Building Stadiums in the Air: Three Years of IPL Re-imagined

The Indian Premier League (IPL) completed its third season yesterday. Add salt to taste, but as a sports property its valuation has gone from zero to USD four billion in thirty-six months. Yet, if the IPL were to be scrapped tomorrow, whom and how would it really impact? Will any legacy remain unfulfilled or any legitimate vision die prematurely? Hardly so.

Until (if ever) we know more about the financial skullduggery of the IPL, let us work with what we have. Three years since it started the story of the IPL has largely been scripted around a few keywords: Television Ratings, Broadcast Deals, Auctions (of Franchise and Players), Sponsorship Deals (though more correctly described as Advertising Opportunities) and the ubiquitous presence of the Board of Control for Cricket in India, its member State Cricket Associations and the omnipresent Mr. Modi.

While some may continue to whisper tweet nothings in support of the IPL experience so far, Notes on Sports undertakes a re-imagining of what could have been. A reimagining of the possibilities that may have existed, had the IPL aspired to build a little from the bottom up rather than solely from top down.

Peculiar Business Model Of the IPL

The IPL was started with the auction of eight franchises (team owners) secured via a competitive bidding process with a base price of USD 50 million. The ownership rights over these franchises were granted for a ten-year duration, commencing from 2008. The basic commercial understanding was that these eight franchises would pay the IPL an annual Franchise Fee, computed at 10% (ten percent) of the total value of their respective winning bids.

The IPL in return promised to redistribute pre-determined percentages of Broadcasting Revenues (80%) and Central (IPL) Sponsorship Revenues(60%) and also other Local revenue (ticket sales etc) to the eight franchises in equal proportion. Hence, the fee paying franchises were to also receive a portion of the IPL’s revenues on an annual basis.

This graphic displays the relationship between the IPL and the franchises and demonstrates how the money paid by the franchise to the IPL and the money received by them from the IPL virtually cancel each other out!

Little wonder then that after the first edition of the IPL, most franchises made marginal losses while the BCCI declared a profit of only USD 3 million.

The intent (without factoring in the recent speculations) was to protect the investments of the franchises and reward their faith in the BCCI’s bold experiment.

Thus, even if the franchises DID NOT PAY their franchise fee to the IPL and the IPL DID NOT REFUND them any part of the Broadcasting Revenue, the bottom line of either the IPL or the franchises, would not be any different!

The Central Revenue (Broadcast + Sponsorship) numbers for the following editions (2009 and 2010) of the IPL only got larger with the renegotiation of the deal with World Sports Group (WSG) and Multi-Screen Media Pvt. Ltd. (MSM) and fresh deals with Youtube.com, Karbonn Mobiles, Maxx Mobiles among several others.

The franchises continued paying USD 72.34 million per year to the IPL. The IPL continued returning the same with compliments (in millions) to the franchises.

Consequently, over three years, a sum of nearly USD 500 million (or more), went back and forth, between the franchises and the IPL, without any of it being spent on anything tangible, sustainable or indeed real.

BCCI, State Associations, Franchisees and the IPL

Aside from their other troubles, the ICL suffered also from the unavailability of venues to host their matches.  The BCCI (and its affiliated State Cricket Associations) had no such problem. Having run cricket in India for nearly 80 years, the entire existing cricket machinery was as their disposal. Using this leverage the BCCI was able to offer the eight franchises, ready to use “Home” venues to their respective teams, within their defined catchment areas.

This arrangement served the BCCI (and affiliates) well because it meant that each venue hosted a minimum of seven IPL games. This translated to revenue from the stadium lease fees, hospitality, tickets and above all clout.

For the franchises, this “time share” model meant that they did not have to invest in any grass-root level activities or development programmes. They could just show up, use the existing facilities host their carnival for two months of the year and focus instead on spending their money on marketing, buying big ticket players and hiring staff (or on whatever else the IT and ED guys may unearth).

Playing it Differently: RE-IMAGINING an ALTERNATE REALITY

What if the BCCI which owns the IPL had linked the vision of a franchise based T20 league with a broader aspiration to grow cricket (and sport) in India exponentially? What if they had worked with an eye on the ICC World Cup 2011 and improvement of sports infrastructure as a priority?

Free Market Franchises with Privately Owned Stadiums

The franchises were formed. The catchment areas were defined. The price was agreed and locked in.

• At this stage, the IPL could have insisted on each franchise, developing its own “Home Stadium” over a three year period as a necessary condition for awarding the franchise. It could also waive the requirement of paying the franchise fee for this duration, thereby lessening the financial burden on the franchises. The least expensive franchise (Rajasthan Royals) was purchased for USD 67 million. Over three years, the Rajasthan Royals could have used USD 20.1 million (3 years worth of franchise fee) towards building their own Home Stadium. The most expensive franchise (Mumbai Indians @ USD 111.9 million) could accordingly have invested USD 33.57 million on their own venue.
• To offset the loss of revenue to the IPL from the afore-mentioned waiver of franchise fee, the IPL could have entirely dispensed with, or proportionately reduced, the percentage of Central revenues being allocated for redistribution to the franchises. This would translate into a saving of USD 300 million for the IPL – money which could have been used for the development of cricket in India – the avowed objective of the BCCI.
• The net effect would have been the same, since as demonstrated above the franchises were paying the IPL from its own money in the first place.
• The BCCI could have set out the standards expected of these stadiums and have experts oversee the progress at regular intervals.

How Much Would it Cost?

By all estimates, the approximate cost of building a world class multi-sport stadium with the works, is around USD 50 million. A waiver of franchise fees by the IPL (for the first three years) would have provided the franchises with the bulk of the capital required for financing the stadium construction. The balance could have been raised from sponsorship deals or financing from institutional lenders or invested from the franchises’ own coffers.

Fantasizing based on the existing eight franchises (Kochi and Pune are not considered, since they are not part of the first three years of the IPL), there could potentially have been world class multi-purpose stadia at the following (indicative) locations:

• Mumbai Indians: Nasik
• Chennai Super Kings: Pondicherry
• Rajasthan Royals: Udaipur
• Kolkata Knight Riders: Darjeeling
• Deccan Chargers: Bhubaneswar
• Royal Challengers Bangalore: Mysore
• Kings XI Punjab: Amritsar
• Delhi Daredevils: Meerut

Stadium Arcadium: A New World of Possibilities

Owned by the respective franchises (and their investors) and professionally managed by corporations driven by revenue targets, these new stadiums could serve as aggregators for multiple business verticals and bolster the franchises’ financial prospects:

• Sponsorship:

With their own stadiums, franchises would find it easier to attract sponsors over long term arrangements, thus making quick recoveries on their investments in building the facility. Naming rights, flexibility in stadium branding and the ability to deliver to sponsors outside the IPL window, could have enabled franchises to increase the value and duration of sponsorships they receive.

• Training, Youth Teams, Exhibition& Charity Games

The scope of team operations could expand beyond the 60 odd days of the year (IPL window) to the entire year. Such a facility would make it logistically easier to run youth academies, training programmes, coaching camps and to host practice/exhibition/charity matches all year around. Franchises would have a broad-based approach towards building their squads and earn the trust and goodwill of their fan-base within their catchment area. Integration with schools and universities would open up new touch-points for the franchise to seed themselves in the psyche of their followers.

• Entertainment, Recreation and Merchandising:

Restaurants, cafes, merchandise outlets, museums (with team memorabilia on display), membership programmes, guided tours by current and ex-cricketers, recreational facilities (batting cages and indoor nets), all operated in one facility, could go a long way in getting fans in the catchment area to develop emotional bonds with their respective teams. The ability to also host outdoor live entertainment events would further enhance revenues for the franchises.

• Collaboration with other Sports & Leagues:

Modern stadiums are built to be multi-sport venues. These stadiums could also be used to support other sports (leagues) – most squarely soccer and hockey leagues. These sports would benefit immensely from having multiple venues for their games to be hosted at. For a reasonable fee, operating such leagues would ensure that the stadium is busy through the year, while creating an ecosystem for the other sports leagues to thrive in.

Franchise Stadiums and the BCCI

These world class stadiums could be also be leased to the BCCI for hosting domestic cricket games (Ranji, Duleep, Irani Trophies etc) and as practice facilities. Without the BCCI making any capital expenses, the Board would have access to state-of-the-art infrastructure and facilities, for the furtherance of its mandate to promote cricket in the country. The state Cricket Associations could work on improving the existing infrastructure, while these new stadiums would supplement their efforts.

With the ICC World Cup in 2011 being held in the sub-continent, the BCCI would have had the option of using any of these eight new stadiums.

Impact on Test Cricket

A common grouse against the IPL is that it has come as a kiss of death for Test cricket. If indeed these IPL franchises have these world class stadiums, they could lease them to the BCCI (for free) for hosting Test matches. As the turnout at the Ranji Trophy 2009-10 final (held at the Gangotri Glades ground at Mysore) proved, there is great interest in any form of cricket, in the towns and smaller centers in India.

Test matches held at these cities will bring the thronging masses to the galleries and inject much needed adrenaline to the game’s longest format.  In doing so, the IPL could have found the most fitting riposte to the charges often leveled against it of marginalizing Test cricket.

Loss of Revenue for State Associations

The estimates of average fees paid to the State Associations for use of the stadium is INR 25 lakhs per game for seven games. This works out to a total of USD 3.15 million for an entire IPL season paid by the franchises to all the State Associations put together.

Just to place this number in context, the IPL by its own ‘silent auction’ rule made USD 2.65 million from the excess bids on Kieron Pollard (Mumbai Indians) and Shane Bond (KKR). Essentially calculated for a single season, if the State Associations got paid nothing from the franchises, and the IPL just handed them the silent bid surplus money, their combined ‘loss’ of revenue would be 0.5 million or 0.0025% of the IPL’s supposed valuation!

Sure, games must be played at Eden Gardens and the Chinnaswamy and all the other iconic venues and a balance between these and the franchise owned stadia for hosting IPL games, could be worked out.

The State Associations could also see a spike in their funding from the BCCI, since the Board would be saving money from not dispensing Central IPL Revenues to the franchises, during this phase.

The truth is none of this happened. Perhaps because the Commissioner has always been more of a broadcasting guy than a broad-basing guy. Maybe they felt it was too early. Maybe the Board of Control, wanted to stay completely in control.

The Effect (OR LACK OF ONE)

As the curtains fell on the third edition of the IPL – it’s most visible face and most powerful official – stood isolated. The presence of neither Sachin Tendulkar nor Mahendra Singh Dhoni, the biggest titans of Indian cricket today, could divert attention from the dark clouds that hovered over the future of Indian cricket’s show piece event.

Chairman Modi spoke from the Bhagwad Gita, earning him considerable sniggers and scorn. He could instead have pulled up one of his favoured Power Point presentations and shown the eight stadiums built under his watch. Much remains to be unearthed, but eight stadiums in three years, without spending a rupee of the BCCI’s money, that would have been some silver lining!

Three years since this journey began, we’re still talking multi-million dollar deals. The only difference is that the talk has moved from “investing” to “investigating”.

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Quick Link to some fantastic posts and deep insight into how the IPL cookie crumbles – must see “SMOKE SIGNALS” by Prem Panicker (http://prempanicker.wordpress.com/)