Scandal or substance?

Published>Tue, Oct 19 10 01:52 AM

How does the removal of Kings XI Punjab and Rajasthan Royals impact IPL?

Brand IPL is worth over Rs 18,000 crore according to Brand Finance, a UK-based brand consultancy firm. Any controversy, especially of this nature, is bad for brand IPL. In the last three seasons, IPL's earnings are estimated to be around Rs 4,000 crore. IPL 3's earnings alone stood at around Rs 1,200 crore, of which 75% came from TV rights and the rest from sponsorships, theatrical rights and strategic ad-breaks, among others.

Removal of two teams leaves IPL 4 with only 8 teams instead of 10. This means that the number of matches will stand at 60 in IPL 4 and not 72 as projected by BCCI a few months ago. Less matches means lower earnings for IPL and its franchisees. In an 8-team scenario in 2011, the number of matches will remain the same as in the previous three seasons. Therefore, earnings will also remain the same. The gate money in the case of Delhi Daredevils went up in the last season to Rs 4 crore in some of its matches. Of course, the gate money is dependent on the size and the seating capacity of a cricket stadium. However, expenses will go up for virtually all the teams due to player auctions. But for Kochi and Pune, there will be a drastic rise in expenses as they would have to shell out over Rs 330 crore as franchisee fees?the highest bids for any IPL teams?to BCCI in 2011 and bear the expenses for players, stadia and other administrative costs. Both these new teams are the costliest buys for IPL promoters.

With the ouster of Rajasthan Royals and Kings XI, fans' interest will most certainly go down. Jaipur and Mohali, the home base for these two teams, are unlikely to hold any matches. If they do, the turnout will be low. However, so far the gate receipts have only constituted 10-12% of the overall earnings of an IPL franchisee. But TV rights account for 60-65% of the earnings of all franchisees.

Why did BCCI remove Rajasthan Royals and Kings XI then?

Because BCCI wants to be seen as a sports body that is capable of taking corrective action. However, its role as a silent spectator to all the irregularities in the functioning of IPL in the past three years is also under the scanner. On the day BCCI terminated the contracts of Rajasthan Royals and Kings XI, ousted IPL commissioner Lalit Modi tweeted saying BCCI is destroying something that has become an extremely popular international brand.

Will this affect earnings?

It won't for the 6 existing franchisees?Delhi, Mumbai, Kolkata, Chennai, Bangalore and Hyderabad. However, for Kochi and Pune, this is bad news. They have together shelled out over Rs 3,235 crore to buy the 2 IPL franchisees for a 10-year period. This means that they have to pay at least Rs 320 crore to BCCI as IPL franchisee fees or Rs 160 crore per franchisee per year. On top of this, they have to hire players and a stadium and support travel and other administrative costs. According to estimates, the Sahara Pune and Kochi franchisees will run into losses for at least the next five years. Earnings for Sahara in IPL 4 are projected to be Rs 100 crore while its costs are estimated to be Rs 215 crore.

Will the broadcast earnings be the same as earlier?

The broadcast earnings will remain the same for IPL and since there will be only 8 teams in IPL 4 (assuming Kochi gets its act together in time); the franchisee earnings won't change either. Since 2009, IPL earns around Rs 820 crore per annum from TV rights given to MSM (Sony)-WSG under a renegotiated contract between Modi and Sony-WSG. Sony was asked to pay Rs 425 crore as facilitation fees in March 2009, while the overall rights fees were raised from $1.06 billion to $1.63 billion for 10 years (till 2017). In 2009 and 2010, most franchisees made money as their earnings from TV rights went up. IPL puts 54% of the annual TV rights into a central pool to be divided equally between the franchisees, which comes to Rs 70 crore per franchisee. However, under the original rules, this proportion is to change in later years. A share of the sponsorship money also goes to each franchisee.

Do IPL teams make money?

Almost all teams benefited from the increase in TV rights that Modi negotiated with MSM-WSG in 2009. For example, Mumbai Indians earnings for IPL 2 stood at Rs 125 crore while its expenses (including the franchisee and players' fees) stood at Rs 100 crore. Therefore, it made a profit of Rs 25 crore. TV rights alone constituted 60% to the earnings while the gate receipts accounted for nearly 11%, with the rest coming from sponsorship and endorsement deals. In the last two editions of IPL, most franchisees except Kings XI are said to have made money. Since they have a grasp on the business now, they are expected to make money even in IPL 4. The league has been attracting big moolah since inception. The Manoj Badale-promoted Emerging Media bought Rajasthan Royals in 2008 for $67 million with a clutch of investors, including Lachlan Murdoch, Aditya S Chellaram and Suresh Chellaram (Modi's former brother-in-law).

In 2009, film actress Shilpa Shetty and Raj Kundra (now her husband) bought 11.7% stake for $15.4 million, taking the valuation of Rajasthan Royals to $130 million. Mumbai Indians, the franchisee promoted by Neeta Ambani, was the costliest IPL team in the 2008 auctions, going for $112.9 million or Rs 445 crore. Of course, by 2010, all records were broken when the Sahara Group (Pune franchisee) and Rendezvous Sports (Kochi franchisee) paid $370 million and $330 million, respectively.

Was Modi the only person guilty of misconduct?

No one has been accused of the level of misconduct with which Modi is charged. But Modi had pointed out that BCCI functionary and promoter of Chennai Superkings N Srinivasan has a clear conflict of interest. Then there was Shashi Tharoor, the junior minister for external affairs. He had to quit his job after Modi alleged that Tharoor had asked him not to look at the Kochi franchisee too closely. Even former BCCI president AC Muthiah went to court against N Srinivasan over allegations of conflict of interest. According to Muthiah, the BCCI rules were changed to say "no administrator shall have direct or indirect or any commercial interest in any of the events of the BCCI excluding IPL, Champions League Twenty20 format tournaments." However, Srinivasan later told the media that since there were no takers for the Chennai's IPL franchise, he had requested the BCCI to allow him to bid for the team.

How will Kochi and Pune benefit with only 8 teams in IPL 4 fray instead of 10?

The BCCI has capped the spending of each franchisee at $9 million for the next players' auction but this amount would get reduced if the existing 6 franchisees?Delhi, Mumbai, Hyderabad, Chennai, Bangalore and Kolkata decide to retain their existing overseas players. BCCI has already made it clear that the retention of players would result in reduced amounts available from their $9 million kitty. If each of the existing 6 franchisees decide to retain all 4 of their overseas players, they will then have only $4.5 million left to participate in players auction in November. However, both Pune and Kochi will have their full $9 million as they are starting fresh. Also, the players freed from Rajasthan Royals and Kings XI Punjab will have no takers except Kochi and Pune. Therefore, Pune and Kochi will have all of their $9 million to bid for players like Shane Warne, Graham Smith, Brett Lee, Kumar Sangakkara, Mahela Jayawardene and others.

What are the possibilities that the existing IPL franchisees will retain their key Indian and overseas players?

Chances are extremely high indeed.

The captain of Mumbai Indians Sachin Tendulkar and the captain of Chennai Superkings MS Dhoni have already expressed their desire to be part of their respective teams for IPL 4. They also want most of their players to be retained. Mumbai Indians have important and expensive T20 players including JP Duminy (purchased for $9,50,000), Kyle Mills ($1,50,000) and Mohammad Ashraful ($75,000). During IPL's first auction for 2010 earlier this year, Mumbai Indians bought West Indies all-rounder Kieron Pollard for $7,50,000. Mumbai is expected to retain most of these players and if it does, the franchisee's kitty for IPL's fourth season will go down drastically.

Source: Web Search