India smashes US$1bn sports boundary

The Indian Premier League has already become the richest business in sport in Asia. The kind of money that is being flaunted dwarfs the amounts that were said to have made India a global power in the corporate world. Estimates are that when it really gets going Sachin Tendulkar will be earning about $ 40 millions!

by RAJA M

Asia owns its first billion-dollar sporting league. India’s newly launched cricket franchise business, the Indian Premier League (IPL), pulled in US$724 million from winning bids for eight teams last week, while TV rights for 10 years were sold for $1.02 billion.

Mukesh Ambani of Reliance Industries led the victory parade when Indian cricket’s governing body, the often-mocked Board of Control for Cricket in India (BCCI), declared the winning bidders in Mumbai on January 24 after using his financial muscle as one of the world’s wealthiest men by paying $111.9 million to buy the Mumbai team.

Kingfisher airlines owner Vijay Mallya paid $111.6 million for the Bangalore outfit and Bollywood superstar Shahrukh Khan pocketed the Kolkata team for $75 million.

The amounts paid out by India’s rich and famous dwarf the $76 million average size of mergers and acquisitions deals in India Inc’s global buying spree of companies in 2007.

The lowest winning bid, for the Jaipur IPL team, cost $67 million to Emerging Media, a consortium that includes media baron Rupert Murdoch’s son Lachlan and Hollywood star Russell Crowe. Russell Crowe’s cousin Martin Crowe was a former New Zealand cricket captain and a modern-day cricketing great.

Ninety bidders expressed interest in the IPL. Losers included ICICI, India’s largest privately owned bank, New Delhi-based real estate major DFL and Deutsche Bank.

Elite international cricket stars - Australians Adam Gilchrist, Shane Warne and Glenn McGrath, South African Mark Boucher and Sri Lankan bowling genius Muttiah Muralitharan are among those mentioned - are being signed up to play in the league when the inaugural season starts in April. They will join India’s top players and young domestic talent to feature in 59 day-night games scheduled for prime-time television.

The IPL features Twenty20 cricket, the game’s newest, shortest and most exciting version, which involves 20 six-ball overs a side and has already aroused unprecedented interest among marketers and found new audiences worldwide. The format is in stark contrast to the better-known, and on the face of it more leisurely, five-day international competitions.

The first Twenty20 World Cup in South Africa last year, won by India, was beamed to a newly expanded cricket audience that included China. Cricket, initially developed in England, has become a South Asian obsession, with a fierce following particularly in India, Pakistan, Sri Lanka and Bangladesh. Even Afghanistan has a budding national cricket team.

The IPL is a brainchild of two BCCI administrators - businessman Lalit Modi and Inderjit Singh Bindra, who is touted to be next chief executive officer of the Dubai-based global governing body, the International Cricket Council.

Bindra in 2005 had said that Indian cricket could be worth $2 billion within the next four years and of his plans to start a cricket league with privately owned teams, a cricket channel on the lines of soccer giant Manchester United’s MUTV. Bindra’s dreams are now well on the way to reality.

Lalit Modi, vice president of the BCCI, says that the BCCI had a value of $2 billion even before the formation of IPL. “IPL has taken it to another level,” said Modi. “In a few years each of our franchisees will be worth $400 million to $600 million each if things go as we have planned.”

Modi figures that if soccer’s English Premier League, with a fan base of 18 million people, can be worth more than $10 billion, the IPL is onto something much bigger. Said Modi, “With more than a billion people in our country, and where cricket is a religion, one can just imagine what the potential could be in the years to come.”

The money involved in IPL bids has surprised even the BCCI, which is a global powerhouse for the game, accounting for over 70% of worldwide revenues for cricket. The BCCI plans a workshop in the next few weeks to educate their new franchisees about the business - not least on how best to cash in on their new purchases.

“The revenue share model in years one to five is that 80% of the revenues from media rights are being redistributed back to the franchises, and 60% of the central sponsorship revenue,” said Modi. “The local revenues include important revenues such as the gate receipts, local sponsorship [eg of team shirts], licensing and merchandising, hospitality and franchise media outlets. All of our franchisees will receive expert guidance as to how to maximize the commercial and sporting potential of their investment.”

The young IPL is already one of the world’s richest sports leagues, not just Asia’s richest, said Anirban Blah, vice president of Globosports, a Bangalore-based sports management company headed by tennis player Mahesh Bhupathi, this year’s Australian Open mixed-doubles finalist. Globosports’ clientele includes 21-year-old Indian women’s tennis star Sania Mirza, recently ranked Asia’s No 1.

Blah said that IPL could be ranked after multi-billion dollar franchise leagues in the US - such as the National Basketball Association (NBA) league and the National Football league (NFL) - and major European soccer leagues such as the English Premier League and the German Bundesliga.

India’s IPL has made an impressive beginning, considering that the NBA’s New York Knicks team is valued at $600 million. Forbes magazine reported in December 2007 that the 30 NBA teams averaged revenues of $119 million.

Future riches beckon for the IPL, along the likes of the NBA signing a new eight-year $7.4 billion deal with Walt Disney and Time Warner. Income revenues for NBA include the NBA TV and a two-level NBA retail store in New York’s 5th Avenue.

The most famous sports team owner in recent times is probably Russian oil magnate Roman Abramovich, who bought English Premier League football team Chelsea in 2003 and spent $170 million to buy new players.

The current base salary for IPL players is $20,000, with bidding prices for top stars expected to cross $1 million. If his plans come true, Bindra predicts that top Indian cricketers such as Sachin Tendulkar will be earning upwards of $40 million annually.

Unlike traditional five-day Test matches now facing dwindling scheduling, marketing and spectator interest worldwide, Twenty20 games are packed into three hours, colorfully accompanied with disc jockeys playing rousing music, dancing cheer leaders, fire crackers lighting up night skies to celebrate boundary hits and sometimes even portable water pools for spectators to splash about in.

Indian marketers believe Twenty20 cricket is script-written for Indian audiences used to three-hour Bollywood movie dramas. Short-sighted cricket pundits like to sneer at Twenty20 cricket, but they similarly got it wrong when one-day cricket, now a vital part of the game, was born in the 1970s.

The Twenty20 format, first started in England in 2003 to shore up public interest in domestic cricket, was an instant hit, drawing new fans to cricket who had neither time nor inclination to spend days watching a single game. English county games that were watched by half a dozen spectators and a dog were drawing full houses to Twenty20 cricket, including new audiences among women and children.

A recent Indian Market Research Bureau survey commission by Outlook Business magazine reported overwhelming support for Twenty20 cricket among fans and leading advertisers. Nearly 79% of active cricket watchers chose Twenty20 cricket as their favorite format, 24% chose the longer one-day game and the bare remaining said they had time to watch the longest five-day Test match version of the game.

Ironically, the BCCI was the only major cricketing body that opposed entry of Twenty20 cricket into the international playing calendar, incorrectly believing that the shortest version of the game would translate to lesser advertising revenues.

The IPL being ranked among the world’s top sporting leagues sticks out as an incongruous status for the highly politicized BCCI, infamous for its amateurish, clumsy administration and lack of transparency. The BCCI is the only sporting body of its size in the world that does not have a full-time professional chief executive officer, a website, or even a full-time media manager.

Typical of BCCI heavy-handedness is its decision to ban for national selection players participating in the Indian Cricket League, the country’s first Twenty20 tournament started in 2007 by media baron Subhash Chandra Goel. Goel supposedly started the ICL after in reaction to the BCCI denying his Zee TV network telecast rights in 2005 despite being the highest bidder.

Sub-continental cricket is a fat honey pot attracting big money and political muscle men. President Pervez Musharraf finds time to preside over the Pakistan Cricket Board and India’s agriculture minister and major power broker, Sharad Pawar, is president of the BCCI and is among those touted to be next president of the International Cricket Council.

Market analysts have given the IPL a big thumbs-up. “Compare this [IPL] with say a hedge fund or a private equity partnership and you realize how good the deal is for BCCI,” commented India’s top business daily, Economic Times. “The general partners get 2% fees and 20-30% of profits. Here BCCI gets 20-40% of net income from TV and tournament rights, and it gets a whole lot of money from the teams for the right to play.”

Where all the money goes is another question, since the BCCI calls itself a non-profit body run by various “honorary” office bearers. Perhaps the likes of Modi and Bindra can make a difference by bringing greater professionalism and transparency into Asia’s richest sporting body.