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The costly consequences of IPL getting “CANCELLED”

By Kaushik G Viswanath

Every year the calendars of the Indian and global cricketing circuits remain bereft of action (except England which stays packed, for god knows why?) when the extravaganza of the IPL returns for its yearly installment in the summer months sweeping the global focus and attention of the cricketing faithful. 

The IPL makes cricketing fans realise their fantasies of seeing the best players from across the globe play with and against each other and represent their local team and colours and has satiated the unquenchable cricketing needs of millions of people. No doubt the action on show has entertained one and all across the Indian landmass who have thronged to stadiums across the length and breadth of the country, It has also been played in overseas conditions on two separate occasions as well where the status quo was no different in terms of reception and fanfare. 

The global popularity of the IPL is well-documented by now. It is the most-watched cricket league and is the 6th most-watched sports league in the world according to InsideSport with an average stadium attendance of 32,000 (more than La Liga and Big Bash League which comes in at 9th). 

The IPL is considered arguably the most radical development in making cricket a global game by luring the biggest stars from all over the planet with hefty wage packets and the chance to play in front of by-far the most passionate cricket fan-bases one can find. At least it has in terms of giving cricket that quotient of sports entertainment and showbiz culture in tandem and has balanced the two on the same arena. 

This has turned the IPL into a “money-raking’ behemoth and has helped it fill many a people’s coffers with revenues for a season showing up gargantuan numbers on the balance sheet. 

But no one is certainly complaining as at the end of the day, apart from the fans it has made everyone associated with the league rich in some manner and for some it has been overnight. 

IPL 2019/20: THE PREDICAMENT 

The IPL tournament is typically scheduled for the summer months with the preparations in full swing right from the start of the year for the new season. But the 2019/20 season has hit a roadblock in terms of the tournament being hosted due to the ravaging epidemic of COVID-19 that has left everything in a derelict manner in its wake.

Due to the after-effects of this devastating outbreak, there is an increasing chance that the competition might face the option of being cancelled altogether. The tournament was initially scheduled to begin on 29th March which was later postponed to 15th April following the lockdown issued by the Indian Government. But the authorities are still taciturn about the issue surrounding cancellation following widespread rumours being circulated. 

These rumours follow in the lines of many prominent sporting competitions like the UEFA European Championship (Euros), Copa America, Grand Slams and the Olympics that were scheduled this year having already been postponed to 2021. 

Despite the understanding that the decision would be taken in the best interests of ensuring the safety of all the stakeholders in the IPL season including the spectators who come to the stadiums and fan parks, the cancellation of an IPL season doesn’t bode well financially for all parties involved except for the fans, who though would miss out on a season of more terrific cricketing action and entertainment,

As popular commentator Sanjay Manjrekar said few days back, 

“The moment we get clearances from all the authorities that matter, the IPL should happen, only because it will kickstart the economy because when you talk about the IPL, there are a lot of people who are making their livelihood through the IPL.”

WHAT DOES THE IPL STAND TO LOSE, AND WHAT DO THE OTHERS?

The simple answer is, a lot. In fact everything it earns. 

As per the American Financial Consultancy Firm, Duff & Phelps, the IPL is valued at a whopping $6.7bn (spare me the conversion). Upon cancellation, the IPL could lose upto $520mn (₹3900cr) in broadcasting and sponsorship revenue as reported by the firm.  

IPL’s broadcaster Star Sports has already sold advertisement and sales inventory worth ₹900cr to a total of nine sponsors. The media behemoth was also planning to generate a revenue of ₹3300 crores this season through advertisements and so forth. Now the BCCI and the broadcaster are set to lose out on this massive kitty due to the impending cancellation of the season.

Through matchday ticket sales, IPL generates about ₹160-180 crores which definitely goes out of the window this season. 

In a meeting where the decision was taken to postpone, the prize money to the top four teams has already been slashed in half with the winner to be awarded ₹10cr from the usual ₹20cr, the runner-up award ₹6.25cr and the two-semifinalists being awarded ₹4.3cr each from the usual ₹8.7cr. 

The ripple effect of missing out on action in the IPL not only affects Indian players but everyone plying their trade in the IPL with the Australian players who were bound to represent the teams in IPL set to lose out on contracts cumulatively worth $11mn (₹82-84cr). 

A cancelled IPL could mean that the IPL brand could see a drop in value by around $700mn-$1bn (11-14%), all in one season. 

BUT, HOW DOES THE IPL MAKE THIS MUCH?

For one to understand the nature behind the losses incurred,  it will be much easier to assess by knowing the gargantuan business model of the IPL which is also extremely diverse. Buckle up because these guys are not fooling around, there is serious money involved. 

As you know the IPL is the cumulation of franchises from eight different cities from all four corners of India. The franchises were considered to be the collateral part of the IPL before they became their own brands a few seasons in owing to their success and lure among the Indian public to the case where today some of the teams function as individual franchise entities and some teams even looking to file for an IPO on the stock market with provisions from the IPL. 

The IPL and the franchises are two different revenue streams despite having similar sources, both follow the split rule but the numbers make up for some very interesting viewing.  

The Revenue Model of IPL

There are many sources of revenue for the IPL. Scouring out and finding these sources of income has been the IPL’s speciality for many years in its operation. There are five primary sources which are,

  1. Broadcasting 
  2. Central title sponsorship 
  3. Ticket Sales Shares 
  4. Franchise shares 
  5. Corporate Sponsorship

 

BROADCASTING IS THE MAJOR SOURCE OF IPL’S REVENUE.

The maximum revenue generated is through broadcasting rights. After a few seasons with Sony, Star Sports India purchased the broadcasting rights in 2017 paying up a whopping ₹16,347 crores ($2.55bn). That’s 3270 crores, a season (60 matches), I’ll leave you to do the rest of the math (only hint, that is double of what Sony paid for when they got the broadcasting rights).

The central ‘title’ sponsorship has often been changing hands since the inception of the IPL. First, it was real estate company DLF, then Pepsi came in the 2013 season and then it was Vivo’s turn ahead of the 2017 season who continues to be the sponsor till date. The partnership with Vivo started off in 2017 with the deal signed from 2018-2022 which sees these people earn a cool ₹440 crores per year from the Chinese mobile company just for their rights to be shown atop the IPL logo. Yep, people pay for that, it’s IPL baby.

The governing council and Star who manage the central sponsorships and a share of the revenue goes to the teams for their participation as well (around 40%). In the 2018-19 season, there were a total of 34 sponsors. These sponsors are either titled co-sponsors (Vodafone, Coca-Cola, Jio) or associate sponsors (Dream XI, the pan masala ad, Paytm etc). 

To become one obviously requires a generous donation, to become a co-sponsor one has to pay close to ₹100 crores (easy for Jio, duh) and around ₹60-70 crores for an associate sponsor. Star Sports charges these companies for putting out their advertisements in their channels during the course of the season. Generally, they charge around ₹10 lacs/ad during the regular season and during the knockout stages of the tournament that could well increase to around ₹12-13 lacs. These figures increase once the playoffs kick-in. They charge somewhat minimal fees for fledgling companies that wish to settle in advertising on their digital platform Hotstar. 

The franchises obtain their money for the season from the central pool of revenue which is usually a share of the combined revenue generated from broadcasting, title, and sponsorships that the IPL accumulates in the season. They also earn from a share of the matchday ticket sales as well as prize money for their performances, (what matters) on the pitch. 

The individual sponsors for the team also pay money solely to teams for procuring the team insignia and the players to run ads to promote their brand through the team. Each team gets around 20-30% of their revenues from such ventures. 

From the central pool of revenue the amount is shared 50-50 between the IPL council and the eight franchises that play in the IPL every year. That amounts to a total of about ₹200-220cr per team. The above figures give evidence of what a money-spinning magnet the IPL has become but it also shows worrying scenarios when the IPL is cancelled and the financial implications that follow. As we said, the IPL has made many people richer overnight, and for many as said by Mr.Manjrekar it serves as their very source of livelihood. 

For some fringe and young Indian players, it also stands as the path between obscurity and a chance to represent their national team due to its ability to either fast-track raw talent from the low to the highest rung in a jiffy and also serve for many as the inspirational rags-to-riches story.

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