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Indian Premier League (IPL) : Participate in A Media Property of The Future - India Cements LTD
Indian Premier League (IPL) : Participate in A Media Property of The Future - India Cements LTD
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Opening doors to the next big media movement
Indian Premier League ushers in a new era of marketing
of sports in India. We take this opportunity to analyze
IPL and compare it with leagues like EPL and ICL
(Indian Cricket League).
IPL- already a US$2bn property, is essentially an
attempt to sell cricket as a reality show. Creation of club
culture – would be key to its success. Nevertheless IPL
provides a new entertainment genre which cuts across
classes.
Some of the franchisee would look at IPL as a means to
promote their brand (UB group) while the others would
look it as a financial investment e.g. (India Cements).
The concept is yet to evolve and revenues streams
though difficult to predict would be numerous. Our belief
is that the three successful teams could easily do
revenues of Rs3bn per year in the next three-four years
and all the teams are likely to turn profitable after two-
three years. Their OPMs could range from 15-20%.
Value unlocking for teams would happen through listing
and P/E participation. The world over, average teams
like Tottheham Hotspurs are trading at a 1.5X sales
while a successful team like Manchester have been sold
for 2-5X sales.
Investors looking for an exposure to IPL should look at
investing in India Cements Ltd. We believe that the
company would be EBIDTA positive in the first year. On
conservative basis, it is likely to earn a turnover of
Rs3bn from IPL in the next three-four years. Assuming a
m cap/sales multiple of 2X, the value per share would
be Rs20.
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Key features of IPL
The Indian Premier League or IPL is a 20-20 format cricket tournament. This league was formed by the Board of
Cricket Control of India (BCCI) and sanctioned by the International Cricket Committee (ICC).
IPL has been conceived on the lines of the English premier league, where local football teams with a defined fan base
(supporters) play against each other.
The idea behind IPL is to sell cricket as a high involvement reality show that would appeal to all audiences.
IPL has eight teams sold to franchises for perpetuity. These franchises can run the league in their individual styles and
can raise resources from the primary market. The teams have been capped at 10 – with one at the end of every three
years.
SONY-WSG has bagged broadcasting rights for 10 years for US$918mn, excluding marketing for US$108mn.
The franchise amount collected is US$724mn, with each of the clubs being sold for US$67-112mn, depending on the
city.
Besides acquiring teams, each of these franchises has spent US$6-7mn on acquiring players for their teams.
A total of 59 matches, including finals and semi–finals will be played in this season. (56 league matches plus two semi
finals and one final). 7 matches are to be played on the home ground.
Its final leg will be called ‘Champions Twenty20 League’ and all the finalists from across the world will play in it. The
champion team will get US$5mn – the highest ever price money in a cricket event.
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20
Sports
ESPN-
15 “The key brand values of Twenty20 and the IPL e.g. Modern, Racy,
Star
Sports
Sports
ESPN-
Star
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Traditional, Gentlemanly - make for an extraordinarily and
0 compelling mix for brands”.
ICC world Twenty ICC world Twenty India vs Pakistan English vs India
20 Average 20 India matches ODI series average Test series average
tournament
Source: IPL
“In England, where it was first introduced in 2003, Twenty20 has resuscitated a moribund domestic game, packing stadiums on summer evenings"
The Economist, September 22nd 2007 3
The broadcasting angle
The BCCI created history when it sold television rights of this yet untested format to Sony–World Sports consortium
for US$1.02bn.
However, of this US$1.02bn, US$108mn is to be spent by Sony on promoting the event over the next 10 years. This
brings down the actual cost to US$918mn.
Of this US$918mn, Sony has to pay US316mn for rights of broadcasting for the first five years, and then pay
US608mn – if this format has been remunerative in the first five years.
In the first year, payouts are not dependent on TRPs. However, TRPs would drive payouts from the second year.
The franchisee have a share of 80% in the first year decreasing to 60% in the fifth year of broadcasting rights
and the balance would go to IPL.
There is an overall cap of US$918mn on the rights which can be shared with the franchisees.
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Minimum cash outflows for franchises
Owners City Price paid for team Cash outflow per year Price of Players Team cash outflow per
franchise (US$ mn) (US$ mn) year
(US$ mn) (US$ mn)
Preity Zinta/Ness
Mohali 76 7.6 6.6 14.2
Wadia/Burman
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What comes in and goes out?
Revenues Expenses
World over, any league has three main sources of Team franchising costs – A franchisee has to pay 10%
income namely media receipts, gate receipts and
sponsorships. Under IPL, these three streams are of total franchisee costs every year to IPL. Assuming that
categorized under central and local. Central a team is bought by a franchise at US$100mn – it would
revenues are through IPL. have to pay US$10mn per year to IPL.
Central
Player costs – Franchisees have acquired players at a
Media rights – To be shared equally amongst total cost of US$4-6mn per year. This includes cost of
franchises after removing IPL’s share.
managers and coaches. Each franchise has 18-22
Sponsorship rights (IPL sponsors) – 60% of players who are tradable after a year. The players have a
the amount collected to be distributed equally three year contract with the franchise.
amongst the franchises.
Marketing costs – Each franchise is expected to incur a
Local
marketing cost of US$3-4mn for promoting its team.
Sponsorships – Team sponsorship revenues
are the most variable and are dependent on the Stadium expenses – The franchises have to contract
marketing skills. For example, teams like India stadiums for seven matches at BCCI agreed rates. On an
Cements have marketed their teams based on average, the expense is Rs2.5mn per match.
the format of IPL – where sponsorships are sold
on categories. ICL’s main sponsor is Aircel. In
contrast, the other team of Deccan Chronicle will Other expenses like administration and event
have team partners. These partners will have management.
ownership of the team. For example, in case of
an entertainment partner, anything to do with
entertainment from cheerleaders to fours and
sixes will be seen by that party.
Gate receipts – Are anticipated to be a major
source of revenues. 20% of tickets are to be
allocated to IPL.
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P&L of a franchise - The business of sport
Rs mn Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Income
Media rights (% share) 80 80 70 70 60 60 60 60 60 60
Global media rights 245 245 214 214 184 367 367 367 367 367
Sponsorships (IPL)
Other sponsorships 72 72 72 72 72 144 144 144 144 144
Gate receipts
Ticket sales 154 200 260 338 440 528 633 728 838 963
F&B 31 46 69 104 156 172 189 208 228 251
Team sponsorships
Shirt sponsorship 50 80 104 135 162 178 196 216 238 261
Lead sponsor 150 180 216 432 497 571 857 943 1037 1348
In stadia advertising 100 150 210 263 315 362 417 479 551 634
Licensing programme 20 40 46 53 61 67 74 81 89 98
Merchandising 30 50 58 66 76 84 92 101 111 122
Appearances 50 70 95 123 154 184 221 265 318 366
Total 902 1133 1344 1800 2116 2657 3190 3532 3921 4555
Expense
Franchisee costs 400 400 400 400 400 400 400 400 400 400
Player acquisition 240 312 406 608 791 1028 1542 1851 2221 2887
Marketing 120 150 188 234 293 337 387 426 490 564
Administration 80 96 115 138 166 191 219 252 290 334
Event management expenses 20 23 26 30 35 40 46 53 61 70
Stadium management 1.8 2 2 3 3 4 4 5 5 6
Total 862 983 1137 1414 1688 2000 2599 2987 3468 4261
Operating profit 40 150 207 386 428 658 590 545 453 294
OPM 4% 13% 15% 21% 20% 25% 19% 15% 12% 6%
EBIT 40 150 207 386 428 658 590 545 453 294
Source: Alchemy 7
Assumptions for our model
80% media rights will be paid to the franchises in equal proportions and 20% will be based on final league
positions. However, in our model, we have assumed them to be distributed, equally.
The media rights accrue to teams in the formula, with a re-pricing after five years as per the Sony-WSG
contact.
For central and team sponsors, we have assumed renegotiation of contract every five years and three
years, respectively, in keeping with the nature of deals signed by most teams.
Since players are contracted for three years, we have assumed a renegotiation in salaries after it.
We have not assumed any debt in the financing of the leagues. Further, interest on working capital loans
would not be significant hence we have not considered the same. The asset is likely to be treated as an
intangible asset.
Year 3 70
Year 4 70
Year 5-10 60
Year 11 onwards 70
Source: IPL
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India Cements Ltd - An opportunity to play on IPL
Year 1 share (%) Rs mn
Revenues
Revenues thru IPL The matches are to be held at the Chidambaram stadium in Chennai
which have a capacity of 50,000. 20% of the tickets would be offered to
Broadcasting rights
the local cricket associations for use of the stadium for seven league
SET 60% 275 matches .
Other sponsorships 70% 69 We have assumed 80% capacity utilization for matches and average
Pouring sponsors 100% 13 ticket prices of Rs500. We have assumed the collection to be about half
Total 357
of that in a normal ODI .
Team sponsors Aircel is its lead sponsor, who has paid Rs150mn for it. Sponsorship
includes cap, leading arm, shirt center, six in- stadia boards.
Main sponsor 150
Co-sponsors 50
Of the total 72 in-stadia boards, a sixth are available to the local
franchises. Of the 12, 6 would go to main team sponsor.
Cheer leader, mascots 30
The remaining boards are expected to generate ~Rs0.8mn per board.
Merchandising 20
Total 250
Besides playing matches for teams, players are also contracted to
make appearances for the franchises for 10 days and eight hours a
Gate receipts 80% 128 day .
Total revenues 735
Expenses
Expenses
The franchisee has spent Rs240mn on acquiring its team including
Franchisee 360
players, manager, coach and physiotherapists.
Team 240
The marketing expenses for events including local and national
Advertising 70 advertising are assumed at Rs70mn.
Admin 60
Conclusion
Total 730
Net profit/loss 5
On conservative basis, India Cements is likely to do turnover of Rs3bn
from IPL in the next 3-4 years. Assuming mcap/sales multiple of 2X, the
Source: Company, Alchemy value per share would be Rs20.
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International perspective
We have analysed the business models of various clubs from the English Premier League like Tottenham
Hotspurs, Liverpool and Arsenal.
These clubs usually own their stadiums and invest heavily into modernizing/constructing stadiums and training
their teams.
Most of these leagues are more than 100 years old and have a strong and established local fan base.
These clubs also have high community involvement and offer training facilities for upcoming players and children
in the area.
However lately some league matches have been telecast with players and teams finding support overseas in
countries like China and the Middle East.
Growth in revenues is largely dependant on the on field performance of the teams, nevertheless all teams have
had positive EBIDTA
Recently some of these leagues have been sold/ bought by individuals. The valuations received by these leagues
depend on their success on field and from 1.5X to 5X sales.
Source: IPL
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EPL – A case study
Structure of EPL IPL versus EPL
EPL has 20 teams and its top five teams qualify for the In IPL, media revenues for all teams would
European cup. be almost EQUAL, internationally they vary
depending on the success of the league.
We analyzed a few of teams and found that
Gate revenues in IPL are largely dependent
~35% revenues are from gate receipts on stadium capacity and purchasing power
of city. They are expected to vary between
~30% from media
Rs200-Rs5,000 premium seating. 20% of
~25% from sponsorships tickets will go to IPL. Internationally, most of
these teams own stadiums.
However, though this revenue break-up is similar across most
clubs, the depending on the popularity of the club the amount The club culture already existed in the West.
differs significantly. In India, it is yet to develop. This would be a
litmus test for IPL’s success.
The total revenues of three of the total 20 clubs are given below:
Trading of players in IPL to start from year 2.
Arsenal- £177mn
Tottenham -£103mn
Revenue break up for Tottenhan Hotspurs
Birmingham City -£40mn
7 6
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Concept of trading players - Trading of players is another big
source of income for teams. Sometimes, it can also result in a
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loss. 25
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Case study 1: Tottenham Hotspurs
Totteham was not the top rated club but it entered the top five in 2006 and qualified for the European Cup.
This had a positive impact on its revenues from 2007 which increased by 28%. The main jump was in gate
receipts which were up 43% as the clubs earned a revenue share from its international games. There was also a
25% increase in its sponsorship revenues which is attributed to its increased popularity on an international level.
It has to be noted that even in a bad year, the company’s OPM was always positive.
The debt for CY07 was £40mn, implying debt to equity of 0.83:1
Expenses
OPM(%) 19 19 9 34
ICL initially had six teams which have now increased to eight (over 200 players). All these teams were owned
by Subhash Chandra unlike the eight teams in IPL owned by different franchises.
ICL is scheduled to have four tournaments in an year, of which three are televised events while IPL has only
one season.
ICL has evolved despite several constraints like unavailability of venues and professionals associated with ICC.
The first season was telecast on Zee Sports and was held in one venue.
The second season was more successful as ICL was able to secure three venues for 24 matches. ICL was
able to telecast matches on Zee Sports and Ten Sports. Other telecasters include Geo Super in Pakistan,
Astro & Telkom Malaysia, Starhub in Singapore, Showtime Arabia in Middle-East, Zee Sports in USA &
Canada and Zee Cinema in United Kingdom & Europe. Global rights have been sold for US$10mn.
Besides, the second tournament was able to garner good sponsors. Edelweiss was the title sponsor with
Rs150mn (for ten years) while JVC, Aircel, Vodafone and Intel were associate sponsors.
Stakes in teams like Kolkotta and Lahore have been sold to Mithun Chakraborthy and Moammar Rana,
respectively.
It had a TVR of 1.2. Its revenues till date have been Rs750mn and is expected to break even in FY09E.
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Impact of IPL on other media
TV GEC
IPL is scheduled to be telecast in the most sought after prime time slot of 8-11 pm. Currently, this
slot is the most popular among housewives for soaps aired on general entertainment channels
(GECs) like Star Plus, Zee and Set.
Most homes in India are single TV homes and it is likely that IPL will cause a dent in the ratings and
revenues of other GECs.
Not only will the Hindi GECs face problems, even regional channels which hitherto did not face
competition from national level reality shows are likely to take a big hit.
Channel Genre Average TRPS
Zee Soaps + Rock and Roll family 5 - 5.5
Star Soaps + Paachvi Pass (SRK) 4-5
9X Chak De Bacche+ Reality 0.7 - 1.35
NDTV Mythological + Drama 1.25 - 2.12
Source: Industry
Box Office
Besides impacting TV ratings, IPL fever could have a negative rub off on the revenues of movies at
the box office. Some of the moves expected to be released in the IPL season are U Me aur Hum,
Tashan, Krazzy 4 and Bhootnath.
But IPL is in talks with Multiplex operators to telecast the semi-finals and finals. No decision on the
same has been reached.
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Should one have an exposure to IPL?
The franchises are to be treated as a media property generating money over long time. The first season
would be most crucial as it would be a test whether there are takers for city rivalry.
Since, the 20-20 format has resurrected cricket in countries like England, the chances of it failing in India
are low.
ICL, promoted by Subhash Chandra, has completed two seasons successfully despite a quiet marketing
and constraints like availability of two-three stadiums only (which are not with BCCI). The finals generated a
TVR of 1.1 while most of its other matches generated TVRs of 0.7-0.9.
Amongst listed players, India Cements, Deccan Chronicle and Reliance Industries have exposure to IPL.
Our study of India Cements shows that the company would have a cash break even in the first year itself.
Most of these companies would look at listing its franchises in the next three-four years.
Our analysis shows that the there would be at least two to three successful teams. On a conservative basis,
the teams can earn annual revenues of Rs3bn in the next three years and OPMs of 20-25%. Successful
teams can fetch a valuation of 2-5x sales.
The downside risks include teams not performing like India’s early exit in the World Cup 2007. However, in
the IPL format, as all franchises are guaranteed to play the full league season and there is no marketing
risk associated with early elimination. The top Indian and international players are distributed among all
teams and hence they will participate in semi final and finals. This is expected to ensure that IPL has
audiences across the world interested in it till the very end.
We have taken India Cements Ltd as a case study. We believe that the company would be EBIDTA positive
in the first year. Investors looking to have an exposure to IPL should look at investing in India Cements Ltd.
On conservative basis, India Cements is likely to do turnover of Rs3bn from IPL in the next 3-4 years.
Assuming mcap/sales multiple of 2X, the value per share would be Rs20.
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Growth in International Leagues
Franchisee Owner Year bought Value when bought 2007 revenue Value in 2007 CAGR (%)
(in $ mn) (in $mn)
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Teams - Annexure I
DECCAN CHAREGERS CHENNAI SUPER KINGS ROYAL CHALLENGERS RAJASTHAN ROYALS
PLAYERS PLAYERS PLAYERS PLAYERS
Shreevatas Gosawi
Vijay Kumar 18
Teams - Annexure I
DELHI DAREDEVILS KINGS XI PUNJAB MUMBAI INDIANS KNIGHT RIDERS
PLAYERS PLAYERS PLAYERS PLAYERS
Virender Sehwag Yuvraj Singh Sachin Tendulkar Saurav Ganguly
Gautam Gambhir Irfan Pathan Sanath Jayasuriya Ishant Sharma
Manoj Tiwary Brett Lee Harbhajan Singh Chris Gayle
Mohammed Asif K. Sangakkara Robin Uthappa B. McCullum
Daniel Vettori S. Sreesanth Shaun Pollock David Hussey
Dinesh Karthik M. Jayawardene Lasith Malinga Murali Kartik
Shoaib Malik Piyush Chawla Loots B Shoaib Akhtar
Glenn McGrath Ramnaresh Ashwell Prince Ricky Ponting
A B de Villiers Simon Dilhara Fernando Ajit Agarkar
T. Dilshan Ramesh Powar Abhishek Nayyar Umar Gul
Farveez Mahroof Luke P Manish Pandey Tatenda Taibu
Rajat Bhatia James Hopes Ajinkya Rahane Siddharth Kaul
Brett Geevs Ajitesh Agral Pinal shah Iqbal Abdulla
Shiikar Dhavan Kyle Mills Yogesh Takawale Salman Butt
Mahesh VRV Singh Saurabh Tiwari Mohd Hafeez
Mithum Manhas Tanmay Srivastava Ashish Nehra
Legand
Pradeep Karan Goel Luke Ronchi
Mayak Bowlers
Uday Kaul
Batsmen
All rounder
Wicket keepers
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Schedule of matches - Annexure II
Source: IPL
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