Home >Mint-lounge >IPL moves out and moves on

In its second year itself, the Indian Premier League (IPL) is up for multiple tests—is it recession-proof, devaluation-proof, politics-proof and now, outsourcing-proof?

Overdrive: (top) A Chennai Super Kings fan during an IPL match held in Chennai last year. Senthil Kumar / PTI; and IPL commissioner Lalit Modi, (second from right) announces the shift abroad of IPL 2009 as team owners Shah Rukh Khan (extreme left) and Preity Zinta (right) look on. Rajanish Kakade / AP

In transferring India’s flagship Twenty20 cricket tournament to South Africa, the IPL’s organizers find themselves in the middle of controversy. Their critics, from the Union home minister down, accuse them of crassness. Their patriotism has been questioned. One newspaper has even accused the IPL governing council of treason.

Expectedly, the IPL and its eight flamboyant franchisees have a different take. They argue that it was critical for the integrity of the business model to play the IPL this year. In late 2008, the Champions League—a sort of corollary to the IPL concept, with the Indian Twenty20 finalists playing winners of similar domestic events in other countries—had been cancelled following the Mumbai terror attacks.

If the second edition of the IPL too were scuttled, the entire Twenty20 economic edifice would have been threatened. Franchisees that had already spent an average of Rs15-20 crore on salaries and pre-tournament publicity in an otherwise glum year, would have wondered whether it was worth persisting with the paraphernalia for another 12 months.

Indeed, speculation would have been rife about IPL III in 2010. Indian cricket’s New Economy, small as it may be in employment numbers, would have seen its pink slips.

So, does that mean that the IPL’s relocation will ensure the same bonanza that the 2008 tournament did? Can league commissioner Lalit Modi continue to have visions of millions of dollars?

Not quite. The slowdown has hit IPL and the forced migration will demand a price. Yet, there is value in having a tournament outside India than not having one at all. To understand that, it is important to see the story from the eyes of the franchisees, organizers and sponsors.

For the eight franchisees, 2008 saw a rough outflow of Rs75-100 crore per team and an inflow of Rs80 crore, maximum. No team other than actor Shah Rukh Khan’s Kolkata Knight Riders is believed to have actually broken even, though it was reported that Rajasthan Royals, the first-year champions, and finalists Chennai Super Kings had done so too.

In 2009, the first blow came when the rupee crashed from 40 to a dollar to 50. Franchise royalties—the 10-year payments range from $67 million (around Rs340 crore) for Rajasthan Royals to $112 million for Mumbai Indians—and player fees (each team was allowed to spend a maximum of $7 million in 2008-09 on contracting cricketers) were denominated in dollars.

These sums have already gone up by 25% due to just dollar-ruppee exchange rate fluctuations (certain figures have been provided by franchisees on condition of anonymity).

However, franchisees got smarter in 2009. They ran tighter ships, cutting out the non-essentials, such as cheerleaders flown in from the US. Delhi Daredevils did not renew its Rs5 crore team ambassador deal with actor Akshay Kumar. There was going to be no Hrithik Roshan in the Mumbai Indians corner.

Other than a clutch of big team sponsors, all franchisees were banking on numerous smaller city sponsors: catering, transport, multiplex partners, and so on. They were also looking to maximize gate receipts. While the cheap seats brought in little, corporate hospitality was potentially big.

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In 2008, Delhi sold 1,000 box seats for each of its seven home matches at Rs10,000 a seat. For the semi-finals and final, Mumbai charged up to Rs35,000 for premium box seats. In both cities, says a team CEO, “20% of the tickets got you 75% of gate money". Kolkata made Rs12 crore profit from gate collections, primarily due to its massive Eden Gardens stadium that can seat around 100,000.

In South Africa, the small-time local sponsors, the Indian crowds and beer-swigging boxwallahs will not be around. However, telecast rights will. In 2008, Sony/Set Max-WSG, the consortium that bought the TV rights, paid IPL roughly $100 million, of which 10% went back to each franchisee.

This year IPL terminated the original 10-year contract with Multi Screen Media—Set Max’s parent company—saying, among other things, that the channel put too many ads during the game. The IPL’s conscientious objection may, however, have had more to do with rival networks promising to pay more in a re-auction. The revised deal, signed with MSM itself, doubles broadcast rights value. This surplus will be used by the league to subsidize the franchisees in South Africa.

Big central sponsors such as DLF, Hero Honda and Vodafone are unlikely to be perturbed by the shift to Africa. A tournament that guarantees Indian star appeal right till the end is always going to be preferred to, say, the World Cup of 2007, which saw India get knocked out in the first round and Indian corporate investments in the tournament turn to dust.

In the IPL, the central sponsorship kitty is also shared with the franchisees. The league has suffered, however, in not being able to find three additional central sponsors that were supposed to earn it Rs500 crore. IPL insists it will still have enough of a surplus to make good the extra expenses incurred by the franchisees for their continental shift.

It’s an audacious leap—but South Africa, do note, is a land where enterprising adventurers have been known to find gold.

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