League needs critical mass
Going through the franchise prospectus, put out by IPL, one can’t help but be awed by the hyperbole put out by BCCI. Paying the BCCI their pound of flesh hasn’t really worked too well in the recent past –– either for Nimbus or Nike. Percept and WSG are still recovering from their attempted forays into monetising BCCI ground sponsorship rights. Not quite the golden goose (that) the BCCI had led them to believe!
Now let’s look at what prospective IPL team owners can look forward to earning on their asset. There are two channels of revenue slated for the Indian Premier League teams, central and local. Central (which the BCCI will sell and share with teams) includes media, sponsorship and suppliers, and local (teams will be responsible for selling) includes things like stadium ticket sales, local sponsorship, concessions, merchandise et al.
It is apparent that until the league picks up a critical mass and builds equity in its local market (anywhere from five to 10 years in an evolved market), the teams will be heavily reliant on central revenues to sustain themselves. Now if a franchise owner bids Rs 220 crore ($55 million) and wins say the Bangalore franchise for 10 years, his annual expense, apart from the Rs 22-crore franchise fee, would be players’ salaries (approx. 15 x $250,000, which is the average player salary announced) thus amounting to Rs 15 crore. Stadium leasing, coaches & official salaries and other miscellaneous expenses annually would amount to another Rs 5 crore, conservatively. That’s a total of Rs 42 crore payout annually.
Now let’s see what can be expected as ROI? Even if the BCCI sells the TV rights for say Rs 750 crore for five years like it claims, that’s Rs 150-crore per annum from TV revenue. Eighty per cent of that, split 8 ways is Rs 15-crore annually per team as its share. If sponsorship and suppliers yield the board another Rs 25 crore annually, 60% of that split eight ways is about Rs 2 crore for each team. A franchise owner can expect Rs 17 crore from central revenue. The Rs 25-crore shortfall on ROI annually will have to be derived from local revenue.
From seven home games with an average sellout of 10,000 tickets priced at an average of Rs 200, the franchisee can expect Rs 1.4 crore. With all other sources adding up to another Rs 3 crore, optimistically, the franchise will stand to lose about Rs 20 crore annually.
A good case study in analysing new leagues and their challenges would be Major League Soccer in the US. Ten years after its launch, it is still losing money but hopes to break even by 2010. An argument could be made that soccer is not the No. 1 sport there like cricket is here, but sports is an evolved format in the US and fans support city teams, go to stadiums and buy merchandise unlike here, so it balances out.
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