Two factors have changed in the world of cricket in the last few years. First, the development of formats more conducive to viewership, such as one-day matches and day-night cricket, has increased the size of the audience for cricket. A 10-second television, or TV, ad in India (which reflects the size and quality of the audience) for a one-day match costs nearly five times as much as one for a five-day match. Second, the subcontinent has recently emerged as an attractive market. India, the largest market, boasts of an annual household consumption spending of nearly $700 billion (around Rs35.7 trillion), more than that of Australia and slightly less than Spain.
Perfect blend: Singh says that though doubts have been raised about season 2, the upward renegotiation of TV rights is an indicator of the inherent value of the property. Ashesh Shah/Mint
The IPL combined both these trends perfectly. The Twenty20 format made for perfect prime time TV viewership. And by bringing together top Indian cricketers and international stars, creating city-specific franchises, and blending cricket, celebrities and entertainment, the league was custom-built for Indian fans. Further, the scale of the event, the extent of marketing and public relations used to generate interest in it, and the judicious use of “scarce” resources only served to add to its success. And while the BCCI coffers swelled, franchisees did not do badly either, with at least two returning a profit in the inaugural year.
With IPL season 2 scheduled in the huddle of an economic slowdown and forced to relocate to South Africa due to security concerns, doubts were raised as to whether the runaway success of the first year could be replicated. The event, though, seems to be on a firm wicket this year; the upward renegotiation of TV rights is an indicator of the inherent value of the property. The hike in TV rights means that central revenues for franchisees should grow 25-30% as compared to last year. This would largely compensate for potential losses in gate revenues and local sponsorships because of the move to South Africa.
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Media properties that aggregate large audiences tend to retain or enhance their value even in a slowdown. Despite a severe downturn in the US, TV spots aired during the Super Bowl (the championship game of the National Football League) sold at $3 million each, up about 10% from last year.
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Just as media groups have adjusted their launch dates for new shows or films to avoid clashing with the IPL, advertisers would have planned for the IPL in their advertising budgets. By increasing the advertising inventory available to Sony MAX TV channel through the introduction of “strategy breaks” during an innings, IPL has given the broadcaster more opportunities to monetize the asset; with rates expected to average Rs3.5-4 lakh per spot, Sony should be in a position to recover the increased cost of its broadcast rights.
The slowdown and the change in venue will have its downsides, though. The IPL will reportedly compensate teams for the increased travel and logistics cost—this will reduce its own profit. Similarly, most franchises would have expected to ramp up revenues from local sponsorships, events, fan clubs and merchandising—many of these plans will have to be deferred. Additionally, with many of the franchises’ costs denominated in dollars, the depreciation of the rupee vis-à-vis the dollar could hurt profitability in 2009.
All in all, IPL has had to face several challenges—a global economic slowdown, security threats and the difficulty of negotiating a schedule within the constraints of election and international cricket commitments. With some deft manoeuvring and out-of-the-box thinking, it appears to have faced up to these challenges and positioned itself for a successful sequel worthy of the first episode.
Dushyant Singh is director, strategic and commercial intelligence, transaction services, KPMG India Pvt. Ltd.