Ambedkar Action Alert: IPL Beyond The Boundary Franchises will need to build a fan following and establish revenue streams to become financially viable.

Losing Out: Merchandise accounts for only 4% of IPL franchises' income.

IPL

Beyond The Boundary

Franchises will need to build a fan following and establish revenue streams to become financially viable.

http://business.outlookindia.com/article.aspx?277269

If the cricket world cup saw packed stands at the India matches, the Indian Premier League (IPL) T20 tournament, which began barely a week later, was a study in contrast. Many games were played before a handful of spectators, with the first playoff, between Chennai Super Kings (CSK) and Royal Challengers Bangalore (RCB), epitomising the disinterest. The match, played in Mumbai, was a semi-final of sorts with the winner going straight to the final. However, the 33,000-capacity stadium was only half full. It was a familiar sight during many matches. The tepid interest extended to television as well. TAM Sports' data for the top six metros reveals that this year's final recorded average viewership of 6.96 is the lowest in IPL history. (The rating means that 6.96% of all viewers watched the full match.) The tournament itself got a TAM rating of 3.91, also the lowest till date.


	"Auctions were held in January and teams were formed in a few weeks. No team could build affinity with local fans."—Sean Morris, CEO, Rajasthan Royals

To be fair, there were many factors behind the decline in the league's popularity this year. For starters, fans had had an overdose of cricket during the ICC World Cup itself. That tournament featured 14 teams and saw 49 matches played over 45 days. It didn't help that the IPL began immediately after and was even longer, thanks to the addition of two more teams. It ran for nearly two months and had 74 matches. Moreover, many teams had new line-ups and it took fans a while to get used to them. "The fact that auctions were held in January and new teams were put together within a matter of a few weeks gave no opportunity for any team to go out and build affinity with local fans," says Sean Morris, CEO, Rajasthan Royals.

Fan fatigue does not bode well for the IPL's franchises at a time when they are looking to build additional revenue streams. Each year, there's a flurry of activity just before and during the IPL, after which there is a lull. But if the franchises are to become financially viable over the long term, they need to engage with fans all through the year. For a start, this will ensure that stadiums aren't empty. It will also boost merchandise sales, ticketing revenue and attract more sponsors.
In the US, every home game of the Los Angeles Lakers in the National Basketball Association (NBA) league is sold out. The team has the most popular merchandise among all NBA teams. According to media reports, the team is valued at $643 million. Across the Atlantic, football club Manchester United's merchandise sales alone earned it £81.4 million in 2010, accounting for 28% of its total revenue that year.

All of this is the result of triumphs on the field and marketing success off it.

Even taken together, the worth of the IPL franchises doesn't add up to the LA Lakers' worth. If anything, their valuations are falling. "We believe the IPL's long term value of $500 million has been destroyed. I think the franchises themselves are in a state of flux as game formats, talent depth and player wages are impacting both on-field and business performance," says M Unnikrishnan, Global Strategy Director, Brand Finance. Merchandise sales account for less than 5% of the franchises' revenue.

On the cost front, the players' astronomical salaries are hitting the franchises hard. In 2008, player salaries were capped at $5 million but this was raised to $9 million in the 2011 auction. That's certain to rise at the next one. According to a salaries survey of various sports by Sportingintelligence.com, the IPL is the world's No. 2 sporting league in terms of average pay (on a weekly pay basis), second only to the US National Basketball League. Royal Challengers Bangalore is No. 26 in the team list with weekly wages of $86,667 and Kolkata Knight Riders 29th with $85,545. Kings XI Punjab (40) and Mumbai Indians (44) are the other IPL teams in the top 50. Spain's Barcelona was No. 1 at $152,130 while rival Real Madrid was second with players earning $141,474 a week.

Central Pool Dependence


	"Central pool revenue would decrease over time, thereby putting pressure on teams to create their own revenue."—Balu Nayar, MD, Morpheus Fund

But it's not as if the franchises are on the verge of bankruptcy. The Mumbai Indians, Chennai Super Kings, Kolkata Knight riders, Royal Challengers and Delhi Daredevils are profitable, according to Mahesh Ranka, independent sports marketer. Kings XI Punjab, Rajasthan Royals and Deccan Chargers are close to breaking even, he adds. They haven't done so yet because of player costs, which account for 35% of their overall costs. The only ones in a precarious situation are new entrants Kochi Tuskers and Pune Warriors, who may take 10 years to break even. This is because of the huge sums that the owners shelled out to bag these franchises: Sahara Group paid Rs 1,702 crore for the Pune franchise while Rendezvous Sports World spent Rs 1,533 crore for Kochi. But while the others aren't in danger of going under, they can hardly be called moneyspinners.

Analysts estimate that the franchises earn about 50% of their revenues from the central revenue pool, which consists of a franchise fee, broadcast rights fee, in-stadia sponsorship and new media rights fee. Gate receipts and local sponsors account for another 46% or so, while merchandise accounts for around 4%.

"The way it was structured was that in the infant stage, most of the revenue would come from central pool revenue, which would decrease with time, to put more pressure on the franchises to create their own revenue stream," says Balu Nayar, MD, Morpheus Fund. But considering that merchandise accounts for less than 5% of revenue, it's clear that the franchises haven't built alternative revenue streams.

Clearly, if the owners want their franchises to evolve into strong brands over the long term and become the Lakers and Manchester United of the cricket world, they have a job on hand. "At a franchisee level, only the 'break-away brands' like Chennai Super Kings, Royal Challengers Bangalore and Mumbai Indians will deliver sustainable profits in the next two-three years. They are executing on key drivers across marketing, cricketing and governance in a consistent fashion," says Unnikrishnan. A report by Brand Finance shows that these teams are ahead of the others in terms of on-field performance; individual players' strengths; separation of ownership and management; brand leverage; ability to attract sponsors; merchandising deals; and stadium capacity.


	"The fan base has to be built towards the franchise model. Right now it's still focused on the stars."—Rohit Gupta, Executive VP, SET

The franchises are gradually waking up to the importance of having a large fan base and alternative revenue streams. Most have begun with modest efforts. Chennai Super Kings is targeting children and teenagers across India, who make up the largest section of its fan base. The franchise has tied up with India Book House to publish comics based on its players. "This gives you business throughout the year. Though the earnings may not be much, we will be moving in the right direction," says Rakesh Singh, Head, Marketing, India Cements, which owns the franchise.

The teams have also been engaging with fans in different ways. Mumbai Indians has an 'education for all' programme while Chennai conducts non-cricketing contests for schoolchildren along with national daily, The Hindu. RCB has tied up with cricket clubs and partners local initiatives to increase its fan base and develop new cricketing talent. "The fan base has to be built towards the franchise model. Right now it's still focused on the stars," says Rohit Gupta, Executive Vice-President, Advertisement Sales and Revenue Management, Sony Entertainment Television.

Every stadium boasts of corporate boxes and receipts from this premium seating make up a big chunk of stadium earnings. For instance, the Rajasthan Royals has 1,200 seats in corporate boxes, with tickets costing between Rs 9,000 and Rs 12,000. The Eden Gardens stadium in Kolkata has 32 corporate boxes of 20 seats each and KKR's takings from them will be quite high—provided the boxes are occupied.

Affordable ticket prices are also important to improve attendance. "Our gate collections account for about 20% of revenues, but it should go as high as 50%," says Morris of Rajasthan Royals. Nayar feels that corporate boxes can be sold for a higher price and the proceeds could be used to subsidise other seats. "If you don't have stadiums filled up, it is a sign of things declining, whether you make money from it or not," he warns.

Better stadium infrastructure—comfortable seating, entertainment, food and beverages, shopping areas, parking and safety measures—can also go a long way in attracting fans. "A good environment in the stadium will mean fans can come and hang out before and after a match. If you look at English Premier League stadiums, they have a mall alongside. It's a package deal. I can clearly see movement toward that direction for stadiums in Mumbai, Chennai and Bangalore," says India Cements' Singh.

Perhaps it's not that much of a choice anymore. If the owners want their franchises to become moneyspinners, they will have to do everything they can to build loyalty among fans.