The decision to move the tournament to South Africa in a fit of panic has convinced me that all is not well on the glamorous marketing rave fits, people throw on the genius of Lalit Modi. In its debut season, the sheer numbers and projections thrown in were so unreal, that you had to ponder how much of it is made up.
In terms of the financial aspects, this tournament is nothing more than a huge gambling den for the stinking rich and the best part is like good businessmen they don’t use their hard earned money but yours. Lalit Modi deserves to be praised by these factions, after all, he is doing a bloody good job milking us all for them.
It’s incredible isn’t it? Here are the times of so-called recession and yet, advertising spots, television rights deals are hitting the roof and going way beyond it. You find software companies sponsoring a team’s jersey on one hand and on the other huge salary cuts, business slowdowns and lay-offs. Amidst standing in awe looking at the huge deals being made in cricket, the cost of commodities, real estate, the products you see on TV to our cable TV/Satellite television subscription bills have all significantly increased, each of which has been quietly passed on to us. Whether we follow cricket or not we are their nipples they feed on for all the cricketing spendings they mindlessly engage into.
All of these are the basic fundamental functioning of marketing but it becomes a problem when you start to bite more than you chew. When those numbers start to be driven by sheer greed, you start pushing it up for the little bit extra and those extras we see are at gigantic proportions that no risk management or disaster management plans of those so-called savvy management gurus can handle it.
None of these business participants associated with the IPL, be it Television broadcasting to the advertisers, possibly have the kind of money to match those figures projected and proudly announced at every deal-making press conference. So in these so-called troubled times of recession, how is it this marketing juggernaut rolls on in such stunning proportions if not for excessive borrowings way beyond their means and the rather complicated practice of extensive hedging, leave alone gradually passing it on to us.
All business ventures have its risks and you do need to at times to make a gamble which are all integral parts of entrepreneurship. But in a gamble of such tall proportions, where the extent of the hedging practices and borrowings are increasingly complicated to manage, in their greedy quest to make more money, it is fueled by the fundamental belief that when it comes to the cricket market in India, nothing can go wrong and the market will always be evergreen.
It is on this sheer blind faith on the Indian cricket market that nothing could adversely go wrong, that the extent of the financial risks being undertaken are at such gigantic proportions. But if lessons are to be learned, it could be having one good look at how things dramatically changed across the border in Pakistan in a matter of months and their cricket board is close to bankruptcy or how dramatically the balance sheets plunged among the biggest industrial houses and trusted companies in India in a matter of months, when all they and the rest harped on the great Indian financial success stories. In the case of these Fortune 500 companies in India, they pretty much did the same juggling act running on blind faith trusting their abilities to manage those increasing stretched numbers, taking all those easy credit options and their so-called safe specializations in hedging their risks. We all saw how well it backfired.
Back to the IPL, when the government refused to support the security apparatus of the tournament, there were enough to show the tell-tale signs of panic, which much to Lalit Modi and his South African counterparts credit, engaged in a classical risk management maneuver to host the tournament in South Africa and minimized the risks.
What it equally showed through was enough for me to believe all those gold studded numbers are sitting on a thin wafer, that can easily crack up and fall at the first solid sign of trouble. How many times have you heard of these sob stories of people in most financial channels, where they explain their plight of how they borrowed a lot of money to put into stocks on the sheer blind faith that the markets will remain strong and lose everything when it crashed, with no capability to pay-back those borrowings. Sure enough they made a lot of money when the tide was high. Borrowing is one thing but borrowing more than what your ability to repay is the real difference in good financial management.
Amidst the backdrop of the failed start of the Champions leagues, I wonder how close this time around for the second edition of the IPL did the BCCI’s Indian Premiere League came to being a financial failure and the subsequent crash of the cricketing financial market in India, including those of broadcasters, sponsors and advertisers.
I suspect it was pretty close and by sheer luck or indeed the basis of blind faith, South Africa turned out to be more than a decent market for the IPL to keep the financial bandwagon going.
Blind faith it is but I hope lessons are learned and fundamentals put in place.
Scoripicity,
That is one brilliant post about advertising, marketing and IPL.
definitely, the blind faith of the promoters of various teams is in the strong market condition of IPL, and they panicked big time when the government decision was made. Infact one of the major reasons, why no promoter made a sound when the venue was shifted, was because each of them was looking to minimize loses, of course, trying their best to make profits.
But i think this makes a special case for BRC promoters in Vijay Mallya. IMO, unfortunately I got no stats to support my POV, that with kingfisher airlines doing all the commute of the players, their kits and what not, apart from WAGs, KFA made a little more than minimizing risks, discounting the fact that almost every team is sponsored by King Fisher Premium.
Add to that, his team is actually performing well, but that is not in relation to this post.
So, in that way, I guess, blind faith in IPL, paid off more than Mallya must have initially envisaged.
In these times of recession, there are no loans available. Banks are not lending, and people are definitely apprehensive to borrow.. yet u talk about these TV channels and advertisers and so on working on borrowed money.. so what I want to know is that, where is this borrowed money coming from?
And if the the revenue and profit projections are not viable then why are these team owners spending all these dollars?
And how is it that the BCCI has said that they will cover the extra expenses of all these teams – the extra being over and above what would have been spent had the IPL taken place in India.
Where is all this money coming from?
Hey Ankit… no doubt there is a definite profitable venture in this not just related to travel but in businesses related to some of the owners, which makes it great for them but I seriously hope they don’t stretch beyond their means for investing into all this, so that they can comfortably manage in a sticky situation.
If things were so much smooth sailing in the sensex and the profit balance sheets being projected all these years, how did they all land up in such a situation if they did not stretch beyond their means. How much is the extent of the risk being taken is the question.
Of course, like you said, it is hard to support it with facts and figures due to it being a non-transparent body.
Hey Scorpi…you are back with a bang…for all the super success of the IPL we never get to hear about how much money was made by the BCCI or the teams ( there are some reports but nothing concrete or official) and where all the money is going
One of the companies sponsoring the KXP, netlinkblue, runs the IPLT20.com website. I dunno how much they are paying the Mohali team or BCCI but they owe me money for a couple of articles I wrote for them. The guy just vanished one day. The same could be happening to a lot of vendors in the IPL. I don’t know if all the players have got their full payments. Don’t think anyone has the balls to come out against Lalit Modi and Co
Q… I am pretty much interested to know those same questions. Will be logging in later today for a detailed discussion on this… Cheers
Q, These corporates depend on banks the least!! In fact banks depend a lot on them! There are numerous ways funds are raised and it usually works in combination of all including banks. The question of where is the borrowed money coming from will also be one I want to know… But all business run on these engines… They cannot remotely thrive otherwise… no way!
The revenue and profit projections are viable as long as the juggernaut rolls on expected lines. There is no doubts on profitability as far as cricket in India goes but the pertinent question remains on how much of a profit do you seek. Naturally, when you set such stunning targets year on year, the extend of borrowings, investments and hedging spirals and therefore when a sticky situation arrives, how much losses can one juggle with? One which is manageable in a worst case scenario or one that pulls the plug and more importantly credibility. Reading how the television rights for the second edition panned out brought this thought on how they are stretching it way beyond means.
As far as the team owners go, to start with none of them use their money in it. At least no sane businessman will! You have to understand that as much as we love to stick to aspects regarding cricket in the IPL which I like, there is definitely the other aspects where team owners stand to benefit for their brands. For example, Kingfisher flies all the people… they make money there. Only Mr. Mallaya’s booze is available in a stadium likewise surely there are many other things related to other team owners which they all make money from this event apart from the cricketing aspects.
On the BCCI covering the extra expense, that’s the interesting part isn’t it? The question asked is why should they if everything is not stretched!
Besides, the BCCI apart from the public image aspects and credibility are fairly insulated by their deal making. The problem is on the ones around them… the production houses, the broadcasters, the advertisers who all form a crucial integral part of their financial success so far.
I have no real facts or strong basis to my thoughts other than the industry logic seen in what has panned out recently in the corporate world. It doesn’t help to realize that most of the title and key sponsors are deep in red if you look at their businesses.
We don’t know what the deals are and nor is it going to be disclosed… It was never was even in the past.
But the bottom line, no matter what most of it is being passed on to us. Because it is stretched for the extra bit of greed.
I would like to illustrate my point further with respect to the landmark television rights deal of the BCCI with nimbus and subsequently sublet to Tata’s neo sports and ESPN-star. But this is getting way too long, almost like a post LOL… so to cut a long story short. The deal was so stretched that in order that these people furnish the money, they okay ed certain monopolistic practices that resulted in a rather brutally clever way of getting the money out of the public… Tata sky and neo monopoly and to top that they did not honor the commitment to their subscribers and got away!
There is lot to elaborate on this episode but I suppose that can be dug up. It goes to show one thing… When people laugh and make fun at say Malaya on how he was a goof to pay a million for Kp and how he did not get his money’s worth, they don’t realize that they are the dumb ones that actually paid every penny of it.
LOL AV… You got ripped by the BCCI’s vendor! Vendor defaults do happen big time. One can have a look at the doordarshan’s website where they have listed the number of defaulters, the amount due for not honoring advertising spot commitments and sponsorship!! They are mostly related to cricket.
So if this is the case of a rather low profile doordarshan, the case may be big time for the other private channels. However these are considered normal but if TV rights start hitting the roof year on year like how it pans out, then when a situation arrives of a tournament being stalled or canceled, they are all dead ducks!
scorpy is back!! and back with a bang…
first accept my congratulations on restoring the fizz we were missing in cricket…
not all of IPL can be attributed to blind faith…here was a system which was tested with success in/at india…and given the intensity with which it was played (and being played) the target of success was not that hard achieve…i think more than the risk proposition…it was convenient decision for ipl organisers and partners…in crime i.e.
Thanks SP… funny that all the key sponsors have been in the media for being red on their balance sheets.
Welcome back Scorpy. “Blind faith it is but I hope lessons are learned and fundamentals put in place.” I couldn’t understand which fundamentals you are talking about and to whom you are giving the advice. The franchisees most of whom are public companies have already bought their respective teams the media sponsors is also a publicly traded company they have also committed themselves for the next 10 years, none of the major stake holders can back off from any deal. In this deal so far only BCCI is making money. Last year except KKR and RR no other franchise could make money or broke even, KPMG and several other reputed firms predicted after the first year that most of the franchises based on that year cash flows will break even in the third year. The situation has changed now, nobody anticipated the recession, the only way IPL can survive in the long run is if BCCI gives a larger share to franchisees or keeps on absorbing the abnormal losses. In my opinion the security problem was not the only issue which led Mr Modi to export IPL to SA, the recession was the biggest factor and Modi was already exploring the possibility to export IPL abroad and he jumped on the gun on the first available opportunity, when I say recession was the biggest factor, I want you to take the example of ICL which was doing fine in its first two years but couldn’t find the same level of sponsorships for the third season as many corporations slashed their marketing and publicity budgets due to the recession in India and the rest of the world. Modi was also worried that if in the first season despite running to capacity crowds most of the franchises couldn’t earn profits how would they survive during recession, almost every entertainment business has been hurt due to the ongoing recession in India. Now the interesting question is how long this recession will last and can IPL franchisees and its sponsors sustain anymore losses, IPL is only surviving on the sony media rights deal which is its biggest source of revenue, the way the TRP’s have fallen for IPL this year obviously it will grossly affect the revnues of Sony and if they pull the plug then its going to be a huge problem. But I think Modi is a smart man he will figure out different ways to keep IPL afloat.
Halo Wasim… Thanks, my site was hacked and took some time to restore it… To elaborate some aspects of my thoughts… Fundamentals which I’m referring to is basically sound financial practices that doesn’t go overboard on high risk. I’m mostly worried on the aspects of television rights, TV advertisers and vendors, who are the real meat for the tournament. It is here specifically in the case of advertisers and the TV rights contractors where the big risks and as the deals are significantly high each year, large borrowing, hedging and defaulting are on the cards. It is to be also understood that as we celebrate such big deals, we have been passed on with significant of the costs often labeled with unfair trade practices left in the hands of Direct-to-home broadcasters, where possibly board officials take a cut.
Last year, I believe the superkings and Rajasthan made profits. Though am not too bothered about the franchises and the BCCI’s finances, with the exception of the film star owners who I cannot or perhaps not aware of other areas of revenue they get mileage from apart from publicity. The rest of the owners mostly belong to industries where deals on contracts related to cricket are being worked out.
The fun part of this word recession is it is not something which is a natural calamity that hit everyone. It is an artificial creation by these every same companies here and across the world that engage in excessive high risk ventures. That is why sound financial fundamentals are the need of the hour. It would be too long to explain what went wrong with many of these companies that led to this so-called recession, but there are many brilliant articles about the same. Some of the companies associated with the IPL are currently in red yet the juggernaut rolls on.
The profits projected by KPMG as always has to be taken like a pinch of salt. While decent profits are a no-brainer, am not too sure about their numbers. It was the same agencies like KPMG and price waterhouse that was presenting a rosy picture for each one of these companies that too when the barrel of oil was at 120$. Beat the fact, that many companies lost a lot of money when the price of oil came down and the currencies stabilized, requires a lot of thought on how horribly their hedging practices went wrong.
In a way, it is funny that one point you find recession and slow downs yet, television rights for the second edition hit a new high and so did advertising spots. None of it is adding up in this scenario.
I doubt anything in the IPL would be a pay money in full and take the product across the counter. It never works like that in big money business. It generally takes years to generate and pay those revenues, bound on many underlying agreements and hence yes, like you said, they are committed to 10 years and these underlying agreements which is never disclosed pulls them through.
The ICL never looked like a profit making venture for the same fact that there were no fundamentals. Every thing was knee-jerk and all the risks were piled on in that great blind faith that nothing will go wrong. While the ICL were in loses for all the years they played, it went along the lines that things will improve as we go on. The nail on the coffin was when disaster struck in the form of strained relations between India and Pakistan and the ICL’s biggest market was killed. It took this one set-back to kick them off the coaster.
Now, ICL’s approach is more or less very very similar to any of the franchises or the BCCI. These people have been part of the television rights ruck-us for years and their business practices are identical. So when this years IPL faced a possible delay or cancellation, one thing was evident, from some of the franchise owners, to perhaps many vendors and the TV rights deal would all have been catapulted.
As for the BCCI coming to the rescue, against the backdrop of the failed start of the champions league where they lost a looooot of money (We don’t know how much though), I doubt they could foot another major loss. This word loss can only be loss when what gets borrowed, on credit agreements can never be repaid on time and in the case, the ones who feed their pie coffers would have been severely affected.
So here is the so called recession time… Last year, Sony & WSG combined won a 10 year deal for the IPL at a staggering 4,000 crores (I think that was the approx. figure). Now this was a 10 year deal! In the second edition, the IPL terminated the deal (They have the rights) and put it up for a bid and yet again, Sony and WSG won the deal at an incredible 8,200 crores!!!!
8,200 crores!!!!!!!!!!!!!!!!!!!!! And the same group of people talk about recession in a different context!!!
Now it is up to everyone to figure out the true meaning of 8,200 crores and how this is to happen!!
I have to quote Lalit Modi here on this deal… “”We have what we believe to be the best deal for the DLF Indian Premier League and Indian cricket fans alike.”
“Indian fans alike”… WTF? Sure enough, many rejoiced and celebrated his brilliance on the numbers but how many dig into how 8200 crores is going to be raised that will please Indian fans! Oh I know… On one part, enter into monopolistic agreements with DTH providers, where the Indian fan pay a whopping 4 grand for 1 family to get to watch Cricket. This exactly happened in the case of Nimbus-Tata-Sky (Neo Sports) arrangement for domestic matches and International matches played in India. And sure enough, they violated the promise given to its subscribers by not showing domestic cricket in entirety in the second season with reports of financial squabbles among them breaking out.
In fact the fallout being reported for last deal in the first edition was because the IPL lost an opportunity to earn some odd $30 million because of disagreements and legal cases filed between Big TV (Reliance – DTH provider) and Sony.
8200 crores…. wow… As much as it is stretched, it can be pulled off if everything goes by the script. But if a situation like what unfortunately happened to the case of Pakistan or the ICL for the matter comes through, there will be a lot of people smarting big time on what I can best see as a potential collapse. The question is whether these figures can be handled if any disastrous circumstances prevail, where ideally it should be where in this scenario, you could make big losses that could hurt but enough within to bounce back. These figures are so stretched that bouncing back doesn’t look like an option for many associated with the IPL.
If moving to South Africa wasn’t a clear sign of massive desperation, then what is.
I completely agree with you regarding those big deals and how the price is being transfered to the fans, but what has started is irreversible, the problem began when the franchises were sold for $67-112million, figure out the yearly amortized cost and you will realize that to generate multiple revenue streams was inevitable the costs had to be transferred to the fans, but as I said before BCCI not only pocketed the franchise fee money but is also getting a major percentage from different revenue streams, the high costs and the risks you mentioned can only be curtailed if BCCI takes a pay cut as the franchisees and media partners are already struggling to breakeven. I think the oevrall business plan was good as the revenue streams were guarnateed for the next 10 years but the IPL managers faltered in doing a financial stress test for the league and its franchises. I am not sure if they have done any contingency planning for unforseen events like political, economic and security unstability or future competition. You are right that IPL’s financial deals have been over stretched and it is operating at a very dangerous level, the only solution available is that BCCI will have to continously open its coffers to absorb abnormal losses during trouble times and share the burden with franchisees or else the whole league will crash in two years.
Hi Wasim… sorry for the delay. This piece came in from cricinfo… http://content.cricinfo.com/magazine/content/current/story/405833.html
There is no doubt that it is a no-brainer for the franchises to make money in various ways. The golden line is how much can advertisers stretch.