Sundar Raman, the Chief Operating Officer of Indian Premier League (IPL), has dismissed suggestions from some of the franchise owners that they have been unable to get the kind of economic benefits expected when the event was announced.
At the beginning of the seventh edition, the first 20 matches of which were successfully hosted in the UAE, a player auction was held which also seems to be the major bone of contention.
The new rules – especially the retention of five players – generated a lot of argument.
Given the general elections in India, the 2014 edition should be considered as an exception to the norm, with the schedule announced late, as was the decision to host the first leg in the UAE.
Some owners have complained that they haven’t been able to form an effective marketing and sponsorship strategy because of the lack of time, but that is the kind of risk every business has to face every now and then.
One senior team official said the legal issues involving BCCI chief N Srinivasan, and the fixing controversies that have dragged on from the previous edition, have not helped either.
“It’s been difficult to secure sponsorships this year. One of the reasons is the flux situation that we have had with the venue and dates, and the clash with the elections, but we have also felt that some of the potential sponsors we approached were wary of what was happening with the legal issues that IPL faces back home,” the official said on condition of anonymity.
In Dubai, Mohit Burman, co-owner of Kings XI Punjab, said in an interview that he felt the seven-week duration of the IPL was too short a window to make business plans around it, especially with most teams having to change players every three years.
However, speaking in Dubai last week, Raman, was categorical that the league’s business model remains a robust one for all stakeholders, including the franchises.
“It is an incorrect perception. The business model is pretty robust. It’s possibly a better business model than any other franchise-operating leagues, where there is a commitment on minimum revenue from the board at the top of the season,” said Raman.
“The franchises are owned in perpetuity. It’s not a 10-year term. What it means is at the end of the 10th year, you stop paying the franchise fee. Thereafter, you only share a percentage of the revenue you earn. So, the bulkhead of the expense doesn’t exist in your profit and loss account after that.”
“I can’t think of another league which delivers 42 of the 50 days it is played as the most watched TV show in its country, or the percentage of the salary that is being paid is arrived at as a percentage of the central revenue. There is a method to the madness. It is classical business planning.”
Raman was referring to the centralised IPL revenue that is shared with the franchise each season.
While they pay one-tenth of the value at which they brought the team in 2008, they also earn a share of the revenue that the IPL generates through television rights and tournament sponsorship (like Pepsi’s title sponsorship and Kingfisher’s umpire sponsorship).
In Punjab’s case, the team was purchased for $76 million, which means they have to pay $7.6m to the IPL each year for 10 years as a franchise fee and nothing after 2017.
Apart from the central revenue, the franchise owners also earn everything from their own team sponsorships (like Etihad’s deal with Mumbai Indians), a major portion of ticketing revenue, merchandise sales, corporate hospitality and in-stadia advertising.
On the change of auction rules this year, Raman insisted it was the only way to make sure there was a parity in all participating teams as far as quality was concerned.
“The four-player retention in 2011 was done because two new teams were coming in. They needed a bouquet of players to pick from. The current regulation is after feedback from the franchises. But every franchise will think about their team, not the league,” said Raman.
“The reason why extensive discussion was done – it was because of cores of the team. People get confused at the start of the season because they don’t know who is playing for whom. So, allowing them to retain five players helps build the loyalty for teams.”
As for the salary cap for this year’s auction, it was set at Rs 60 crores (Dh36.7 million, appx $10m). The IPL decided to move to rupee-based salary, which was another step to cut cost for the team owners by taking out the fluctuations in currency market.
The rupee has weakened almost 40 per cent compared to the US dollar since 2008. So, if it goes down further, the owners won’t have to pay the difference.
In an effort to ensure that some teams do not become too strong, a percentage of salary was deducted from the maximum allowed if they were retaining some of their star players.
In case a franchise decided to retain the maximum allowed five players, 65 per cent of their salary was deducted. Thus, they were left with Rs 21 crores ($3.5m) to build up the rest of their team.
“The percentage of deduction is based on extensive data analysis, and we have sound logic for the salary cap being set. It makes all teams even,” added Raman.
“Also, the salary cap has been set only for the IPL. So, the teams that don’t qualify for Champions League T20, don’t incur a cost. And teams that qualify, will only incur a 10 per cent cost for players they pick.”
In conclusion, Raman added: “As far as the league is concerned, we are working tirelessly to ensure the game in the middle is as interesting and exciting as possible – salary caps, retention… everything is taken care of.
“What I know is that most teams are doing well to very well, though I don’t know the exact details.
“Why the teams are in the business, what their evaluations are, is for them to answer. But we see the valuations of the teams increasing because the business plan will only get stronger and stronger.”
