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IPL rapidly losing its sheen

While the T20 league will have to find a new title sponsor next year, there seem to be no takers for the new franchise
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First Published: Thu, Oct 18 2012. 11 35 PM IST
The Bombay high court on Thursday refused to stay Deccan Chargers’ termination by BCCI. Photo: Hindustan Times
The Bombay high court on Thursday refused to stay Deccan Chargers’ termination by BCCI. Photo: Hindustan Times
Updated: Fri, Oct 19 2012. 11 00 AM IST
Mumbai: The sheen is rapidly wearing off the Indian Premier League (IPL) and not just because of the unedifying spectacle of Deccan Chronicle Holdings Ltd’s (DCHL’s) frantic attempts to save its Deccan Chargers franchise.
The popular Twenty20 league will have to find a new title sponsor next year to replace DLF Ltd; the owners of at least two teams, Delhi Daredevils (GMR Group) and Royal Challengers Bangalore (Vijay Mallya’s UB Group) are under financial stress; there seem to be no takers for the new franchise the Board of Control for Cricket in India (BCCI) wants to induct; and the four IPL teams currently participating in the Champions League in South Africa can’t be doing any worse.
BCCI is seeking bids for one more team to add to the eight (excluding Deccan Chargers) that are now part of IPL. Even after halving the reserve price, there are no takers for application forms, with the last date for submissions just a week away. BCCI’s ties with many of the teams are not exactly cordial. And, four months before the start of season six, there is no sign of player auctions.
A BCCI official said, “The IPL marketing committee will meet and discuss how sponsorship (title and ground) needs to be taken forward. Details on whether title sponsorship rights should go through a bidding process or not, pricing and so on will be detailed in the coming weeks.” BCCI officials didn’t comment on the other issues.
As for the rescue attempt by DCHL, the Bombay high court on Thursday refused to stay Deccan Chargers’ termination by BCCI. It, however, said the order was temporary and that BCCI will have to file a rejoinder by 1 November. The court will examine the legality and validity of the termination at a hearing on 29 November. The termination will stand until that date, the court said. Meanwhile, BCCI was allowed to go ahead and seek bids for new teams.
The administrator floated tender documents for a new team on Monday, setting the reserve price at Rs. 60 crore a year for the next five seasons of the league, IPL chairman Rajeev Shukla said. That’s half of what it was in 2010, when two new teams were added.
At that time, bids were expected to be in excess of $225 million for 10 years (roughly Rs.120 crore a year). In the event, the Sahara group won the Pune franchise for $370 million and Rendezvous Sports World (a consortium of businessmen) won the Kochi franchise for $333 million. The Kochi franchise imploded after a year amid much controversy. And Sahara nearly exited the franchise last year over disagreements with BCCI before the two made up.
The lower reserve price move signals a “rationalization” of prices, an IPL team executive said.
“In 2008, when the first eight IPL teams were up for grabs, the winning bids ranged between $67 million and $111.9, while the reserve price was $50 million for 10 years,” said an executive with the Rajasthan Royals team, who didn’t want to be identified. “Later in 2010, there was an escalation in prices, almost uneconomically. This time around,
potential bidders will be more realistic and take a call once they review the business opportunity in being associated with the IPL.”
BCCI and IPL need to do much more to rebuild confidence in investors, banks and institutions, founding IPL chairman Lalit Modi had said in an email interview in September. Modi himself fell foul of BCCI and the authorities over financial irregularities and has kept himself out of India since 2010.
“Deccan is part of a wider problem, and people should look at cause and effect,” he said in last month’s email. “In recent times, sponsorship has already been an issue, with title sponsor DLF deciding not to renew, while tournament marketing has lost its fizz and TV ratings have dropped. Now, Deccan Chargers are in a mess and perhaps—just perhaps—all of these elements are inter-related?”
BCCI’s termination of Kochi last year and Deccan Chargers this year hinged around the franchise owners’ inability to furnish bank guarantees. IPL now has eight teams against the 10 teams it initially expected to have in the tournament from its fourth season.
It has invited bids for 12 cities—Ahmedabad, Cuttack, Dharamshala, Indore, Hyderabad, Kochi, Kanpur, Nagpur, Noida, Rajkot, Ranchi and Visakhapatnam—although only one team will be picked to restore the number to nine. Of course, that number could change on 29 November, depending on what the court decides about Deccan Chargers.
An executive said BCCI’s more-stringent norms had discouraged his company from picking up the tender document, which costs around Rs.5 lakh. The person, who had initially been interested in buying a team, didn’t want to be named.
Another discouraging factor has been BCCI’s ongoing legal battles with three of the eight remaining teams, Kings XI Punjab, Pune Warriors India and Rajasthan Royals, apart from its terminal dispute with Deccan Chargers.
“Any interested marketer or individual wanting to be part of IPL needs to have the skill to manage BCCI, not just the team players,” said a former executive with an IPL team.
Companies see a lack of clarity, said an executive with a leading media-buying agency, who didn’t want to be identified as his company represents large advertisers associated with IPL.
“IPL is a massive draw for advertisers, no doubt,” the person said. “But for corporates to be willing to own a team, there must be clarity. When the tender for the new IPL team was announced, the fate of the Hyderabad team was still unclear. So how does one decide to buy a tender.”
Any controversy hurts brand image and consequently the financial health of the league, said an executive with the Delhi franchise, Delhi Daredevils, owned by the GMR Group, who spoke on condition of anonymity.
“The number of teams has been reduced, the title sponsorship, ground sponsorship are yet to be finalized, there’s no clarity on the players’ auction. It’s a wait-and-watch game for team owners,” he said. “It’s not the best time to seek potential buyers—the economic environment isn’t supportive.”
During their initial bids, most team owners had estimated revenue would grow from season six onwards, owing to the increase in their share from broadcasting revenue and central revenue (coming from title sponsorship and ground sponsors).
Before IPL began in 2008, BCCI said in its tender documents that in the first five years, team owners would split 80% of the earnings from the broadcast rights (awarded to Multi Screen Media Pvt. Ltd), while the remaining 20% would be BCCI’s share. From the sixth to the 10th year, team owners would get 60% of TV revenue, with the remaining 40% going to BCCI. Sixty percent of the sponsorship revenue through 10 years would go to the IPL teams.
The amount teams would make, despite the enlarging of the league from season four, was supposed to rise with the increase in popularity and scale. For instance, BCCI had envisaged the title sponsorship doubling to Rs.80 crore a year. It also expected ground sponsorship rates to swell. But those expectations may not be met.
“In 2010, the money quoted for every IPL association was inflated and the market cannot sustain it now. There will be a price correction in the bidding amount for the new IPL team and for central sponsors,” said Indranil Das Blah, chief executive officer of KWAN Entertainment and Marketing Solutions Pvt. Ltd.
The lack of a decision on the players’ auction is a cause of worry for team owners. Players will be brought under the auction pool, which means the composition of the teams will once again change.
“IPL franchises have to increase their ‘connect’ with supporters when the IPL is not active,” Modi said in his September email. “Ongoing local identity is one of the elements that we regarded as being so important when we conceived the league because it retains engagement of the fans and that helps commercially too.”
Before Thursday’s court decision, DCHL had sought a reprieve for the team on the day before, after having failed last week to furnish a Rs.100 crore bank guarantee, one of BCCI’s conditions for stopping the termination.
The court had rejected DCHL’s plea for a further extension on the 12 October deadline for furnishing the bank guarantee. It had ordered the company to submit the bank guarantee by 5pm that day, failing which the decision by BCCI terminating the team would stand. The company failed to meet that deadline.
To save the team, debt-ridden DCHL said last week it had found a buyer for Deccan Chargers in Kamla Landmarc Real Estate Holdings Pvt. Ltd. Hyderabad-based DCHL said in an exchange filing that its board was authorized in a meeting on 11 October to sell the cricket franchise to Kamla Landmarc. The resolution had been passed subject to shareholder and other approvals, it said.
BCCI said DCHL did not inform it about the deal with Kamla Landmarc and, therefore, the sale was in breach of their contract. BCCI, which said its written permission was required for the transfer of the franchise, said there was no buyer for Deccan Chargers as of Wednesday. Any potential buyer would need to follow all processes prescribed by BCCI, it said.
DCHL said the company had sought BCCI’s approval for the Kamla Landmarc deal on 11 October and also submitted a copy of the deal’s memorandum of understanding to the administrator.
BCCI decided to terminate the team after DCHL in September rejected the only bid it received of Rs.900 crore from PVP Ventures Ltd, also a real estate firm, stating the payment terms were not to its liking.
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First Published: Thu, Oct 18 2012. 11 35 PM IST
More Topics: IPL | DCHL | Deccan Chargers | BCCI | T20 |