Future course | The formula for a successful league

Future course | The formula for a successful league
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First Published: Tue, May 26 2009. 01 15 AM IST

Updated: Tue, May 26 2009. 02 12 PM IST
The need to develop and sustain a loyal fan base is critical for the success of IPL. In IPL 2, most teams have started fan clubs. In order to sustain and nurture the loyal fan base developed during the tournament, teams need to provide interface points for fans during off-season as well. Contractually, however, IPL teams control the players only during the six-week season and they are free agents for the rest of the year. If IPL franchisees want the players to get involved in fan-engagement activities or want to organize exhibition matches during the off-season, they will need to have separate arrangements with the players.
All stadiums where IPL matches are currently hosted are owned by either state sports associations or state cricket associations. This limits the extent to which IPL teams can increase match-day revenues.
All the successful clubs in the English Premier League or EPL, NBA (National Basketball Association) or NFL (National Football League) own their stadiums and have complete control over the costs and revenues related to the stadium.
They are able to invest in providing a better match-day experience to spectators and, as a consequence, are able to increase ticket prices. The business model of owning a stadium is a proven one in all major leagues of the world and is a strategy worth evaluating for IPL team owners.
IPL would provide an opportunity to enhance revenue streams through the Internet and mobile. It remains to be seen how well the league/franchisees leverage the opportunity provided by these media platforms (particularly mobile) in the long term.
Various systems are followed by leagues around the world for player salaries. While the National Hockey League, NFL and NBA (all American leagues) have implemented salary caps, the European soccer leagues have no salary caps. In the EPL, there are no salary caps and the richest clubs are able to offer huge salaries to star players. The current IPL contracts of the players with individual teams are till 2010. The rules post 2010 have not yet been decided by IPL.
The IPL auctions of 2008 and 2009 had salary caps of $5 million (around Rs23.6 crore) and $2 million, respectively. As was seen in both auctions, some team owners have deep pockets and are ready to pay huge amounts to get talented players into their teams. The salary model that IPL opts for after 2010 will be a key factor in shaping the future course of IPL.
As player costs increase, franchisees may adopt the strategy of recruiting “home-grown” players. Most teams are likely to start cricket academies to this end. This will serve two purposes—one, it will serve as a revenue source in the off-season and two, it will be an apt platform to spot talent early.
The Twenty20 Champions League, an international Twenty20 cricket competition between clubs from Australia, England, India, Pakistan and South Africa, is scheduled for October. The finalists of each IPL season will qualify to play in the Champions League. The prize money pool is $6 million each year. The winning team will get $3 million. The minimum prize money any participant will get is $250,000. Besides this, even the IPL teams that do not qualify for the tournament will get some revenue.
Thus the Champions League will also be an important source of revenue for IPL teams, and given the high amount of prize money, the stakes to reach the IPL finals are very high. However, the team contracts with players do not cover the Champions League and the qualifying IPL teams will have to chalk out fresh contracts with players.
Given the success of IPL, there is increasing interest from private equity players and strategic partners to look at equity stakes in the franchisees.
While cricket in India is a coveted commercial property, it is important to realize that IPL has transformed into an independent brand commanding significant brand exposure.
Sponsors would, therefore, increasingly realize over time that they will have to pay higher values to be associated with the league/successful franchisees.
Rajesh Jain is executive director, advisory services, national industry director, information, communication and entertainment, KPMG India Pvt. Ltd.
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First Published: Tue, May 26 2009. 01 15 AM IST