Putting IPL to test

This season of India’s home-bred T20 cricket league will determine its viability for the future

Written by Desh Gaurav Chopra Sekhri | Published: April 2, 2012 2:26 am

This season of India’s home-bred T20 cricket league will determine its viability for the future

On April 4,IPL 5 kicks off with a 76-match season featuring nine teams in 54 days. And,although it’s been said before,this really is the pivotal year for the premier sports league in India. Besides the obvious controversies and hoopla surrounding the great Indian roadshow,the primary reasons why this season is so critical to the future of IPL and cricket are: viability and perception. From the perspective of the initial eight franchises,at the conclusion of IPL 5,the league will essentially have arrived at the halfway point. And now is when the true test of the IPL begins. The league is expected to be an independently profitable entity by year five,with both franchises as well as IPL generating profits through sponsorships,broadcasting,merchandise and gate revenues.

Year 2012 is when the central revenue pool sponsors’ contracts conclude and negotiations for the future commence. The valuations of sponsorships will depend entirely on how IPL 5 fares in terms of attendance and viewership. Although the IPL and the BCCI have traditionally maintained confidentiality when it comes to revenue-sharing and overall profitability,it is understood that milestone-related changes in the central revenue pool sharing are set to commence from 2013 onwards,with an increase in the revenue percentages for the league and a reduced percentage for individual franchisees. The initial principle behind this was fair and consistent with international norms. Once the franchisees were given the initial financial support via a larger share of the central revenue pool and broadcasting rights,they would eventually be able to generate profitable verticals and enhance their revenues through the local sponsorship pool,increasing gate revenues and by building upon team-specific merchandising and premiums. This has not happened,and the ground reality is that merchandise and gate revenues have clearly not evolved due to reasons within as well as outside the control of the teams and the league. And the mismatched revenue projections have led to friction between the league and the franchisees. Already two of the original franchises are in the midst of arbitration proceedings — Rajasthan Royals and the Kings XI Punjab. Of the two additional franchises bought at an exorbitant cost,the Kochi franchise no longer exists,and the Sahara-owned Pune team is only participating this season after a temporary truce. Its future remains uncertain.

There are question marks surrounding the validity of the franchise valuations,and those can only be answered definitively if any of the franchises are sold by the current owners to interested investors at a significant premium in line with projected valuations. Liquidity and tangible prices for the teams will go a long way in answering questions about the league’s future. Ironically,the one team which has found a buyer is Rajasthan Royals,but the IPL governing council is yet to decide if it will allow the sale,which is a prudent move on the league’s part. The sale process and valuation parameters of the first franchise will be a defining benchmark for any league,and the IPL governing council ought to use this opportunity to create a system and strengthen the base for team ownership. This is the basic governing economic and ethical principle for premiums associated with the ownership of a franchise. In a governance-focused domain,this will be a positive and proactive move by the IPL. Doubts about the projections however may still remain until a decision is made and a franchise is sold.

Unfortunately for the BCCI,the IPL seems to be moving towards a classification of reality/ entertainment. This could spell doom for the league’s long-term growth and viability,because professional sports leagues are synonymous with competition and unscripted achievements. The IPL has the worlds’ elite cricketers competing in a professional league,and the matches are not meant for mere entertainment — rather,the league is expected to create die-hard fan bases mirroring team loyalty for the clubs such as Team India enjoys. Only when the IPL becomes a constant rather than a fad,will increasing gate revenues and merchandise sales become an annual trend.

For the first few seasons,it seemed as if things were well on track. However this is no longer preordained,given the flattening out of the interest in cricket,management changes within the league,a less robust economy,increase in accountability and governance scrutiny,and a pessimistic outlook for some promoters. Also,there is legitimate competition from other sports. No longer is the IPL merely a club of the elite and the privileged — now is the time when it needs to start justifying the exorbitant valuations and costs associated with each and every aspect of the league.

The writer is a sports attorney.
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