IPL 2008. A Businessman's Guide

Q What explains the difference in franchise fees and how is it recovered?

The difference in franchise fees could be due to the following; history of the game and popularity, quality of player pool in the catchment area, commercial activity and business support, population of the city. The franchises were allotted on the basis of the highest bidder and the presence of business houses with an active interest in high profile sporting events would have impacted results in terms of expected sponsorship support. Ultimately the indicator of potential for the game at a local level is indicated by the attendance at the venue.

To compensate the premium paid as it where, Mumbai, which was one of the highest bidders, hosted the semi-finals and finals, while the opening was held in Bangalore, which was the next highest bidder. As the table above indicates, the gate collection is definitely a key variant. The impact of scheduling of the semifinals and finals as also the varying capacity of the stadiums that come with each franchise has been studied in detail in the table attached at the next page.

It needs to be noted that the EPL (football), where the stadiums are similar in capacity and the attendance similar, at 20,000 to 30,000, the share of gate collections comes to 35% of the total revenues of the franchise clubs, as against 15% in the case of IPL. This is because the EPL has greater number of matches at 38 matches per side vs 7 matches per side (9 if you make it to the finals) in case of the IPL. The revenue realization per match is also very much on the higher side in case of football.

Q. To what extent does the prize money play a role?

Prizes collected were almost 42 crores according to estimates from revenues generated. As per announcements made at the start of the league only Rs 12 crores were distributed. Its quite possible that the balance would be distributed in the same proportions. RR and CSK should benefit hugely as also DD and PK. However the benefit of making it to the semi finals and finals will be huge from the point of view of the share of TV rights that will accrue from the next year onwards. This should be sufficient incentive for the teams to play it with intensity and keep their employers happy!!

Q. Why is merchandising not featuring as a key revenue in the IPL?

Merchandising as a revenue stream has not provided much in India. Currently merchandising is estimated at Rs 300 crores with cartoon characters mostly aimed at kids. For the IPL, the estimate is at around Rs 8 crores at best. This is because organised retail in India is just 7% of total trade. With retail brands rolling out, it is expected to grow to 25% by 2011 and then things would be different. Globally it is $500 bln. Star Wars merchandising is estimated at US$9 billion (Rs37,800 crores). Harry Potter is at US$ 11 billion (Rs 46,200 crores).

The impact of gate collections and location of the franchise is shown in the table below:

http://mayanmuse.blogspot.com/2008/06/cricket-ipl-bcci-indian-cricket-vinod.html