishnan said.

Motwani explained the "broad math". "Each 10 second-slot is priced at Rs 5 lakh [approx $830,000] approximately. I am taking some ballpark figures here," she said. "There are 15 matches less, which means there are roughly 35,000 seconds of advertising inventory left and if 35,000 seconds of inventory costs around Rs 5 lakh per 10 seconds, it comes to roughly Rs 180-200 crore [approx $30-33 million], a straight hit for the channel."

A media planner who has been associated with MSM India earlier said the broadcaster is not "overtly worried" after the BCCI made it clear it will not reduce the number of teams. But for the broadcaster and the rest of the market to be convinced about, the BCCI needs to initiate procedures to add two new teams at the earliest.

That is unlikely to be easy, and deciding the base price for two new franchises will be one of the toughest tasks. IPL insiders and industry experts alike are convinced that no investor will come forward if the BCCI invites bids for a two-year period, the suspension period for the owners of Super Kings and Royals.

"Ideally it has to be a ten-year cycle offered to the new investor, if not five-year period. It needs at least five years for a franchise to break even," says a former executive of an IPL franchise. "If the base price exceeds Rs 500 crore [Approx $83 million] for a ten-year window, I don't see too many interested buyers coming forward to invest in the IPL at this point of time."

At the inception of the IPL, Royals was the cheapest franchise at $6.7 million per year for 10 years while Mumbai Indians was the most expensive at $11.119 million per year. In 2011, when two franchises were added to the IPL bandwagon, Sahara India paid a whopping Rs 170 crore [$38.63 millon at then exchange rate] per year. In 2012, the Sun Group acquired the Hyderabad franchise at approximately $15.9 million, per year for five years.

However, industry experts feel the new bids, if invited, would be far cheaper than the Sun Group's bid for Sunrisers Hyderabad, although there are companies like the RPG Group and Videocon, interested in acquiring an IPL team.

Motwani, however, feels prospective buyers will want to wait until the uncertainty over the format has been cleared. "I have a feeling they would want to wait for the controversy to be at least cleared," she said. "What are they buying into? They could just be buying a hot potato.

"Even if it comes free, if it ends up burning you all the way, nobody wants a hot potato. Whatever little you save will just be completely ruined by the fact that it will cause a bigger hole in reputation and many other things."