Nine seasons of the Indian Premier League have gone by and the tenth edition is almost upon us. Former manager of the Indian cricket team, Amrit Mathur, who was also closely associated with the Delhi Daredevils, puts together a ‘report card’ of the biggest T20 league in the world. This is Part 3 of his report. Read (Part 1) and (Part 2) of the IPL report card on The Quint.
IPL – The Balance Sheet
Over nine years ago, while making his sales pitch, Lalit Modi sold the potential investors an attractive dream. His presentation promised an impressive ROI, steady revenue growth, multiple income opportunities, a short break-even period and the best of all, a huge bonanza on the valuation stakes.
His business model, roughly, was this :
Part 1 was related to the annual balance sheet, where profitability was around the proverbial corner. This was to be found by monetising assets, mainly uniform sponsorships, ticket revenue, licensing and merchandise sales. In addition, the IPL would share revenue – enough to meet operational costs of teams – from its central media rights and sponsorships.
Part 2 (and this is the clincher), was the long-term valuation game, the mirage and ‘maya’ of the IPL, where the 'brand value' of the franchise teams was supposed to reach an amazing level. The IPL was positioned as a brand valuation proposition, instead of an annual balance sheet examination.
Team owners were convinced they possessed an asset, a piece of art – the value of which would multiply. They believed they could cash out at any stage. This valuation game strategy was based on cricket's strong appeal, together with supply line scarcity, as there were only a limited number of teams in the market for someone to own.
The economic reality has disproved these expectations. On an annual balance sheet basis, most teams – barring a few – are struggling commercially. The reasons for this are not hard to find: cricket fatigue, competing avenues of entertainment and leisure, lack of freshness about the IPL, the recent economic lowdown, governance issues, controversies and corruption.
Are teams making profits? This is unlikely – except for one or two teams, sponsorship revenues have actually declined, tickets are difficult to sell, and licensing and merchandise/fan clubs/loyalty income is almost zero.
In this grim scenario, financial survival rests on the annual share of central revenue from the IPL, which in turn, depends substantially on the media rights from Sony. Last season, each team received Rs 60-70 crore from the IPL. But it can’t be argued that most of these teams would have been on ventilators without this kind of support.
The valuation game theory hasn’t played out according to script, either. In the past ten years, all teams have been in the market at some stage. They have prepared hundreds of due diligence documents, created spreadsheets and commissioned professionals to find buyers or strategic investors. But no deals were made. Not one. So either owners are being too greedy by seeking a value that is unviable, or the market’s instinct is to view the IPL as a risky investment.
Investors are unimpressed by the notion of an IPL brand value, as the teams are in business – and in the public eye – only for the six-week duration of tournament in a year, after which they go to sleep and disappear. In their books, the IPL is a glorified tournament, and not a fully-developed sports “league” like elsewhere in the world.
Team entities have limited commercial value. They may use player images during the tournament, give or take a few days before or after; But they have no tangible assets of brick and mortar, no real estate or properties, and no fan base to speak of because top stars keep moving every other year.
Experts feel brands are built slowly, brick by brick, for which investment is required. As things stand, IPL teams (with many bleeding financially) have neither the intent nor the appetite to allocate money for such investment or activities. Without this, 'brand value' is only a mythical paper asset that is about as useful as a demonetised Rs 1,000 note.
That the IPL has consistently courted controversy is another cause for investor disinterest. With numerous instances of teams being suspended, terminated and surrounded by a host of scandals and controversies, investor confidence is less than lukewarm.
Despite its overly commercial character and brittle business prospects, the reality is that the IPL works because the cricket is outstanding – high on quality and compellingly exciting. Fans love the drama of a tight run-chase, innovative stroke play and sudden twists that a 20-over shootout delivers.
The IPL is a matchless alliance of cricket and entertainment, which is why it’s controversy- and crisis-proof. Despite all the problems surrounding it, the IPL continues to enjoy a vote of confidence from fans.
Interestingly, while the IPL struggles in brand valuation, the lack of brand loyalty around the teams actually works to the League’s advantage as a whole. In a normal situation, fans support would diminish with poor performance of a team but the IPL fan works with an altogether different mindset. He is not fussed with who is winning or losing, his agenda is only to watch cricket. Which is good (in a twisted way) because regardless of poor results, teams are still able to sell tickets and fill the stadium.
This odd trend reinforces the belief that the IPL is crisis- and controversy-proof and works in a mysterious manner that defeats conventional economics. When Pepsi pulled out as the main sponsor, Vivo was quick to step in at the same price.
Many teams are bleeding annually but these losses are accepted without so much as even a squeak. The new media rights deal, effective 2018 onward, has already triggered dreams of acche din. Analysts expect this to double from its current level; And if that materialises, every team's balance sheet would be profitable.
On the larger cost-benefit analysis, in the net-net concept, the IPL strangely ends up a win-win for team owners. Operating the team gives them a profile and an image, immense media attention and higher social standing. The IPL is useful for building business contacts and 'obliging' VIPs. Corporates, who were used to sending Diwali mithai to earn goodwill, now exchange cholesterol-free, healthy IPL tickets for the same purpose.
Then there are the other non-economic benefits that are visible to the owners’ friends, rivals and the general public. Mainly, the networking and bragging rights, which come with having celebrity cricketers on your speed dial – not to mention your selfie collection.
(Amrit Mathur is a senior journalist, former GM of the BCCI and Manager of the Indian Cricket Team. He can be reached at @AmritMathur1)
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