How Profitable is an IPL Franchise

How Profitable is an IPL Franchise

While coming out of the IPL franchise auction held on January 24, 2008, the winner of the Chennai franchise, the MD of  India Cements  N.Srinivasan spoke to the Hindu. "This will be a good investment. We expect to build this into a viable and vibrant franchise", he said.

 

After agreeing to pay US $ 91 million (Rs 3.60 billion) for a ten year contract, it was hard to figure out how he would make profit. M.S.Dhoni alone is costing him for $ 1.5 million per year, in fact just for 45 days of service.

 

Now, that IPL is well under way and it has become hugely popular, it will be interesting to see the business model of an IPL franchise. Using Chennai Super Kings (CSK) as an example, we look at their revenue streams and expenditure heads.

 

The single biggest revenue stream for a franchisee in the initial years is the share of the television revenue. Not for nothing, is IPL being bandied as "Made for TV". CSK will receive $ 10 million in the first year and this will go down to $ 6 million every year from the sixth year onwards, when the number of teams increase and the share of the IPL (read BCCI) increases from 20% initially to 40 % from the sixth year onwards. Mr. Srinivasan in an interview to the Economic Times has said "If we had bid $90 million over a ten-year period, we'll get back $80-90 million as TV income itself."

 

The title sponsorship is another major revenue stream. AirCel and Coromandel Super King are the title sponsors of CSK. Although no information is available, it may be around $ 5 million every year and this should go up significantly if the team performs well in the IPL. Add to that a slew of local co-sponsors and this revenue stream gets shored up even further.

 

CSK also gets a share of the $50 million each year paid by DLF as the IPL sponsor. This is estimated to be $ 3.75 million every year during the first five years. After the first five years, the title sponsorship contract comes up for renewal. If IPL turns out to be a big success, expect this to double.

 

Gate collection from the home matches in Chennai is another source of income. CSK will be hosting seven matches this season. The M A Chidambaram stadium has a capacity of 50,000 spectators. CSK has priced the tickets ranging from Rs 200 to Rs 5000 for the AC pavilion. Assuming an average occupancy of 80% and price of Rs 400, the gate collections for CSK, after paying IPL its 20% share, is likely to be around $ 2 million. CSK will also be earning from in-stadium advertising. This may generate another $ 2 million in the first year.

 

CSK sells its merchandise like T-shirts and caps through its web-site and other channels. This revenue stream can be a big money spinner if the franchisee is able to build a huge fan following and city loyalty. From a small income of $1 million in the first year, it is estimated that this can go up to $ 15 million in the tenth year.

 

 The prize money for the winner of IPL is also not an amount to sneeze at. The winner of IPL will get US $ 2 Million. The teams placed lower also get significant cash awards. Let's assume that CSK will receive $ 1 million per year as prize money.

 

There is also a possibility of CSK making good amount of money  by judiciously trading players' contracts in the Year Two and Three. For example, Mumbai Indians or Rajasthan Royals may be interested in buying the contract of  Parthiv Patel as they are playing local wicket keepers whereas Mr. Dhoni will always be the first choice as wicket keeper for CSK.

 

Now we look at the expenditure side.

 

Apart from the USD 91 Million paid upfront as the franchisee fee for ten years, the major item of expenditure is definitely the players' contracts. In addition to Mr. Dhoni, CSK bought foreign players such as Mathew Hayden, Mike Hussey,Makhaya Ntini, Jacob Oram, Stephen Fleming, Muralidharan, Albie Morkel,  Kapugedera and Indian T20 stars like Suresh Raina, Joginder Sharma. These star players cost a total of $5.575 million per year. The rest of the 24 member team is made up of local Tamil Nadu players and under –19 players, these have all been signed up for US $ 30,000 each. CSK also has a team of four supporting the team with Kepler Wessels as the coach. The annual expenditure on account of players is estimated to be

$ 10.6 million. These contract fees are fixed for the first three years, after which there will be fresh round of auctions.

 

If IPL is the biggest festival this summer, certainly the hype created by the IPL organizers, media and the franchisees is responsible for it. This does not come free. The IPL franchisees would have a significant marketing and advertising spend. CSK has the Tamil actor Vijay as their ambassador and former captain  K.Srikkanth as the brand ambassador. CSK has created a video featuring all the players with music by A. R. Rahman. Sivamani, the ace drummer, is seen wearing the CSK yellows wherever CSK plays. CSK maintains a web-site for creating a community of fans and selling tickets and merchandise. Like all the IPL teams, CSK has its band of foreign cheergirls. The marketing and promotion spend could be of the order of $ 4 million per year.

 

The other expenditure would be related to paying the rentals to the local cricket association for the stadium. Running an office and organization which will work round the year, not just the 45 days of IPL season is also expensive. Add to that travel and hotel expenses. Perhaps airline and hospitality sponsors lessen the burden.

 

So will CSK make money?

 

If the initial franchising contract is treated as an investment, as per the estimates above, CSK is making an operating profit of over $ 8 million $ in the first year itself. If the $ 91 million is amortized equally in the ten years, then CSK would report a negligible loss of $ 0.7 million in the first year. Even, this could turn into a profit if CSK wins the IPL championship!

 

If not in the first year, CSK is most likely to break even in the second year. From the third year onwards, when the sponsorship, merchandising and gate collection revenues go up, CSK may start generating net profits of $ 2.5 million (Rs. 100 million) on a revenue of  $ 30 million  (Rs 1200 million) from the third year. If the IPL gains in even more popularity the revenues and profits will go up further.

 

Lalit Modi, the IPL Commissioner said "Each IPL franchise could be worth $ 5 billion." It is expected that many IPL franchisees will go public after the third year. I'll not be surprised if CSK has a market capitalization of $ 500 million (Rs 20 billion), five years from now.

 

When Mr. Srinivasan, who incidentally is also the treasurer of BCCI, said IPL franchise is a 'good investment', he certainly knew what he was talking about

IPL - Facts & Figures:How Profitable is an IPL Franchise

The original concept was from ICL but then BCCI modified it and added some ingredients and made a spicy and delicious food. In 2007, IPL had an auction for 8 teams.

A contract figure for 10 years was something like this.

I was very surprized by looking at this figure how exactly they will earn money out of it. But this is 10 year contract fee to buy franchise. And they don't need to pay this amount at beginning. Every year, they have pay 10% to BCCI.

Here in the profit sharing between BCCI and different teams for Broadcasting revenue, IPL Sponsorship Revenue and Ticket Revenue.

Apart from this, 87.5 % all merchandise revenue, 100% Individual Team Sponsorship revenue, 100% Hospitality Revenue are other source of income.

Here is the balance-sheet of IPL 2. (Figures below in Rs. Crore)

As far as BCCI is concerned, their main source of income is TV rights for 10 years. Before IPL2, it was Rs. 4200 Crore but post IPL2, contract was renegotiated to Rs. 8200 Crore. Sony will pay Rs 670 crore per year for first four years and Rs. 1,100 crore per year for next five years. Before renegotiation of contract, it was Rs. 280 crore/year for first five years and Rs 540 crore for next five years.

As far as Sony is concerned, IPL Advertisement tariff was Rs 4 lakh to 5 lakh / 10 seconds in 2009. (It was Rs 2 lakh to 3 lakh / 10 seconds in 2008).

IPL - Facts & Figures

2 IPL teams cost more than first 8

2 IPL teams cost more than first 8
The 2 New Teams Cost Rs 3,235 Cr; Existing 8 Teams Together Cost Rs 2,853 Cr
Rajesh Chandramouli, Dwaipayan Datta & K Shriniwas Rao | TNN

Chennai/Mumbai: Barely two years ago, when Mukesh Ambani's Reliance
Industries Ltd made the highest bid for an Indian Premier League
franchise (Rs 441 crore for Mumbai), many termed it as a massive
gamble on a risky concept. The IPL sure has come a long way in a short
time, with the Sahara group on Sunday bidding Rs 1,702 crore for Pune
and Rendezvous Sports forking out Rs 1,533 crore for Kochi.
These two bids, worth a total of about Rs 3,235 crore, add up to
more than the Rs 2,853 crore collectively paid by the existing eight
franchise owners in the first auction, on January 24, 2008.
Favourites Adani Group and VC Digital (Videocon Group) were pipped
by the Sahara group and a consortium of real estate players and
businessmen brought together by Union minister Shashi Tharoor under
the banner of Rendezvous Sports. The two new teams will become part of
IPL in 2011, which will see 94 games being played as against 60 now.
The franchises will be valid for 10 years.
The bidding behind closed doors lasted less than an hour. The base
price for each team was $225 million, more than four times the rate at
which the original IPL auction began in 2008. IPL commissioner Lalit
Modi said five eligible bids were received in all, which included
Rendezvous Sports, Sahara, Aman Vohra, Adani and VC Digital. There was
a dash of glamour too with Salman Khan and Saif Ali Khan dropping in
to represent
some groups. Sahara Group
emerged the top contender with
a $370-million (Rs 1,702 crore)
bid for a clutch of cities which
included Ahmedabad, Nagpur or Pune. Eventually, the Subrata
Roycontrolled group opted for Pune. "It's close to Aamby Valley. We
have our business reasons for choosing Pune,'' Abhijit Sarkar,
corporate communications head at Sahara, told TOI. No recession in
IPL, says Modi TIMES NEWS NETWORK
Chennai/Mumbai: Rendezvous Sports, who opted for Kochi as their base
camp, were the second highest bidders with $333.33 million (Rs 1,533
crore). "It would suffice at this point of time to let you know that
we are a group of investors passionate about cricket. Some are from
Kerala, some from other parts of India and some from abroad. I would
not like to reveal too many details at this point of time," said Vivek
Venugopal, a builder from Kerala and one of the investors in the
state. However, it is learnt that the group also includes Anchor
Switches, Rosy Blue Diamond, Mukesh Patel, and Ravi and Sanjay
Gaikwad.
Anchor Switches is a company from Gujarat and is owned by Mehul
Shah. Rosy Blue Diamond is one of the world's largest diamond
manufacturing companies. Dilip Mehta is the CEO of this company, which
owns jewellery brand 'Orra'.
Ravi and Sanjay Gaikwad are Mumbai-based businessmen. Sanjay
Gaikwad is the CEO of UFO Moviez. Mukesh Patel is an education baron
who runs technology, management and engineering institutions.
The size of the bids surprised one and all, including Modi
himself. "I was expecting something in the range of $320m, but this
does come as a surprise to me. You talk about recession, but all I can
say is that there's no recession in IPL,'' exulted a beaming Modi.
Among the losers, Aman Vohra placed a bid of $261.3 million, Adani
Group bid $315 million for Ahmedabad and VC Digital bid $319.9 million
for Pune.
"Kochi does not have a cricket stadium as yet. The Kerala Cricket
Association is in the process of building a world class cricket
stadium. Till the ground becomes ready, IPL will provide alternative
venues to Rendezvous," Modi added. Pune, on the other hand, has a
stadium under construction 30km from the city.
Sources close to Tharoor were, however, categorical that they
would insist on some of the matches being held in Kochi. "We've a
stadium there. If we have an IPL team, it's for hosting matches in
Kerala," they said.

DETAILS OF RRB WEBSITES TO DOWNLOAD APPLICATION FORM AND

DETAILS OF RRB WEBSITES TO DOWNLOAD APPLICATION FORM AND
ADVERTISING
Ahmedabad                    www.rrbadi.org
Ajmer                             www.rrbajmer.org
Allahabad                       www.rrbald.nic.in
Bangalore                       www.rrbbnc.gov.in
Bilaspur                          www.rrbbilaspur.gov.in
Bhopal                           www.rrbbpl.nic.in
Bhubaneswar                 www.rrbbbs.org
Chandigarh                    www.rrbcdg.org
Chennai                         www.rrbchennai.net
Gorakhpur                     www.rrbgkp.gov.in
Guwahati                      www.rrbghy.org
Jammu & Srinagar         www.rrbjammu.nic.in
Kolkata                        www.rrbkolkata.org
Malda                          www.rrbmalda.gov.in
Mumbai                       www.rrbmumbai.gov.in
Muzaffarpur                  www.rrbpatna.org
Patna                           www.rrbpatna.org
Ranchi                        www.rrbranchi.org
Secunderabad                    www.rrbsec.org
Thiruvanantha-puram           www.thiruvananthapuram.net &
www.rrbtrivandrum.net

Financial Balance of Terror and the G20,Financial Balance of Terror and the G20

Financial Balance of Terror and the G20

 

The Group of 20 (G20) continued its focus on the global economic crisis at its second meeting in Pittsburgh in 2009. At the Summit, the G20 leaders reviewed the progress made since the Washington and London Summits and discussed further actions to be taken to assure a sound and sustainable recovery from the recent global financial and economic crisis. The leaders agreed on coordinated actions to revive the global economy, reform the financial sector, create early warning systems, restructure the big international financial institutions, improve accountability and help the developing countries.

The only way to find the limits of the possible is by going beyond them to the impossible.

- Wright Brothers

 

The Group of Twenty (G20) Finance Ministers and Central Bank Governors was established in 1999. The main objective of the formation was to tackle the ill health of the global economies; to bring together the developed and emerging economies to discuss key issues related to the global economies. The inaugural meeting of the G20 took place in Berlin, on December 15 and 16, 1999. It was hosted by the German and Canadian Finance Ministers. G20 is an informal forum that promotes open and constructive discussion between developed and emerging economies on key issues related to global economic stability. G20 helps to support growth and development across the globe by contributing to strengthen the international financial architecture and providing opportunities for dialogue on national policies, international cooperation and international financial institutions.

The G20 was formed as a response both to the financial crises of the late 1990s and to a growing recognition that key emerging economies were not possibly included in the core of global economic discussion and governance.

The G20 comprises of the Finance Ministers and Central Bank Governors of the following 19 countries

And the 20^th member of the G20 is the European Union, which is represented by the rotating Council presidency and the European Central Bank. In addition to these members, to ensure that global economic fora and institutions work together, the following members also participate in the G20 meetings on an ex-officio basis:

• International Monetary Fund (IMF),
• World Bank,
• International Monetary and Financial Committee,
• Development Committee of the IMF and World Bank.

Thus, the G20 brings together a platform for developed and emerging economies across the globe to combat the tough times. According to sources, together, member countries represent around 90% of the global gross national product, 80% of world trade (including EU intra-trade) , as well as two-thirds of the world's population (Refer Exhibit 1).

The G20 has no permanent team of its own, unlike other international institutions, such as the Organization for Economic Cooperation and Development (OECD), IMF or World Bank. The G20 chair revolves between the members, and is selected from different regional grouping of countries each year. In 2009, the G20 chair was held by the UK, and in 2010, it will be South Korea (Refer Table 1). The chair is part of a revolving 3-member management. This is referred to as the three member management-Troika of past, present and future chairs. The role of the Troika is to ensure continuity in the G20's work and management across host years.

Economic Crisis 2008 and the Stimulus Packages

The year 2008-09 has been a testing time for the global financial markets against the backdrop of one of the worst global financial crisis witnessed so far. It was almost a year ago when the collapse of Lehman Brothers triggered a chain reaction of financial, economic, and psychological crises. Markets across the globe reacted in a `harsh' manner to the global misbalance that entangled the entire globe. Rescue measures were undertaken globally, recognizing that the refurbishment of the financial markets was the need of the hour. Corrective steps with regard to the monetary policies were taken immediately as the first line of defense. However, the conventional measures to manage the crisis appear to have reached their limits. Furthermore, the collapse of financial systems across the economies rendered most of the monetary programs inadequate. Thereafter, corrective fiscal policies became crucial to initiate economic resurgence across the globe.

G20 Economic Stimulus Packages

In the wake of the financial crisis and a step towards balancing the financial terror, almost all the G20 countries have announced fiscal stimulus packages. The objective of the packages was to avert the reemergence of the panic that gripped millions of investors. The total size of the stimulus for G20 economies stood about $1644 bn. However, for 2009, the figure stood at $692 bn, which is about 1.4% of their combined GDP and a little over 1.1% of global GDP. According to an economist at Illinois University, "without the government's massive stimulus package, the US economy could have spiraled into an epic collapse, rivaling the Great Depression."

For the year 2009, the cumulative stimulus packages of four major economies- the US, China, Germany and Japan - account for about $480 bn of the overall stimulus spending in 2009. The cumulative stimulus package share of US, China, Germany and Japan stood at around 70% of the overall stimulus for 2009 with their respective shares accounting to 39%, 13%, 8% and 10%. The total size of the stimulus, as a percentage of GDP (2008), for the above four economies comes out to 5.9%, 4.8%, 3.4% and 2.2% respectively. Also, the total size of the stimulus plan for Saudi Arabia's economy stood at 9.4% of its GDP (2008).

For the year 2010, the four economies of US, China, Germany and Japan account for over 84% of planned stimulus spending in 2010, wherein the respective share stand at 60%, 12%, 7.8% and 4% respectively. The detailed analysis of the same is given in Table 2.

The Pittsburgh Summit 2009

UK, which held the presidency of the Group of 20 major developed and developing countries (G20) in 2009, hosted the second ever G20 leaders' Summit in London in April 2009, following the first leaders' summit in Washington, DC (November 2008). G20 leaders met for the third time in Pittsburg, Pennsylvania on September 24 and 25, 2009 to assess the progress of the relief measures introduced by the economies to combat the crisis. The meeting was chaired by President Barack Obama, wherein the leaders reviewed the performance and the progress made since the Washington and London Summits. At the meeting, the leaders also discussed further action plans to assure a sound and sustainable recovery path from the current wave of the global financial and economic catastrophe. At the earlier summits, held at Washington and London, the focus was majorly on the deterrence of the economic disaster. However, at Pittsburgh, the focal point was to take corrective steps towards the economic resurgence and to build a strong, sustainable and balanced economic growth model so as to prevent such debacles from recurring.

The Pittsburgh Summit - Key Accomplishments

The Pittsburgh G20 Summit marked a critical transition from crisis to recovery. In Pittsburgh, President Obama forged an agreement with G20 Leaders to continue to implement aggressive policies to restore economic growth and create jobs; enact a new framework for strong, sustainable and balanced growth and to reform financial regulation and supervision to avoid a return to the risky practices that led to the crisis - policies that will be supported and implemented by a redesigned global economic architecture.

One of the first major proclamations of the meeting was that the group would now be a new permanent council for international economic cooperation. It is only the growing relevance of emerging economies that the G20 nations would supplant the G-8 as the guardian of the world economy. This means that the much larger G20 meeting will essentially replace the G-8, which will continue to meet on major security issues but will carry reduced influence. This decision will help to include major developing nations - such as China, India, Brazil, and Indonesia - which were originally not included in the G-8. The key accomplishments of the Pittsburgh Summit are as follows:

• Strengthen recovery.
• Launch framework for strong, sustainable and balanced growth.
• Advance tough new financial market regulations.
• Phase out insufficient fossil fuel subsidies and increase energy market transparency.
• Modernize the infrastructure of global economic cooperation.
• Support the world's most vulnerable citizens.
• Deliver on previous commitments.

Apart from the reformation of the global architecture to meet the requirements of the 21^st century; G20 also discussed the issue of climate change- the issue that probably requires the utmost attention in today's scenario.

Leaders at the G20 summit vowed to grant the emerging countries a greater say at the IMF and the World Bank, recognizing their growing influence. Policy makers approved to increase the clout at the IMF for China and other underrepresented emerging markets through a transfer of at least 5% of the so called quotas that determine voting shares and access to IMF loans, from countries with disproportionate influence. It was also decided to boost emerging nations' share at the World Bank by at least 3 percentage points. According to the policy statement, "The distribution of quotas should reflect the relative weights of its members in the world economy, which have changed substantially in view of the strong growth in dynamic emerging markets and developing countries."

Policy makers also agreed to overhaul the oil derivatives markets. This reflected the international recognition of the disruptions that these trades could cause. G20, at its Pittsburgh summit, agreed to adopt changes to oil futures markets that have been suggested by an international securities oversight committee.

Leaders at G20 pledged to avoid protectionism. Policy makers agreed to re-double their efforts to reach a new agreement at the earliest to cut tariffs and subsidies in the World Trade Organization as part of the so-called Doha Round. With minimum impact of fiscal policies on trade and investments, policy makers agreed to combat the turmoil by supporting the financial markets across the economies. Leaders agreed that continuing revival of world trade and investments is essential to restore global growth.

Furthermore, G20 has crafted a plan to force banks to tie bonuses to their long-term performance and to increase their capital base. G20, in its policy statement, affirmed that excessive compensation in the financial sector has reflected and encouraged excessive risk-taking. Therefore, reforming compensation policies and practices is an essential element to increase financial stability.

Conclusion

G20 is playing a vital role in rebuilding the global economies so that they can combat the situation. In a broader sense, G20 is the primary source of help for the global economies in times of such debacles. The role of G20, in such scenarios, is one of utmost important. The path which has been guided by these policy gurus is yet to yield results. However, it is believed, that fiscal expansion that is being undertaken now will go a long way in reversing the impact of the economic slowdown although some tentative signs of stabilization have begun to emerge. The decisions and proclamations that have been taken at the summit to restore the global economies to their full health would definitely require some more time to resolve the key issues. However, the significance of such organizations lies in the fact that the financial balance of terror requires cooperation at the global level to combat situations like the one we are facing now.