Revenue Machine. When West Indies T20. 50% more. 50% more IPL 4

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1 IPL_Feb 21.qxd 2/1/2010 3:38 PM Page 2 Revenue Machine Taste the thunder: Deccan Chargers rejoice after winning IPL 2 REUTERS IPL spelt big bucks right from its birth. But in 2010, the league has taken a big leap forward and the business is set to explode by the time IPL 4 comes around. ANUSHA SUBRAMANIAN WITH DHIMAN CHATTOPADHYAY Cricket Unlimited Bigger on Every Count. IPL 3 IPL 4 Matches Teams 8 10 Players for Auction (Approx.) IPL Brand Valuation $311 m-plus 50% more IPL Enterprise Valuation $2.01 b 50% more When West Indies T20 specialist Keiron Pollard was snapped up by Mumbai Indians during the January 19 auction for the third season of the Indian Premier League, or IPL 3, team boss Mukesh Ambani reportedly coughed up $1.8 million (Rs 8.3 crore) for the batsman after three rival teams exhausted their original bid amount of $750,000 (Rs 3.4 crore). Under IPL rules, the bid amount was not disclosed but, if the number is true, it would make Pollard the most expensive IPL player to date. Much more than the $1.55 million (Rs 7.1 crore) each that Chennai Super Kings paid for Andrew Flintoff and Bangalore Royal Challengers for Kevin Pietersen, who were paid top dollar, in If this is an indication of the success of IPL 3 even before the season has begun, then things can only go one way: up. In Season-III, IPL s earnings could cross Rs 700 crore over Rs 200 crore more than what it earned in Season II. And though it s early days, IPL 4 will see a big jump in revenues as well, says an official of the Board of Control for Cricket in India (BCCI), the mover behind IPL, on condition of anonymity. UK-based Brand Finance had valued the IPL enterprise at $2.01 billion (Rs 9,200 crore at current rates) for Season-II; sources indicate this val- Valuation Source: Brand Finance 66 BUSINESS TODAY February Febuary BUSINESS TODAY 67

2 IPL_Feb 21.qxd 2/1/2010 3:38 PM Page 4 $39.2 million Virender Sehwag, Gautam Gambhir, A.B. De Villiers, Daniel Vettori, Tillakaratne Dilshan and Wayne Parnell (new signee) Hero Honda, Kingfisher Airlines, Royal Challenge, Coca-Cola and Adidas (Rs 35.1 crore) $39.4 million M.S. Dhoni, Matthew Hayden, Mike Hussey, Andrew Flintoff, and Muthiah Muralitharan SPONSOR: Aircel (Rs 21.8 crore) $42.1 million (from Season-II) Sourav Ganguly (original icon player), Chris Gayle, Shane Bond Tag Heuer, Belmonte, Airtel, Nokia, The Telegraph, Sprite, Planet M (Rs 25.8 crore) $34.8 million Adam Gilchrist, Andrew Symonds and Kemar Roach (new signee for $720,000) Deccan Chronicle, Odyssey, Puma, Kingfisher and McDowell's (Rs 14.8 crore) Common revenue streams for the teams are: Broadcasting rights, ticket sales, sponsorship associations, in-stadia advertising, merchandise sales, and media tie-ups Valuations are for Season-II Source: Brand Finance, IIFL Research uation could increase by 50 per cent. With two new teams, a base price of $225 million for the teams ($113 million higher than the most expensive team at present) and over 300 players set to go under the hammer in October 2010, IPL 4 is sure to get bigger. It s All About the Money The cash-spewing innovations have already started: Apart from TV rights, IPL will also rake in the moolah from theatrical rights. This year, IPL Chairman and Commissioner Lalit Modi has raked in almost $70 million (Rs 330 crore) by selling theatre-screening rights of the tournament to Entertainment Sports Direct, which, in turn, has partnered with UFO Moviez to screen IPL matches in HD quality in 800 screens across the country. Sanjay Gaikwad, CEO, UFO Moviez, expects box office collections from the IPL matches to touch Rs 30 crore in season-iii. Says Gaikwad: This is probably the first time that any sports league is leveraging this aspect of the business. The semi-finals and finals will be screened in 3D, a first for sporting events. IPL will also have an awards ceremony from this year, based on 56 League games, Colors, the general entertainment channel, will telecast the awards night, after-match parties, events, fashion shows and related events. Says Modi: We will give every type of viewer something to watch. Fashion, Bollywood and cricket will all be merged. Our partnership with Colors takes the IPL cricketainment quotient into a new orbit. The revenue of the tie-up will go to the franchises, he says. Then there is the online streaming of matches on YouTube in a deal with Google (see Marketing Machine). Rohit Gupta, President, Network Sales, Licensing and Telephony, Multi Screen Media, the holding company of broadcaster SET Max, says, With IPL back in India, we started sales in mid so that marketers have enough time to create and plan extensive creative or marketing communication. SET Max is commanding a premium of 20 per cent on advertisements over last year s edition. The broadcaster is commanding Rs 5 lakh for a 10-second ad spot for the matches. Last year, the average cost of a 10-second ad spot was about Rs 3.75 lakh. While 80 per cent inventory has been sold, the balance has been kept aside to be sold at a premium when the tournament is at its peak. Vedam Jaishankar, Bangalorebased cricket analyst and author of Rahul Dravid s biography, says Modi has played a masterstroke this year. The tickets for hospitality boxes will be sold at a minimum of Rs 50,000 each. Besides getting hospitality during the match, these people will be invited to the after-match parties, says he. The financial success of IPL 3 even before the matches start in February is luring new business into the league. Signs of IPL s growing net worth were evident as early as February 2009 when Rajasthan Royals, the IPL champions in Season-I, sold a 12 per cent stake in their franchise for around Rs 70 crore, valuing the franchise at a shade less than Rs 600 crore, or nearly double the $67.5 million paid a year ago to acquire the franchise. For Season-IV, the auctions for two new teams will be held by the end of February (eight months before the October auction for 300 players) with a base price of $225 million (Rs 1,035 crore) each. This is more than double the value of the costliest team currently Mumbai Indians at $111.9 million (Rs 514 crore). All eight franchises will be given the choice of retaining any six players (four Indians 68 BUSINESS TODAY February

3 IPL_Feb 21.qxd 2/1/2010 3:38 PM Page 5 $41.6 million Sachin Tendulkar, Sanath Jayasuriya and Kieron Pollard (new signee) Reliance Industries, Idea Cellular, Mastercard, Royal Stag, Kingfisher, Zandu Balm, Pepsi and Adidas (Rs 7 crore) $36.3 million Kumar Sangakkara, Yuvraj Singh, Shaun Marsh and Irfan Pathan Emirates Airlines, Dabur, Reebok, Gulf Oil Corp. and Netlink Blue (Rs 26.1 crore) $37.4 million Rahul Dravid, Anil Kumble, Kevin Pietersen, Jacques Kallis Royal Challenge, McDowell s and Bagpiper (Rs 8.1 crore) $39.5 million Shane Warne, Shane Watson and Graeme Smith Ultratech (main Sponsor), Kingfisher, Puma and Paras Pharma (Rs 35.1) Common revenue streams for the teams are: Broadcasting rights, ticket sales, sponsorship associations, in-stadia advertising, merchandise sales, and media tie-ups Valuations are for Season-II Source: Brand Finance, IIFL Research and two foreigners) they want. IPL boss Modi, however, remains tightlipped when asked if a base price had been fixed for the players. Nothing has been decided yet. The modalities for Season-IV auction are still being worked out, he says. Long-term Play Guarded though Modi is, it hasn t stopped speculation on some big names who are said to be interested in buying new teams. The names of Hero Honda s Pawan Munjal, Sahara s Subroto Roy and ADAG s Anil Ambani are already doing the rounds. In a recent interview with Business Today, Munjal, the Managing Director of Hero Honda, had said he wasn t interested in the outright purchase of an IPL team for the time being. We are associated with cricket at many levels. In the IPL we are the main sponsors of the Delhi Daredevils (with whom Hero Honda signed a threeyear contract worth Rs 55 crore in 2008) as well as being a partner with IPL. We are also associated with the International Cricket Council (ICC) as one of their global partners, says Munjal, adding that buying a team is something the company hasn t thought about. That may change as October nears and if IPL 3 lives up to its promise of a money spinner. Sources suggest that Munjal is interested in owning a team in his personal capacity. Others too are unwilling to commit themselves. Sahara sources said they were weighing various options and would decide about buying a team at an appropriate time. Still, over 30 companies and individuals have shown interest in buying the teams so far. What is luring them to IPL? Says Vivek Gupta, M&A Partner at BMR Advisors: IPL has turned out to be a huge media property. It is not to feel good or boost their egos that they want to own a team. It is a for-profit venture that is drawing them. It s a long-term play. Adds Mahesh Ranka, General Manager of sports marketing firm Relay Worldwide India: Companies are encouraged by what IPL has delivered. What the very high base price will do, though, is keep out people who are not serious whose funding is not strong. Also, IPL has shown how a sport, if marketed well, can be profitable over time. Brand Finance had valued the teams after Season-II, taking into account various revenue lines. Among the eight teams, Kolkata Knight Riders (KKR) was ranked at the top with a brand value of $42.1 million (Rs crore), followed by Mumbai Indians ($41.6 million or Rs191.3 crore), Rajasthan Royals ($39.5 million or Rs crore), Chennai Super Kings ($39.4 million or Rs crore), Delhi Daredevils ($39.2 million or Rs crore), Royal Challengers Bangalore ($37.4 million or Rs 174 crore), Kings XI Punjab ($36.3 million or Rs 167 crore) and Hyderabad Deccan Chargers ($34.8 million or Rs 160 crore). The Super 8: Bigger and Bigger Whatever doubts remained after some teams did not make a profit in Season- I were laid to rest at the end of Season- II, when almost all teams were in the black. Rajasthan Royals, despite having lost in the semi-finals, clocked profits of Rs 35 crore in Season-II. This season, the Royals have set aside a budget of over $1 million (Rs 4.6 crore) for just marketing and promotions, says Manoj Badale, co-owner with Bollywood actress Shilpa Shetty s family, Rajasthan Royals. Similarly, KKR, despite ending last in 2009, clocked profits of Rs 25.8 crore. The team, owned by superstar Shah Rukh Khan, expects to do well this 70 BUSINESS TODAY February

4 IPL_Feb 21.qxd 2/1/2010 3:38 PM Page 6 IPL Valuations and Revenue Streams According to a Brand Finance study done during Season-II, the IPL as a standalone brand has a value of over $311 million and the entire enterprise value that includes its franchises is valued at $2.01 billion. This is expected to have risen considerably, with some estimating a 50 per cent jump. Revenue Streams Broadcasting rights to Multiscreen Media and World Sport Group for 10 years for Rs 8,700 crore. Global theatre-screeing and Public Venue rights sold to Entertainment Sports Direct for Rs 330 crore for 10 years. Revenues split 50:50 between ESD and IPL. Online streaming rights sold to Google/YouTube for an undisclosed sum. Central sponsorship revenues (Revenues are split between BCCI and the teams): DLF, Hero Honda, Pepsi, Citi, Vodafone, Kingfisher have been tied up for varying periods with IPL, at approx. $25 million a year. Franchise fees: Rs 333 crore per year. Revenue Split Central Broadcasting Revenues Year BCCI Teams % 80% % 70% % 60% For the first 3 years, each team gets around Rs 67.5 crore in broadcasting fees. Central Sponsorship Revenues Year BCCI Teams % 60% For the first 3 years, each team gets an average of Rs 9 crore in Central sponsorships. AFP season, although KKR officials are reticent. Our main ambition this year is to make it to the semis. So you can say onfield performance will be target #1, says Team Director Joy Bhattacharya. Delhi Daredevils and Kings XI Punjab have tied up with bookmyshow.com for sale of tickets online. The stadium is a key source for revenue and we have had to put technology and systems in place to ensure minimal erosion through pilfering, says Mohit Burman, co-owner, Kings XI, and a director at Dabur India. The team is spending around Rs 4 crore this season on marketing. After having clocked profits of Rs 23.3 crore, Delhi Daredevils is expecting to improve matters in Season-III. The team s GM Marketing P. Phaneendra expects 90 per cent of tickets for its matches to be sold through bookmyshow.com. Ditto, Chennai Super Kings. With the share of central sponsorship remaining unchanged, a team s profits depend on sponsorship and ticket sales. On both these accounts we plan to do better so our profits should be a lot higher than the first two editions of IPL, says Rakesh Singh, GM, India Cements and spokesman for the Chennai team, the runners-up in Season-I. Some owners, however, do not agree with an India Infoline Research report that suggests all teams are profitable. Burman says while teams did make money in Season-II, becoming a profitable company is still some distance away for all franchises. Kings XI hopes to reach operational break even in 2011 and then look forward to profits. PE Deals on the Horizon The question now being asked is: do these valuations and the profitability mean fertile ground for equity deals? The valuations look attractive, says Rajesh Jain, KPMG India s National Industry Director for Information, Communications and Entertainment (See IPL: How Big Can It Get). According to Jain, some private equity (PE) firms

5 IPL_Feb 21.qxd 2/1/2010 3:39 PM Page 7 have already shown interest in the teams though others such as Gupta of BMR Advisors says such firms take a long term, 5-7 year view. Many teams are evaluating options to unlock value. Some PE funds like New Silk Route, Actis and TPG have shown interest in KKR and Kings XI Punjab. According to analysts, Deccan Chargers, Royal Challengers and Chennai Super Kings, which are part of listed companies Deccan Chronicle, UB Spirits and India Cements respectively, have been valued at $150 million (Rs 690 crore) each. Ahead of IPL 3 and 4, that could climb to $250 million (Rs 1,150 crore). India Cements is also not willing to hive off its IPL property from the listed company. Singh says, Chennai Super Kings is a property of India Cements. It will remain so. Whatever value it generates will remain within India Cements. On stake sales, Kings XI s Burman and KKR CEO Shah Rukh told BT they were not considering such options. There may be a need for a rethink if the team s performance does not improve in season 3 and 4, he added. But there are risks and challenges in terms of maintaining the heightened interest to keep the IPL alive all through the year, explains M. Unni Krishnan, Country Head of Brand Finance in India. There are other T20 brands from other cricketing nations emerging and so will face competition in the coming years, he says. For the franchises, Relay Worldwide s Ranka says the challenges lie in how they take advantage of the tournament. The brands associated with IPL have not understood how to leverage the scope and scale of IPL in a cricket-crazed nation, he says. If the current interest in IPL is anything to go by, that may soon be a thing of the past and IPL may be talked about in the same breath as the Super Bowl and English Premier League. WITH INPUTS FROM KUSHAN MITRA, N. MADHAVAN AND K. R. BALASUBRAMANYAM Marketing Machine He is shrewd, super confident and has no qualms about making us wait for over five hours before he decides to meet us. He is none other than Lalit Modi, the man behind the unprecedented success of the Indian Premier League. He is busy running in and out of meetings amidst hosting two press conferences one to announce IPL's tie up with Google for online streaming of IPL Season 3 matches live on YouTube and the other with the International Hockey Federation (FIH) to advance the timing of their first match on March 13 to avoid a clash with the final of the Hero Honda FIH Hockey World Cup in New Delhi. More than anything, Modi is happy that IPL is back in India this year. He says, This year our theme is Back in India. And we want to make the most of it. When you speak to Modi you realise he is well aware of what he has created. He knows he has an incredibly successful product in the IPL. Anything we do is all about marketing. My job clearly is do things that are extraordinary and think out of the box, says Modi. The Google partnership for online streaming of IPL on YouTube is one of his most significant victories. I have never Controversies are part of our business but our job is clearly to be in your face and be there all the time Lalit Modi (pictured on top), Chairman and Commissioner, Indian Premier League done anything like this before. It s a paradigm shift. Imagine, Google could have approached any sporting event, the NBA or the EPL (English Premier League) but they chose IPL for their first live sports broadcast on YouTube, Modi adds. Another first to his credit is the selling of global theatre-screeing rights of IPL for 10 years to Entertainment Sports Direct for Rs 330 crore and screening of the semi-finals and final matches in 3D format. Modi does not shy away from controversy either. Take, for instance, the recent flap over leaving out Pakistan players during the Season-III IPL auction. At times when we do things they are considered to be controversial. Again we don t do things to create controversies. Controversies are part of our business but our job is clearly to be in your face and be there all the time, he explains. Then, he is also seen as very competitive and a fast decision maker. When the Indian government could not guarantee security for players in Season-II due to the general elections, he took a decision almost overnight to take IPL to South Africa. This ability to pull out off difficult situations is rooted in his wide networks; important people are just a phone call away. Kunal Dasgupta, former CEO, SET India, who is currently consulting him on broadcasting, says: I am there whenever he needs me. NISHIKANT GAMRE/ 74 BUSINESS TODAY February

6 IPL_Feb 21.qxd 2/1/2010 3:39 PM Page 8 COLUMN IPL RAJESH JAIN NATIONAL INDUSTRY DIRECTOR, KPMG IPL: How Big Can It Get? In the past two seasons, IPL has managed to create a property that has generated considerable audience excitement and media viewership and has the economic muscle big enough to sustain all components of the IPL value chain broadcasters, franchise owners, BCCI and the players. With the IPL coming back to India for its third edition, and the fourth edition likely to witness the auction of two more teams, the tournament is likely to expand the addressable market in terms of advertising revenues. At present, the central broadcasting revenues, revenues earned by the BCCI and each franchise from SET MAX, the television broadcaster, typically are the largest chunk of revenues. The addition of two new teams in the fourth season will increase saleable airtime and consequently advertising revenues for broadcasters since the number of matches will increase from 59 to 93. The second source of revenues comes from central and individual sponsors spending currently Rs crore for each sponsorship slot. The expansion of the league coupled with increasing audience interest is expected to increase the value of these slots in future seasons. Local sponsorships, too, have added to the top line of the franchisees. Franchises have resorted to two types of sponsorship deals fixed amount and barter deals. The wide reach of IPL, especially in the hard to reach youth and males target group, and the presence of iconic players and Bollywood stars in the various teams will continue to drive sponsorship income for the individual teams in the future. In Season-I, ticket sales accounted for as low as 7 per cent of total revenues to around 15 per cent of total revenues for various teams. In season 2, most teams had planned an increase in their ticket prices and had intentions of applying a strict no free tickets regime. With the tournament moving to South Africa, the efficacy of these strategies could not be tested. Season-III will witness teams focussing on this aspect and making all efforts to enhance this revenue stream. Internationally, ticket sales account for 15 per cent to 20 per cent of total revenues as a result of premium ticket sales and corporate boxes in addition to normal ticket sales. Infrastructure upgradation to improve the viewer experience is a must and the BCCI needs to work with the stakeholders to make this happen. The sale of theatrical rights and licensing agreement with a leading general entertainment channel would add to the stream of revenues for the BCCI and each franchise. Licensing and merchandising is unlikely to be a major revenue stream in the near term, since this market is still nascent in India. With organised retail constituting only 7 per cent of the total retail market, an important supply chain enabler for merchandising is undeveloped. On the costs side, the franchisee fee payable to BCCI forms a large chunk of operating expense for each team. However, with the reserve price for the two new teams fixed at $225 million (Rs 1,035 crore) each against $50 million (Rs 230 crore) each for the first auction, the franchisee fee for new teams is expected to be much higher and a major proportion of the total cost. Player fee is the other major cost element for the teams. With two additional teams in Season -IV leading to increased demand for players and the existing contracts expiring at the end of Season-III, player salary costs will be a key factor that will influence profitability for the franchisees. The current IPL contracts of the players with individual teams expire in The salary contract rules, post-2010, have not yet been decided by IPL. The IPL auctions of 2008 and 2009 had salary caps of $5 million (Rs 23 crore at current rates) and $2 million (Rs 9.2 crore) respectively. The salary model that IPL opts for post-2010 will be a key factor in estimating operating costs for each franchise. The IPL has proven that it has the ability to capture the imagination of not only the Indian public but also the world cricket lovers at large. Its challenge will be to sustain this early advantage through innovative marketing and targeting of new audiences. Also, key will be the ability of the league to tap revenue streams that have remained largely untapped. The IPL s revenues are booming but with some higher costs up ahead, its challenge will be to sustain its early advantage with innovative marketing and targeting of new audiences. February BUSINESS TODAY 77