Mumbai/New Delhi: PepsiCo India Holdings Pvt. Ltd, the local arm of the world’s second largest soft drink maker, has won the title sponsorship of the Indian Premier League (IPL) with a bid of Rs.397 crore for the next five seasons of the Twenty20 cricket tournament.
The investment, the highest ever made by the US-based food and beverage company on a cricket property, has taken advertisers and media buying agencies by surprise because it comes at a time when slowing economic growth is forcing companies to trim budgets and audience interest in cricket is seen to be waning.
The winning bid is almost double the amount paid by the previous title sponsor, real estate developer DLF Ltd, for the first five editions of the league beginning 2008. DLF decided not to renew the sponsorship deal.
PepsiCo Inc. beat India’s biggest phone company Bharti Airtel Ltd, the only other bidder, which offered Rs.316 crore for the title sponsorship.
Phone company Tata Docomo and Coca-Cola India also bought the tender documents, but did not submit their bids, people close to the development said on condition of anonymity. A Coca-Cola executive, who also declined to be named, said the company decided not to bid after an internal evaluation.
Some advertisers said the base price of Rs.60 crore a year for the title sponsorship set by the Board of Control for Cricket in India (BCCI) was too steep. The tender was floated last month.
“The valuation in terms of sponsorship has doubled. We are glad that Pepsi’s winning bid will help enhance and grow the brand IPL in its value,” said Rajeev Shukla, chairman of IPL.
To be sure, this is not PepsiCo’s first association with IPL. In the inaugural edition of IPL in 2008, PepsiCo signed on as one of the ground sponsors, but later withdrew its sponsorship, arguing that rival Coca-Cola (on-air sponsor with Multi Screen Media Pvt. Ltd, the official TV broadcaster for IPL) was getting more exposure during the league even though it had paid less.
Pepsi is also associated with the International Cricket Conference (ICC) until 2015, starting in 2007. It spends roughly between $6-7 million per year on ICC events.
“With our continuing sponsorship of the ICC World Cup, we are now the biggest supporters of the game of cricket,” said Manu Anand, chairman of PepsiCo India Region, in a press statement. “We have reaffirmed our passion and commitment to cricket and this investment reiterates the importance of India business in the PepsiCo global system.”
The partnership will add to the stature of both the brands, said Gautham Mukkavilli, CEO, beverages, PepsiCo India region.
“Cricket is a religion in India and IPL is now its most revered temple where the faithful flock to. Given its historic association with the game, brand Pepsi will add new lustre to the tournament,” said Mukkavilli in the press statement.
For its cola brand Pepsi, the soft drinks company has always been a major spender on cricket though not necessarily on title sponsorships.
For instance, in the 1996 cricket World Cup, Pepsi’s “Nothing Official About it” advertising campaign became popular although it could not win the official title sponsorhip.
“DLF and IPL never sounded right together. Pepsi and IPL together totally work for the Indian audience,” said Anuja Chauhan, former executive creator at JWT who worked on several Pepsi campaigns and was the writer of the “Nothing Official About it” tagline.
Some analysts such as Jagat Dave, director of Ambit Corporate Finance, who advised the Sun group in its successful bid for the recent IPL Hyderabad team auction, see the development in a positive light since “the price for the IPL title sponsorship is a significant increase from the earlier DLF contract and reaffirms the faith in the revenue model of the IPL franchisee, despite earlier press reports of falling TV viewership.”
Yet others admit that the bid amount was pretty steep. The bid amount is slightly higher than what the market expected, according to Hiren Pandit, managing partner, GroupM ESP, the media buying and planning agency for Pepsi.
But given the visibility that the brand may get from this association, it is not an expensive deal, he said.
“One can only expect the noise levels to go higher in terms of brand resonance,” he said.
But for that brand resonance, PepsiCo may end up paying a much higher price. An analysis by an executive at one of the companies which wanted to bid shows that any title sponsor for this property would have to spend an additional Rs.70-80 crore to make it work.
“The return on investment looked poor and therefore we did not bid,” the person said, requesting anonymity because he did not want to be seen as criticizing another company’s decision.