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IPL 5: Padding up for a tough fight ahead

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IPL 5: Padding up for a tough fight ahead

The Indian Premier League (IPL) Season 5 kicked off with a spectacular opening ceremony on April 3, 2012. However, a cloud hangs over the tournament with reports of IPL fatigue and unsold inventory cropping up.

A report by MSLGroup, titled ‘Brand IPL: Still a smash hit?’, cites a study by Brand Finance, a UK firm specialising in brand valuations, which pegs the value of IPL in 2011 at $3.67 billion. This is a drop of 11 per cent over the value in 2010, which stood at $4.13 billion.

As per the MSLGroup report, runaway costs are the most visible of IPL’s problems. Team costs – players’ salaries and auction bids – hit 40-45 per cent of revenues in 2010. In 2009, team costs were 30-33 per cent of revenues. The cost pressure is only expected to rise, further affecting the IPL valuation.

In the first auction in 2008, there was a cap of $5 million per franchisee on player bids. Today, it is $9 million. Hence, franchisees have more money to spend on the stars. Yuvraj Singh, for instance, was ‘bought’ for $1.1 million in 2008, but cost Sahara’s Pune franchise $1.8 million in the 2011 auction.

The player costs are comparable to the highest in the world. In the National Basketball Association (NBA) – an older, more established league – the average annual salary is $2.62 million. In the IPL, it is just under $2.5 million. The NBA leads sports properties across the world in wages, with the IPL coming in second.

This apart, IPL has had to weather some major controversies – in 2010, Lalit Modi, the IPL commissioner whose brainchild the tournament was, was sacked for money laundering and favouritism while awarding contracts, among other charges. The Enforcement Directorate began investigating allegations of ill-gotten money flowing into the tournament from tax havens abroad, and questioned the IPL top brass about it.

IPL franchise team Kochi Tuskers has been terminated following reports in the team’s funding. Sahara’s pullout from the Team India sponsorship as well as the IPL has been a major blow too. However, Sahara has relented after talks with the Board of Control for Cricket in India (BCCI).

Falling TRPs
In 2011, Multi-Screen Media (MSM), IPL’s broadcaster, quoted $30,000 per 10-second ad spot for the last four matches. However, media buyers said privately that it settled for $11,000 per spot, the same rate as that of group matches.

In IPL 1 one match was abandoned due to rain
In IPL 2 two matches were abandoned due to rain
In IPL 4 one match was abandoned due to rain

While MSM denied the reports, claiming that it would earn $180 million from IPL 4 (2011), what is indisputable is that viewership fell. Television rating points (TRPs) issued by TAM Sports, a unit of TAM Media Research, for the first 59 matches in IPL 4 showed that ratings hit a new low of 3.84 against IPL 3’s 5.51, IPL 2’s 4.66 and the inaugural season’s 5.39 at the same stage.

MSM, which broadcasts IPL on its channel SET Max, has hiked ad rates by 10 per cent for the 2012 season. This means that advertisers must pay more than $10,000 for a 10-second spot. Last year, after India won the World Cup, MSM hiked rates by 25 per cent, but the viewership was the lowest ever.

This year, Max has got on board only six official sponsors, as compared to 10 sponsors that it was targeting.

Too much cricket?
Since IPL 4 in 2011, cricket has flooded the airwaves with India playing virtually non-stop. And it’s been faring badly. IPL 4 was followed by a disastrous tour of England, and the West Indies tour last year was cold-shouldered by viewers. While India got the better of England on the return tour, it was quickly followed by a nightmarish series in Australia.

In England and Australia, India lost eight consecutive Tests. This seems to have turned off viewers. And this is what makes the 2012 season of IPL critical.

If viewer fatigue takes a toll on ratings, advertising revenue will fall. One effect of viewer fatigue was obvious last year. The duration of the tournament was increased in order to make more money, but it backfired when the league matches found fewer takers.

Too much cricket may be why Nimbus, which inked a broadcast deal in 2009 with BCCI for $431 million for all international matches in India, couldn’t pay the $6.4 million per match.

According to the MSLGroup report, BCCI’s greed hasn’t helped. After the IPL, it launched the Champions League T20, claiming that it wanted to take the format across the world. Soon, most viewers couldn’t tell one match from the other. Hardly surprising then that Bharti Airtel pulled out as the official sponsor of the Champions League after a year, complaining that sponsorship rights, at $13 million, was too high.

For IPL 5 this year, many advertisers have demanded a minimum viewership guarantee.

However, BCCI President N Srinivasan doesn’t seem unduly worried. He said on record that fluctuating valuations – based at least partly on perception rather than reality – don’t matter. “It’s not a manufactured product and we are not a company chasing EBITDA,” he reportedly said.

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Prior to joining Madison PR in 2012 Chaudhary was Group President Corporate Communications at Reliance Industries Limited.