As if high taxes weren’t enough, IPL sucks out sponsorship funds

As if high taxes weren’t enough, IPL sucks out sponsorship funds
Comment E-mail Print Share
First Published: Fri, Apr 18 2008. 10 38 PM IST

Jarring note: Pakistani band Strings performs at CP’s central park in the Capital. High entertainment tax plays spoilsport with live events. (Photo: Harikrishna Katragadda/ Mint)
Jarring note: Pakistani band Strings performs at CP’s central park in the Capital. High entertainment tax plays spoilsport with live events. (Photo: Harikrishna Katragadda/ Mint)
Updated: Fri, Apr 18 2008. 10 38 PM IST
Mumbai: The small print had been read, the agreements signed and the ink was almost dry. Farhad Wadia had managed to bag tour dates for the British heavy metal band Def Leppard. But the hardest part was only just beginning.
For Wadia, veteran event organizer and chief executive of E18, the live entertainment arm of the media group Network18, the mathematics behind hosting outdoor entertainment events in Mumbai, just keeps getting knottier. While many cities grapple with a shortage of venues, organizers say the problem is especially acute in Mumbai due to an exorbitant 25% entertainment tax.
Jarring note: Pakistani band Strings performs at CP’s central park in the Capital. High entertainment tax plays spoilsport with live events. (Photo: Harikrishna Katragadda/ Mint)
“The economics of outdoor events in Mumbai is crazy,” says Wadia, reeling off a list of hurdles to be navigated before fans next month will get to see one of the year’s biggest acts.
Along with a lack of options for venues and crippling taxes, Wadia and his ilk are facing a new threat to their margins: the launch of the Indian Premier League (IPL), which is sucking corporate sponsorship from the market.
“Corporate sponsorship is essential,” he says, “but all the money has been taken out of the market by the IPL. Alcohol and telecom companies are the biggest benefactors, but their marketing budget is now being diverted away.”
Wadia estimates that in the rush to back the cricket league, the pool of sponsorship available per event has dropped from Rs1.5-2 crore, to about Rs50 lakh; a substantial hit for an industry that relies on companies to cover up to 70% of the approximate Rs8 crore cost of a concert.
The development comes as a series of brands, including Aircel, Kingfisher and Coca-Cola, throw their weight behind the tournament, seeking to be associated with the high-stakes and glamour of the event.
A senior executive at a major corporate sponsor of IPL, who declined to be named, confirmed the trend, saying: “We have shifted a significant amount of investment out of other events in order to back the IPL.” He added that the amount that had been diverted away from other events came to “several crores”.
Wadia bemoans the lack of funding, but acknowledges it represents a shift in the market, as companies and audiences are faced with an unprecedented number of entertainment options.
“People have too many options now, it’s a market reality,” he says. “We either have to increase the prices of tickets, or get cheaper bands.”
For Def Leppard, Wadia and his team received backing from only one in every five potential sponsors they approached, compared with the one in every two strike rate they enjoyed just a few years ago, when large acts were a rarity in the city.
In order to make concerts, festivals and award shows lucrative, events organizers target a margin of 15-18%, and to remain profitable, Wadia says he has seen E18 adjust its business plan to host more corporate events, and lower its reliance on the outdoor entertainment segment.
The costs of hosting an event indoors is roughly one-third of that of an outdoor event, according to V.G Jairam, co-founder of the events company OranJuice Entertainment, who echoes Wadia’s gripe at “the basic lack of infrastructure” in Mumbai to cater to outdoor entertainment events. “Unlike cities such as London, New York or Los Angeles, we do not have any dedicated medium or large facilities, like the O2 arena, to stage entertainment shows,” he says.
Of the venues available for hire in Mumbai, the MMRDA grounds at the Bandra-Kurla Complex is the most popular, due to its location, with the Andheri Sports Complex coming a close second. However, in addition to the circa Rs15 lakh cost of hiring the MMRDA grounds for a four-day event, organizers have to fork an extra Rs25 lakh to prepare the mosquito-infested grounds for the event, including levelling and carpeting.
Other options for venues, include the grounds at the National Sports Club of India, which are under reconstruction, and the Cricket Club of India (CCI), whose rates of Rs50 lakh for a four-day event are branded as “astronomical” by Wadia.
MMRDA and CCI did not return calls for comment.
Devraj Sanyal, chief executive of Percept D’Mark India, which hosts the Sunburn electronic dance festival in Goa each year, says the really crippling cost to organizers is the 25% entertainment tax levied in Mumbai on all live performances, compared with the 15% tax in Kolkata, 10% in Bangalore and 20% in Goa. New Delhi also has a 25% tax, although that may vary, according to Sanyal, who says the effective rate of taxation on live events in the Capital is 15%.
The tax is levied as a flat charge on all proposed sale of tickets, as well as on the total amount raised from sponsorships. Sanyal says the tax rates, on top of the cost of infrastructure and venues, mean Percept D’Mark takes two-three years to break-even on regular events, and is working to a strategy of building a reputation as handlers of heavy metal and other segments, in order to remain viable. “Sting (the musician) skipped Mumbai because of this tax,” claims Sanyal, “and Sepultura (the Brazilian thrash metal band) wanted to play in Mumbai, but I did not let them because I could not afford the taxes.”
Jairam, who is reworking his corporate strategy to tie up sponsors over the long-term by selling events as a “property”, such as in the case of the Johnnie Walker One Tree Music Festival, instead of a one-off association, notes that the “nascent” ticket buying culture among the audience is another problem, and reason why corporate sponsorship is so vital.
“Everyone wants complimentary tickets,” he says. “It is not a very healthy ticket buying audience and to change this, we need to give people entertainment on a regular basis and create demand by doing more concerts.”
As Wadia gingerly navigates the hurdles, lobbies the government to lower taxes, re-open the south Mumbai auditorium Rang Bhavan, and treat entertainment as a potentially lucrative industry, he discovers that the Def Leppard dates in Bangalore could clash with local elections. Back to the drawing board.
Comment E-mail Print Share
First Published: Fri, Apr 18 2008. 10 38 PM IST