Profits still elude some IPL teams

Mumbai/Chennai: Even as the sixth edition of the Indian Premier League (IPL) starts in Kolkata on 3 April, several cricket franchises may take longer than anticipated to turn profitable going by the financial data filed with the Registrars of Companies (RoC), declining brand valuation as well as lower television viewership numbers.

add_main_imageIt’s not clear whether franchises will make profits this year from among the nine teams that will play the Twenty20 cricket tournament launched by the Board of Control for Cricket in India (BCCI) in 2008. The teams will play 76 matches between 3 April and 26 May.

Surprisingly though, Sunrisers Hyderabad, owned by Sun TV Network Ltd and making its debut in IPL this year, expects to break even in the second year, according to the management during an analyst call in November. However, in a conference call with analysts on 9 November 2012, the company’s management said it expected a loss of ₹ 30 crore in the first year. It had projected a profit of ₹ 45 crore from the fifth year onwards at that time.NextMAds

The team was formed after BCCI terminated the earlier IPL Hyderabad franchise Deccan Chargers owned by Deccan Chronicle Holdings Ltd. The Chennai-based media conglomerate got the Hyderabad franchise for ₹ 425 crore for the next five seasons ( ₹ 85 crore a year) of the Twenty20 tournament.

Much like several other franchisees, breaking even for Sunrisers is expected to be tough in view of high costs. While the company will pay ₹ 85 crore a year for the franchise rights, the players’ salary for the first year will add up to ₹ 40 crore. With ₹ 25 crore earmarked for other expenses as per analyst estimates, the team would have to earn ₹ 150 crore from the second year onward to break even.

That may not be easy. Take a look at the revenue streams created for the IPL franchises to cash in on. For starters, each team gets a share of broadcasting fees and (central) sponsorship income from BCCI. Ticket receipts, merchandise sales, in-stadia advertising and team sponsorships add to the revenues. On the cost side, the team has to shell out a franchise fee to the board, fees to local cricket associations for use of facilities, pay salaries to the players it selects, and spend on advertising and promotion.

Almost 70% of an IPL team’s revenue comes from BCCI through central sponsorship which includes digital and broadcast rights, according to IPL team executives. Of the central sponsorship revenue from the associate sponsors that accrue to BCCI, 60% is shared with the team franchises for 10 years. That income is under pressure with BCCI signing up fewer associate sponsors.

This year, the league has only four associate sponsors—Pepsico India Holdings Pvt. Ltd (which is also the title sponsor), Yes Bank Ltd, Star India Pvt. Ltd and Vodafone. The total associate sponsorship fee for IPL 2013 is close to ₹ 180 crore compared with ₹ 190 crore for 2012.sixthMAds

The income decline is surprising considering Pepsi got the title sponsorship with a bid of ₹ 397 crore (over five years), almost double what DLF Ltd paid in 2008.

In 2012, Hero MotoCorp Ltd, Citibank N.A., Vodafone, Volkswagen Group Sales India Pvt. Ltd, Royal Challengers and Karbonn Mobile India Pvt. Ltd were associate sponsors and together paid ₹ 190 crore.

Advertisers may be shying away from association with IPL as BCCI was asking for a premium even though its television ratings declined.

According to data provided by TAM Media Research in 2012, the first 68 matches of IPL 5 had average TRPs (television rating points) of 3.27 compared with 3.39 in IPL 4. The 2008 inaugural season had the highest rating of 4.81. A recent study by MEC, a media company from the WPP Group, said that the amount of time people spend watching the Twenty20 cricket matches will decline even if the IPL reaches more viewers this year.

Secondly, a “seemingly never ending series of governance and transparency lapses have contributed to the rapidly declining brand value of IPL,” said a 22 May 2012 report from Brand Finance Plc. The consultancy estimates IPL’s brand value—which it defines as the commercial sustainability of the league—to have declined to $2.92 billion in 2012 from $4.13 billion in 2010.

BCCI’s initial plan of widening the sources of revenue is also not going according to plan. After ousting the former IPL commissioner Lalit Modi, the board scrapped some agreements, such as those on video streaming with YouTube ( ₹ 25 crore per year), theatrical screening ( ₹ 330 crore for 10 years), broadcast rights for IPL parties, awards and reality shows (with Colors and MTV to the tune of ₹ 100 crore). It did, however, sell the new media rights to Times Internet, the digital media company of Bennett, Coleman and Co. Ltd, which is now screening IPL through YouTube for ₹ 261.6 crore (for global Internet, mobile and radio rights) for a four year period from 2011-2014.

The products of Bennett, Coleman compete with those of Mint’s publisher HT Media Ltd in certain markets.

The other significant chunk of BCCI’s contribution to IPL teams’ revenue is the annual TV broadcasting rights fee. The official television broadcaster Multi Screen Media Pvt. Ltd’s pay out to BCCI will increase to ₹ 10.5 crore per match during IPL 6 and IPL 7, according to the 2010 agreement reviewed by Mint. This payout was around ₹ 7 crore in the previous two editions. However, the increased payout will not help IPL teams as they will get only 60% of this fee this year down from the 80% share for the first five years.

The revenue contribution from ticket sales has been stagnant as well as stadium capacities haven’t increased and ticket prices have been kept under check to remain affordable for fans.

However, sponsorship incomes for individual teams are stabilizing, said Indranil Das Blah, partner, CAA KWAN, a talent and entertainment agency. The ticket price ranges between ₹ 500 and ₹ 20,000 per seat in a stadium, depending on the city the match is being played in.

“Gradually over a period of three to five years, various components of central pool will deplete for franchises. With ever-increasing costs like player fee, running costs, support teams and ground activation costs, there is going to be a squeeze on cash flows going into future,” said the Brand Finance note.

That squeeze is already evident for some teams.

“Barring two-three teams, none of the IPL teams are making money. The ones that are, also are not making serious money,” said an executive from one of the franchises who wanted to remain anonymous.

The data available on the financial performance of the IPL franchises is sketchy at best. For Chennai Super Kings, which is owned by India Cements Ltd, there is virtually no separate public data available as its activities are described as furthering the cement brand.

Thus, its financial numbers are subsumed into those of the parent company. However, asked about profit, India Cements’ general manager (marketing) Chandrabhan Tiwari, said: “Ticket sales make up for around 13% of our team revenues, it has dipped in the last few years. However, team sponsorship has increased between 22-24%.” He did not specify the revenue.

Similar is the case with the now defunct Deccan Chargers franchise.

The financial data for seven other franchises present a mixed trend. Holding companies of four franchises—Mumbai Indians, Delhi Daredevils, Kings XI Punjab and Royal Challengers Bangalore—have made losses for the last four financial years ending 2011-12. Still, the losses are narrowing for some of them, data from the Registrars of Companies website show.

Asked about narrowing gap between revenue and expenditure, Hemant Dua, head (marketing and commercial), GMR Sports Pvt. Ltd, said in an emailed response that the team it owns had managed its finances prudently.

“Delhi Daredevils has been working towards this (breaking even) aggressively and should break even and even possibly make profit this year,” he said. The team sponsorship had been growing 10-15% year on year, he added.

Kings XI Punjab made a loss of ₹ 1.52 crore in 2011-2012 (IPL 4) down from a loss of ₹ 35.26 crore in the previous year, according to data filed with the Registrars of Companies. However, the team’s chief operating officer Arvinder Singh said: “The Mohali team made a profit of around ₹ 4 crore last season (IPL 5). This year our team sponsorship revenues have increased by 30% over last year.” The team has signed on 14 brands for this year which includes a three-year title sponsorship deal with renewable energy products manufacturer NVD Solar.

IndiaWin Sports Pvt. Ltd, which owns the Mumbai Indians franchise, posted a loss of ₹ 38.3 lakhs in 2011-12 compared with ₹ 15.4 crore a year ago. Similarly, the Delhi team reported a loss of ₹ 63.9 lakh in fiscal 2012 compared with ₹ 8.4 crore a year ago.

Royal Challengers Bangalore reported a loss of ₹ 7 crore in 2011-12, the highest in at least four years.

On the other hand, Kolkata Knight Riders posted a profit of ₹ 10.42 crore in 2011-12. That is a turnaround from the loss of ₹ 11.3 crore it reported the previous year. Sahara Adventure Sports Ltd, which owns the Pune Warriors franchise, is profitable as well, but its latest figures are for the 2010-11 financial year.

The franchisees for Bangalore, Kolkata, Mumbai, Hyderabad and Rajasthan did not respond to Mint’s queries.

The most profitable franchise, according to the limited data available for this analysis, is the Rajasthan Royals. Its financial prudence is evident in its careful expenditure on player auctions all these years. The holding company, Jaipur IPL Cricket Pvt. Ltd, reported a profit of ₹ 5.72 crore in 2010-11. It had reported profit of about ₹ 22 crore in each of the previous two financial years, but it is not clear from the Registrars of Companies documents whether there was any one-time income in those periods.