When the Board of Control for Cricket in India (BCCI) sacked Lalit Modi as commissioner of the Indian Premier League (IPL) last April, the objective may have been to clean up the wildly successful Twenty20 tournament of its alleged ills ranging from money laundering to match fixing. A year down the line, however, the ghosts of the controversies and allegations have yet to be exorcised.
The latest Brand Finance study, which reveals a 11%, or $460 million drop in the value of the IPL, is evidence that all is still not well with the IPL. After two years of solid growth-the brand's value more than doubled last year-the IPL's worth is now pegged at $3.67 billion, down from a peak of $4.13 billion a year ago.
Opaque ownership patterns of many IPL franchisees coupled with allegations that funds for franchisees were coming from questionable investors have taken their toll on the marquee brand. "The honeymoon is over; the IPL juggernaut has sure hit a speed breaker," says M Unni Krishnan, MD of the India office of Brand Finance. "Now its sustainability will largely depend on infusing governance policies to align all the stakeholders towards win-win relationships, thereby preserving the value in the long run." Brand-Finance is a UK-headquartered firm that specialises in brand valuation.
At another, more tangible, level the IPL has been hit by a tornado of galloping costs. Team costs, which comprise largely of players salaries and auction spend, shot up to 40-45% of revenues in last year's IPL . The corresponding figure for IPL 2 was 30-33%.
There could be more pressure from costs in the years ahead on the IPL's valuation --- which considers future cash flows of both the BCCI and the franchisees and discounts them to their net present value. That's because existing franchisees, faced with the threat of new franchises keen to attract the stars, will step up spends in a bid to retain key players.
Rising player costs is a factor of each franchisee's purse size, which has been steadily gone up. For instance, in the first big auction in 2008, there was a cap of $ 5 million on each franchisee. Today that ceiling has gone up to $ 9 million. Result: More money to shower on the star players. Take the case of Yuvraj Singh . The 'icon' was picked for $ 1.1 million in the 2008 auction; his recent transfer to new team Pune Warriors fetched $ 1.8 million.
The IPL is estimated to be second only to the American National Basketball Association (NBA) league in wage costs. While for NBA , the annual average salary is 2.62 million, the IPL's average salary, calculated over a year, works out to 2.5 million . And that's where franchises will have their task cut out to balance wages and growth. Amrit Mathur, CEO, Delhi Daredevils says: "We'll have to redo our financial structure by looking at ways to cut other costs and beefing up our revenue generation options to accommodate rising players' costs."
The good news for the franchisees, however, is that although the IPL's value has eroded, the aggregate brand value of all franchises has inched upward - from $333 million in 2010 to $355 million now. The franchisees have been evaluated on the basis of their financial, marketing and cricket acumen, as well as on the corporate governance front. Barring, Rajasthan Royals, King XI Punjab and Kolkata Knight Riders, the other six franchises have improved their brand values.
The IPL's valuation to a large extent hinges on that of the franchises. So if the franchisees are on solid ground wicket, it should follow that Brand IPL too will be on a good wicket. Unless, of course, sponsors and advertisers get turned off by controversy and scandal.
Melroy D'souza, COO of the Sunil Gavaskar-promoted sports marketing firm Professional Management Group (PMG), feels controversies do impact the global appeal of a brand. "Many global advertisers associated with the IPL because of the tournament's international appeal," he says. "Controversies such as these can have a serious impact on that (interest)."
Real estate giant DLF Ltd , which bought IPL's title rights for five years for 200 crore, is unfazed by the controversies of the previous year. "IPL may have been impacted, but coming straight after a World Cup victory, Season 4 will be a grand success and IPL's brand value will again surge," says DLF spokesperson Sanjey Roy, who manages the IPL assignment.
Rajesh Jain, head of media & entertainment, KPMG, feels the previous year's negativity surrounding will gradually fade away. "IPL as a concept is here to stay," he says. "The World Cup and India's victory have reinforced the virtue of cricket and this will definitely have a positive rub-off on the IPL."
Indeed, the value that lies embedded in the IPL is huge. The BCCI is expected to generate profits of 1,300 crore by 2018 from the tournament. According to Brand-Finance projections, if the eight franchisees (excluding the two new ones) grow at a cumulative average rate of 23%, their collective revenues could hit a little over 30,000 crore by 2018. And their profits would be in the region of 800 crore.
Of course, such rosy projections are built around a number of assumptions - that there will be no competing format, domestic or international; that cricket will continue to be a passion in India till 2018; and, perhaps most important, the powers that be at the BCCI and the IPL do not do anything silly to gag the golden goose.
The latest Brand Finance study, which reveals a 11%, or $460 million drop in the value of the IPL, is evidence that all is still not well with the IPL. After two years of solid growth-the brand's value more than doubled last year-the IPL's worth is now pegged at $3.67 billion, down from a peak of $4.13 billion a year ago.
Opaque ownership patterns of many IPL franchisees coupled with allegations that funds for franchisees were coming from questionable investors have taken their toll on the marquee brand. "The honeymoon is over; the IPL juggernaut has sure hit a speed breaker," says M Unni Krishnan, MD of the India office of Brand Finance. "Now its sustainability will largely depend on infusing governance policies to align all the stakeholders towards win-win relationships, thereby preserving the value in the long run." Brand-Finance is a UK-headquartered firm that specialises in brand valuation.
At another, more tangible, level the IPL has been hit by a tornado of galloping costs. Team costs, which comprise largely of players salaries and auction spend, shot up to 40-45% of revenues in last year's IPL . The corresponding figure for IPL 2 was 30-33%.
There could be more pressure from costs in the years ahead on the IPL's valuation --- which considers future cash flows of both the BCCI and the franchisees and discounts them to their net present value. That's because existing franchisees, faced with the threat of new franchises keen to attract the stars, will step up spends in a bid to retain key players.
Rising player costs is a factor of each franchisee's purse size, which has been steadily gone up. For instance, in the first big auction in 2008, there was a cap of $ 5 million on each franchisee. Today that ceiling has gone up to $ 9 million. Result: More money to shower on the star players. Take the case of Yuvraj Singh . The 'icon' was picked for $ 1.1 million in the 2008 auction; his recent transfer to new team Pune Warriors fetched $ 1.8 million.
The IPL is estimated to be second only to the American National Basketball Association (NBA) league in wage costs. While for NBA , the annual average salary is 2.62 million, the IPL's average salary, calculated over a year, works out to 2.5 million . And that's where franchises will have their task cut out to balance wages and growth. Amrit Mathur, CEO, Delhi Daredevils says: "We'll have to redo our financial structure by looking at ways to cut other costs and beefing up our revenue generation options to accommodate rising players' costs."
The good news for the franchisees, however, is that although the IPL's value has eroded, the aggregate brand value of all franchises has inched upward - from $333 million in 2010 to $355 million now. The franchisees have been evaluated on the basis of their financial, marketing and cricket acumen, as well as on the corporate governance front. Barring, Rajasthan Royals, King XI Punjab and Kolkata Knight Riders, the other six franchises have improved their brand values.
The IPL's valuation to a large extent hinges on that of the franchises. So if the franchisees are on solid ground wicket, it should follow that Brand IPL too will be on a good wicket. Unless, of course, sponsors and advertisers get turned off by controversy and scandal.
Melroy D'souza, COO of the Sunil Gavaskar-promoted sports marketing firm Professional Management Group (PMG), feels controversies do impact the global appeal of a brand. "Many global advertisers associated with the IPL because of the tournament's international appeal," he says. "Controversies such as these can have a serious impact on that (interest)."
Real estate giant DLF Ltd , which bought IPL's title rights for five years for 200 crore, is unfazed by the controversies of the previous year. "IPL may have been impacted, but coming straight after a World Cup victory, Season 4 will be a grand success and IPL's brand value will again surge," says DLF spokesperson Sanjey Roy, who manages the IPL assignment.
Rajesh Jain, head of media & entertainment, KPMG, feels the previous year's negativity surrounding will gradually fade away. "IPL as a concept is here to stay," he says. "The World Cup and India's victory have reinforced the virtue of cricket and this will definitely have a positive rub-off on the IPL."
Indeed, the value that lies embedded in the IPL is huge. The BCCI is expected to generate profits of 1,300 crore by 2018 from the tournament. According to Brand-Finance projections, if the eight franchisees (excluding the two new ones) grow at a cumulative average rate of 23%, their collective revenues could hit a little over 30,000 crore by 2018. And their profits would be in the region of 800 crore.
Of course, such rosy projections are built around a number of assumptions - that there will be no competing format, domestic or international; that cricket will continue to be a passion in India till 2018; and, perhaps most important, the powers that be at the BCCI and the IPL do not do anything silly to gag the golden goose.
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