#360business: Bleak figures fail to deter ISL investors

Mehr Shadaab 11:18 28/09/2015
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Mixed bag: ISL.

Soon after they were confirmed as the owners of Atletico Kolkata, Sourav Ganguly summoned his fellow partners, including Spanish giants Atletico Madrid, for a quick meeting.

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The former captain of the Indian cricket team had just one question: Would they be willing to lose nearly $4 million (Dhs14.7m) annually for the next few years? All present at the meeting gave their consent, seeing it as an investment which, sooner or later, would reap high returns.

As it turns out, nearly double the money has gone down the drain in the first year and it will be foolhardy of them to expect any returns on their investment any time soon.

According to All India Football Federation (AIFF) secretary general Kushal Das, each of the eight ISL franchises have lost roughly $6.5m (Dhs23.8m) in the first year, with organisers IMG-Reliance losing more than double that. That is two times more of what organisers projected before the inaugural edition took place last year.

And going by the forecasts made in the business plan shared by IMG-R in 2014, the franchises would have lost nearly $15m (Dhs55m) by the time they are expected to break-even in 2017.

These figures might be a fraction of what a modern-day footballer earns. But in India’s context, the numbers are astronomical. Sample this – an I-League club, on an average operates on a budget of $2m (Dhs7.3m) whereas the AIFF has approximately $6m (Dhs22m) at its disposal every year. So not only are the ISL franchises investing more than the parent body, they are losing almost double.

The franchise owners are not pressing the panic button yet. But they are surely concerned. Gaurav Modwell, the CEO of FC Pune City who recently signed Adrian Mutu and Didier Zokora for the new season which kicks off this Saturday, believes it’s an investment that is necessary for Indian football.

“It’s of course a concern when you are incurring losses. But all of us who are involved in it knew that at least for the initial few years, we won’t break even. This investment is necessary for Indian football and hopefully things will be different four-five years down the line,” Modwell said.

“Sure, it is a long punt but there is the possibility of this turning around. What is the alternative? It has been difficult to create fan engagement and consequently sponsor interest in I-League.”

Modwell said the other option for an Indian businessman is to invest in teams abroad but that too would be equally non-profitable.

“There are Championship (English second division) clubs you can buy for $50m (Dhs183.6m) and and then lose around $4m annually for some time. In the ISL, there’s a better chance of wiping off the deficit and obviously a huge rub-off of creating a brand and developing football in your own country,” he said.

There are some owners, however, who have had second thoughts. In April, PVP Group, the co-owners of first edition’s finalists Kerala Blasters, reportedly were on the verge of selling their stake owing to high operational costs before deciding to stay on board.

“It does not make sense for me to sell,” Blasters’ Prasad V Potluri, owner of PVP Group, was quoted as saying. “We have invested so much capital and made it to the final, besides built such a big brand with huge support base. Why give it away?”

The reasons for the teams being in the red are varying. From the franchise point of view, they seem to have severely underestimated the salaries of players and coaching staff.

On average, each team had a budget of approximately $8m (D29.4hsm) for the first year, having doled out $2.5m as franchise fees to IMG-R. However, they could recover barely $1.5m from sponsorship deals. Almost three-quarters of their budget was splurged on players and support staff, with the rest spent on travel and logistics.

Quite a few teams had their pre-seasons in Europe, which further added to the cost. Consequently, IMG-R enforced a salary cap of $3.3m, which its vice-president (football), Andy Knee, said was done to ensure ‘fiscal discipline’.

But what seems to have aggravated the problem was that the teams got absolutely nothing from the central sponsorship pool and TV rights. The central pool is believed to be worth around $11m. IMG-R were supposed to keep 20 per cent of it as operation expense and had promised to distribute the rest to the franchises. That didn’t happen.

An ISL spokesperson said the reason for that is roughly $8m were spent by them in refurbishing venues. Getting the infrastructure ready in time for the league was one of the biggest challenges the organisers faced.

“When we started out, India did not have a football stadium that was of international standards. We spent a lot on refurbishing, be it relaying the turf, increasing the workforce in Guwahati to ensure the pace didn’t slacken during Durga Puja (a local festival), getting practice grounds ready in most venues and even increasing the wattage of floodlights. Our international pitch consultant Gregory Gillin flew in regularly,” the spokesperson said.

“A number of big names were involved as players and coaches and it was imperative to undertake every possible measure to make a good impression of India as a footballing nation. This season, the teams won’t have to spend that much on the pitch and stadium facilities as it was taken care of last year. The amount is an investment. We remain committed to the development of football in the country.”

What hurt the league and franchises the most, however, was the failure to auction television rights, which is the major source of revenue for most leagues across the world.

Being co-owners of the league, Star Sports were by default awarded the broadcast rights which robbed IMG-R, as well as the franchises, of landing a lucrative contract which could’ve benefitted them financially. There is, however, hope that second season will be better.

They also claim to have gotten wiser and have spent judiciously on players this time. And following the success of the first edition, franchises are hopeful of luring more sponsors.

For instance, shirt sponsorship last season fetched between $500,000 to $1m. That amount has doubled this time. The teams are also expecting around a million dollars each from the central pool and there is hope they’ll get something from broadcast revenue. For the sake of sustainability, it’s imperative all stakeholders find a balance.

Despite the talks about this being an ‘investment’ and the need of being patient, India is a fickle market where the owners who pump in millions expect immediate returns. Several leagues modelled on similar lines have failed because the owners could not find it sustainable.

The Indian Badminton League, which had top stars from across the world, is the most notable example while the Hockey India League is just about managing to survive.

It’s a trend that Ganguly knows too well. Not surprisingly, he is prepared for the worst.

“I don’t know when we will break even, doesn’t seem so in the near future. There is also a possibility we may never break even. Nobody knows what the future has got in store for any sport in India, other than cricket,” he told Indo-Asian News Service. “That is why I say this is not just about money. Hopefully, there will be a future in this, my inner feeling says that and we will break even but when, I don’t know.”

The ISL holds a lot of promise if done the right way and has the potential to rejuvenate Indian football. But even before the first ball was kicked, there were apprehensions over how sustainable it would be. And merely scanning through the balance sheets after just one season, one can understand that the fears were not entirely unfounded.

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