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Despite the blow dealt to the IPL brand by the spot-fixing and betting charges, advertisers and sponsors may not pull out for the simple reason that the cricket tournament continues to remain the richest sport event and most sought-after TV extravaganza in the country
They represent the cream of India Inc. From Pepsi and Vodafone to Star TV and home-grown Videocon, 70 leading advertisers and 12 sponsors splurged nearly Rs 1,300 crore in the Indian Premier League (IPL), which concluded last week. That is a lot of money to put into one property. But everyone was lured by the need to connect with India's masses.
In just two months during which the tournament was played, IPL took in one-third of the total monthly spend on TV advertising across all genres and channels (average monthly spends on TV advertising is Rs 1,350 crore). And if you took the entire advertising on TV, print, Internet, ground promotions and bill boards, the 6th edition of IPL was able to grab one-fifth of the total.
For the Board of Control for Cricket in India, or BCCI, the league has meant big bucks, it raked in around Rs 5 crore every match-day of the tournament in 2011-12 and this number would have gone up this year. In 2011-12, the surplus generated from IPL (Rs 265.14 crore) constituted 23 per cent of its total income and this was instrumental in helping BCCI return a profit (it calls it surplus) of over Rs 382 crore. This makes BCCI more profitable than some well-known companies like Britannia, Voltas and East India Hotels.
But the ax hangs over the golden goose. The spot-fixing scandal and the arrests of players and bookies, plus the swift unraveling that trapped men like small-time actor Vindoo Dara Singh and BCCI President N Srinivasan's son-in-law Gurunath Meiyappan threatened to hit the money-making league. The BCCI president himself is under intense pressure to resign, even as a three-member committee has been constituted to look into the complicity or otherwise of his son-in-law in the scandal. But there is now a concerted move to remove Srinivasan, with the board divided right down the middle.
That's one part of the story that will unravel in the days to come. Yet the question being asked is whether the scandal will make a dent in what is by far the richest sports event and the most sought-after TV extravaganza in the country. Will advertisers and franchisees have second thoughts, will companies reduce their advertising exposure? "There certainly is an impact," says Ashish Bhasin, Chairman India & CEO South East Asia at Aegis, a leading media buying house. "The controversy has eroded the brand equity of the property. Responsible brands will not like to be a part of IPL if the controversy gets murkier. One can expect that advertisers will try and drive a hard bargain now."
The controversy has also surprised sports lovers in another way. The stoic silence of the otherwise vibrant cricket community has puzzled many, mainly because this community includes presidents of state cricket associations, top players, normally aggressive commentators and well-known politicians. Why? The answer perhaps lies in how inexorably their earnings are linked to the huge surplus generated by IPL.
"IPL has created a vested interest among players, commentators and state boards who will just keep quiet as long as the money flows," says a former cricket administrator. Franchises, according to some rough estimates, paid over Rs 400 crore this year for contracting players, including international stars, Ranji trophy players and even under-19 India players. They can spend a staggering Rs 635 crore under the IPL rules every year for 198 players. It's the kind of cash that most cricket players have never seen. Remember also that many of the top international stars, Indians and foreign, make more money from IPL than from Tests and ODI for their national teams.
Among IPL beneficiaries are former cricketers, many of whom are now commentators, administrators and members of state cricket associations. The cricket body recently gave Rs 100 crore from the IPL kitty to over 200 cricketers as a one-time benefit. Similarly, the 30 cricket associations have no reason to complain. They have received big grants for upgrading stadia, building new ones and for managing their units. In 2011-12, for instance, BCCI distributed over Rs 435 crore for promoting the game and building infrastructure. New stadiums in Pune, Ranchi, Rajkot and Dharamsala were built with BCCI support.
While these sections would want IPL to continue, would the advertisers and franchisees continue to open their purses? There is no doubt that the brand value of IPL has eroded and could worsen with the more details of the betting malaise being unearthed. Brand Finance says the value of the IPL brand has dropped from $4.13 billion in 2010 to $3.03 billion this April. Unni Krishnan, global strategy director of the London-based brand valuation company, says, "There is a problem. The latest set of incidents is another self-indicted wound, steadily taking away from the property's sustainability."
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Even TV viewership was clearly dented by the spot-fixing allegations. The already falling viewership, based on television viewer ratings (TVR), fell 14 per cent after May 16, when Delhi Police arrested the three Rajasthan Royals players, going down to 3.13 from 4 for three evening matches after the bust.
Beyond viewership, the fixing charges will surely impact the premium attached to advertising in IPL. Says Satyajit Sen, chief executive officer, ZenithOptimedia: "From a viewer's standpoint, there is not much of a substantial impact. But from a sponsor's standpoint, a controversy of this kind is certainly not good. So yes, there will be some discounting." Media planner say, off the record, that they expect next year's advertising rates to come down 20-30 per cent. If any one of the big advertiser sidesteps the tournament, there could be mayhem.
But corporate sponsors of the tournament feel that despite the controversies, IPL has been able to generate variable, but consistent, TVRs. Says the head of marketing of a leading sponsor: "TV viewership is highly fragmented, but no other property has given such consistent TVRs and a platform to connect to millions of customers. Which other property can offer the same over two months?"
Media planners say that what IPL brings to the table is consistent ratings which no other programming can boast of. Anita Nayyar, CEO of Havas Media, India & South Asia, says that while viewership has seen a marginal dip, Sec A & B and the youth still holding strong. "Over six seasons, IPL has stabilised in ratings, discarding the peaks and troughs."
But companies have rejigged strategy to ensure revenues do not fall. So official broadcaster, Set Max, for instance, while lowering its ad rates by 15-20 per cent (bringing it to around Rs 4.5 lakh for a 10-second slot), roped in a larger number of advertisers. Instead of five presenting sponsors last year who paid a premium for the association, the channel coralled 11 companies. As a result, they made over Rs 850 crore this year, compared with Rs 650-700 crore last year. Says P Singh, COO, Multi Screen Media, which runs SET Max: "IPL has been a very successful property for us over the time. With the latest season getting over, we met all our commitments to the advertisers."
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It's the franchises that are most impacted. The nine franchises, many of whose bottom lines are in the red, doled out around Rs 600 crore to BCCI as annual fees for hosting teams. Data shows that five squads accumulated losses of just under Rs 300 crore in 2011-12.
The rumblings of a potential revolt came into the open when Sahara, owner of the Pune franchise, decided to pull out, alleging that BCCI did not keep its promise of reducing the franchise fee. Says Subrata Roy, chairman of Sahara: "You cannot merely squeeze the franchisees and make money for yourself. For IPL to succeed, franchises should be financially healthy." Pune Warriors is making losses of over Rs 100 crore each year. Last year, the Kerala franchise also called it a day after it was unable to pay its bank guarantee of Rs 156 crore.
While Sahara's problems emanate from the fact that it overpaid for the right to own a team in 2010, the current valuation of the teams have also diminished. Three years after Sahara's foray, Tamil Nadu's Sun Group paid only Rs 425 crore for five years when buying Deccan Chargers, now renamed Hyderabad Sunrisers. While Roy pays Rs 170 crore every year to BCCI, the Marans fork out half the amount of Rs 85 crore. GMR, which controls the Delhi franchise, has been looking for an investor to buy a stake in the company to reduce its exposure for over a year, but no one's come forward.
So is financial viability a problem limited to the few teams that paid too much in 2010 for entry? To be fair, most of the franchises have been able to cut costs and reduce losses. Kolkata Knight Riders has already started making money. And even though expected revenues from merchandising have not taken off at all, they have been able to rustle up more money this year by increasing ticket prices. Also many franchises say that the revenues from the central pool (which is shared between the BCCI and the teams) is steadily going up. One of them says that they expect to get Rs 55 crore this year from their share of the broadcasting rights compared to the Rs 45 crore they got last year.
Indranil Das Blah, partner at celebrity and sports management firm CAA Kwan, says he is not worried. "Franchise buyers should realise that it is a long-term game. They should look at a 10-year horizon." Blah says that while the share from broadcasting rights (which will go down from 72 per cent in the first five years progressively to 48 per cent in the last year) will reduce, it will be neutralised by the fact that Set Max will also have to pay more for the rights every year now.
What everyone can hope for is new excitement in the next edition. All players will be back on the auction table again, leading to new team combinations. Plus in a country as crazy about cricket as India, controversies leave no major scars behind - think of the earlier match-fixing scandals or the Lalit Modi brouhaha. A Panasonic India spokesperson perhaps sums up the mood: "While the current controversy is certainly not good for the spirit of the game, the final verdict on IPL is not out yet."
Wait till IPL7.
(Gaurav Laghate and Viveat Susan Pinto in Mumbai contributed to this article)
IPL IN THE LEDGERS
- IPL sponsors pooled in Rs 200 crore, of which title sponsor PepsiCo paid around Rs 80 crore compared to Rs 40 crore DLF paid earlier.
- SET Max made Rs 800-850 crore from advertising, up from Rs 650-700 crore last year.
- The nine franchises made around Rs 250 crore from sponsors and in-stadia advertising
- Some franchises say they made Rs 15-20 crore from ticket sales
- IPL players earned around Rs 400 crore, apart from the prize money. Franchisees could spend up to Rs 635 crore on 198 players
- About 200 ex-cricketers got Rs 100 crore from BCCI, with the top stars getting Rs 1.5 crore as one-time benefit
- State and other cricket associations got over Rs 435 crore in 2011-12 to promote cricket and build infrastructure (grounds in Pune, Raipur, Dharamsala, among others)
- BCCI made a surplus of Rs 265.14 crore from IPL in 2011-12 - up from Rs 118.76 crore in 2010-11. This was 23 per cent of its income and helped overshoot budgeted surplus by 29 per cent.
- SET Max paid $1.06 billion for 10 years for broadcasting rights. It has to progressively pay more from the sixth year onwards. But the share of the teams from this will go progressively down from 72 per cent till IPL 5 to 48 per cent in the last year. But as the outgo per year from SET Max will also go up, franchises will not lose out
