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7,Institutional Area,Phase-II,Vasant Kunj,New Delhi 70 Website:www.srisiim.org Financial Management DM (307)
Project Report on
Cash Management in IPL
Submitted to: Dr. Bibhu Sahu
Submitted by: Sanchit Sharma Swetank chaturvedi
We Swetank Chaturvedi, sanchit sharma student of PGDM (2011-13) hereby declare that we have completed this project of Cash Management in IPL . The information submitted is true to the best of our knowledge.
Sanchit Sharma Swetank chaturvedi
This project report bears the imprint of many people and without their support it would not have existed. First of all I would like to express my sincere indepthness and profound sense of gratitude to my mentors whose continuous support in all manners had made me capable to complete this project. In the completion of this project report, I have received encouragement and support from various quarters, which need special mention. I owe the enormous intellectual debt towards my CMD Swami (Dr.) Parthasarthy and my faculty guide, Ms bibhu sahu for her guidance and enriching my thoughts in this field from different perspective. Last but not the least, I would like to take this opportunity to acknowledge my friend another faculty members for their motivation, teachings and guidance for making this project come to the present stage.
Sanchit sharma Swetank chaturvedi
1 2 3 4 5 6 7 8
Introduction Sources of Revenue Marketing Strategy Financial Details SWOT Analysis Effect Of Recession Effect on Indian Economy Bibliography
3 4 6 7 8 11 12 13
The Indian Premier League (often abbreviated as IPL), is a Twenty20 cricket competition initiated by the Board of Control for Cricket in India (BCCI) and supervised by BCCI Vice President Lalit Modi, Chairman & Commissioner for IPL. It presently includes 10 teams "franchises" consisting of players from different countries. It was started after altercation between the BCCI and the newly-created Indian Cricket League. The Indian Premier League's brand value was estimated to be around $4.13 billion (over Rs 18,000 crore) in 2010. According to global sports salaries review IPL is the second highest-paid league, based on first-team salaries on a pro-rata basis, only second to NBA league. It is calculated that average salary of IPL over a year is £2.5 million. In this paper a brief discussion is done about the marketing strategy, sources of revenue; effect Recession on IPL, Effect of IPL on Indian economy & various other financial details.
2. Sources of Revenue
India's biggest property developer DLF Group paid US$50 million to be the title sponsor of the tournament for 5 years from 2008 to 2013. Other five-year sponsorship agreements include a deal with motorcycle maker Hero Honda worth $22.5-million, one with PepsiCo worth $12.5-million, and a deal with beer and airline conglomerate Kingfisher at $26.5-million.
2.2 Television Rights
On 15 January 2008 it was announced that a consortium consisting of India's Sony Entertainment Television network and Singapore-based World Sport Group secured the global broadcasting rights of the Indian Premier League. The record deal has duration of ten years at a cost of US $1.026 billion. As part of the deal, the consortium will pay the BCCI US $918 million for the television broadcast rights and US $108 million for the promotion of the tournament. This deal was challenged in the Bombay High Court by IPL, and got the ruling on its side. After losing the battle in court, Sony Entertainment Television signed a new contract with BCCI with Sony Entertainment Television paying a staggering Rs. 8700 crores (87 billion) for 10 years. 20% of these proceeds would go to IPL, 8% as prize money and 72% would be distributed to the franchisees. The money would be distributed in these proportions until 2012, after which the IPL would go public and list its shares (But recently in March 2010, IPL decided not to go public).
Sony One HD
Regional Broadcast Rights
Global Rights, India Free-to-air HD and SD television in Australia. Owned by Network TEN.
Terms of Deal
10 years at Rs 8700 crores 5 years at AUD 10-15 Million.
2.3 Gate Receipts
In Season-I, ticket sales accounted for as low as 7 per cent of total revenues to around 15 per cent of total revenues for various teams. In season 2, most teams had planned an increase in their ticket prices and had intentions of applying a strict "no free tickets" regime. Internationally, ticket sales account for 15 per cent to 20 per cent of total revenues as a result of premium ticket sales and corporate boxes in addition to normal ticket sales.
2.4 Team Auctions
Eight franchises have collectively generated US $723.59 at an auction on 24th January with big industrialists and bollywood stars securing key city franchises. Top three money spinners were Mumbai franchise (bought by Anil Ambani’s Reliance India Ltd) for US $111.90 million, Bangalore franchise (bought by Vijay Mallaya’s UB group) US $ 111.7 million, and Hyderabad franchise (bought by Deccan Chronicle) for US $ 107 million.
City Bangalore Chennai Delhi Hyderabad Jaipur Kolkata Mohali Mumbai
Franchise Owner Cost (in US$ millions) Vijay Mallya’s UB group 111.6 India Cements 91 GMR Group 84 Deccan Chronicle 107 Emerging Media-led consortium 67 Shah Rukh Khan’s Red Chillies 75.09 Entertainment Preity Zinta, Ness Wadia & team 76 Mukesh Ambani’s Reliance India Limited 111.9
What makes IPL about marketing is its concept itself. It not began with cricket but with what consumer wants of cricket. A product is nothing but an intensification of all that is pleasurable about the thing. An object or an idea becomes a product when its existence becomes all about becoming desirable for consumption. In converting something into a marketable product we make it easily accessible, we bring together all the bits that the consumers really like and we package it attractively so as to seduce the senses. With IPL cricket now officially belongs to the people who can pay the owners, the sponsors, the spectators and the viewers.
3.1 Time line of IPL:
From the time the auction started there was a huge buzz which was created, much like the launch of any product. IPL across various media platforms, including television media. Newspapers, mobiles and the internet. Further there was a talk too to promote it at an international level and the whole BCCI campaign was around fun entertainment and total paise vasool, a clear positioning strategy. Taking the whole marketing concept further, IPL also had its shares of controversies all adding to spice of IPL. It has repackaged the sports into entertainment product with a view to maximize eyeballs. The league caught the fancy of people across the world with outstanding response from the noncricketing countries too. It was the media who has lapped up the product and taken its places. Every single market has appreciated the product. Thus IPL is said to be the Marketing Success of the Decade
IPL- an already a US$2b property was essentially an attempt to sell cricket as a reality show. The concept is yet to evolve and revenues though hard to predict would be numerous. It is likely that the three top teams could easily do revenues of Rs 3 billions per year in next three four years and all the teams are likely to turn profitable after two three years. Their Operating Profit Margins could range from 15- 20 %. Value unlocking for teams would happen through listing and P/E participation.
Cash Flow statements
In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. The cash flow statement is intended to 1. provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances 2. provide additional information for evaluating changes in assets, liabilities and equity 3. improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods 4. indicate the amount, timing and probability of future cash flows
The IPL is regarded as a special purpose vehicle of the parent, BCCI. BCCI will generate the maximum profit from IPL.
Cash Flow statement for BCCI
Year 1 Promotion cost (Rs. 100 crore) Franchises fee Rs. 2894 crore Earnings from central pool Rs 83.4 crore revenue Net Cash Flow Rs. 272.8 crore Upto year 10 (Rs. 432 crore) Rs 289.4 crore Rs. 1456 crore Rs. 4750 crore
Average cash flow statement of franchises in 1st years
Year 1 Avg Franchisee fee (Rs. 36 crore) Players cost (Rs. 20 crore) Other cost (Rs. 14 crore) Share from central pool revenue Rs. 41.7 crore Average share of price money Rs. 1.5 crore Earnings from local pool revenue Rs. 6.4 crore Net Cash Flow (Rs. 20 crore) As we can see from the table on an average the franchises have suffered a loss of Rs 20 crore in the first year. But in upcoming seasons the revenue will increase and the teams will be in profit. While the central pool revenue for the first year is Rs.417.2 crore, the 80% allocation for eight franchisees works out to Rs.333.76 crore, which will be shared by the eight franchisees. The allocation for the franchises from the central pool revenue will decline to 50% in the tenth year. Over 10 years, each franchisee will receive around Rs.300 crore from the central revenue pool
Each franchise will have a minimum of seven matches on home turf. Gate fees/stadium revenue from these matches will be retained by the franchise. Estimate based on 10,000 spectators per game at Rs.400 per ticket working out to Rs.2.8 crore for seven home matches.
The Indian Premier League (IPL) is based upon the Twenty20 cricket game which should be completed in 2 ½ hours. That means that is fast-paced and exciting, and moreover it can be played on a weekday evening or weekend afternoon. That makes it very appealing as a mass sport, just like American Football, Basketball and Soccer. It is appealing as a spectator sport, as well to TV audiences. The IPL has employed economists to structure its lead so that revenue is maximized. The more unified the sport, the more successful it is.
Twenty20 has been so popular that it could replace other forms of cricket i.e. damage the game that generated it. Some fans will also have to pay for travel to the ground. There may be large queues for the most popular games. There may be some distance between where the fan lives and the cricket ground. Stakes are very high! Some teams may not weather short-term failures and may be too quick to get rid of key managers and players if things don't go well quickly. Famously, Royal Challengers Bangalore (RCB) sacked their CEO Charu Sharma for watching his team lose 6 from their first 8 games. Some teams have overpriced their advertising/sponsorship in order to gain some short-term returns (e.g. Royal Challengers), and some sponsors and are moving their investment the more reasonably priced teams.
Since it has a large potential mass audience, IPL is very attractive as a marketing communications opportunity, especially for advertisers and sponsors.
The league functions under a number of franchises. Each franchisee is responsible for marketing its team to gain as large a fan-base as possible. The long-term success of all of the franchises lies in the generation of a solid fan-base. The fan-base will generate large TV revenues. Different fans will pay different amounts to watch their sport. There will be corporate hospitality, season tickets, away tickets, TV pay-per-view and other ways to segment the market for the IPL. There is a huge opportunity for merchandising e.g. sales of shirts, credit cards and other fan memorabilia. Grounds can also sell refreshments and other services during the games. Marketers believe that the teenage segments need to be targeted so that they become the long-term fan-base. Their parents and older cricket fans may prefer the longer, more traditional game. The youth market may also impress on their parents that they want them to buy their club's merchandise on their behalf - as a differentiator or status symbol. Franchise fees will remain fixed for the up until 2017-18, which means that the investment is safe against inflation which is traditionally relatively high in India.
The level of competition that the Board of Control for Cricket in India (BCCI) can generate determines long-term viability of the league. If the level of competition drops, then revenue will fall. For example, if the top names in cricket cannot be attracted to India, the appeal of the game will fall. Often getting hold of the big names is a problem - Australian domestic cricket runs concurrent with the IPL and if players move form Australia to India to follow the money then their domestic game will be hit. This is known as 'Free Agency.' If the franchisee's fan-base does not generate income then they may not have the cash to pay the salaries of the best players. However, if you invest in the best players and they do not win the trophies, then you may not see a return on your investment. It won't be a quick return on investment - so owners need to be in it for the long-term. Franchises are very expensive. The most expensive franchise - Mumbai Indians - was bought by Mukesh Ambani for $111.9 million, whereas the lowest priced franchise Rajasthan Royals was picked up by Manoj Badale for a mere $67 million. The most highly priced teams may not be those that have the early success. Revenues will come from the most highly supported teams.
Effect of Recession
India has posted a GDP growth (revised) of 9.0 %; the present inflation rate is 8.1 %. The Government is jittery...the common man is upset...the middle class is squeezed between rising prices and increasing lending rates (especially those who had taken home loans). All these have not affected Indians from watching Indian Premier League Cricket Matches for forty four days continuously over the TV or in the stadia. People do not hesitate paying Rs.1000/= for a ticket. The expected TV viewership for today's final is about 50 million in India alone. The IPL has viewers all over the world, especially the cricket playing countries, and where people from Commonwealth Countries live.
Effect of IPL on Indian economy
The Indian Premier League has made the BCCI richer, the broadcasters are smiling, and the fans aren't complaining either. As for the franchisees, some are still wondering when they are going to break even, but the others are happy with the eyeballs and the brandbuilding. With two more teams set to join next year, TOI-Crest tries to make sense of the economics of the IPL: The key attraction, of course, is the presence of virtually the who's who of the game; there may be a few who are not here in flesh and blood, thanks to their national commitments or injuries, but their minds and hearts are surely here. Nobody wants to miss the IPL action, or perhaps the mega bucks. Yes big bucks.
And that is precisely what raises the big question: Can the IPL sustain itself? Is there enough money and interest in the market to keep it going, year after year, day after day? As the cynics point out, sooner or later, the fatigue factor will set in: how much cricket can you take anyway? If the last eight days are any indication, however, the fans are not yet done: they still want a piece of the IPL cake. Stands are packed for almost every match; the clamour for complimentaries and tickets is only rising; the crowds in front of television sets are just not disappearing. These might be early days though; give it another week or two and it will probably become another part of our lives, a not so important one. Of course, interest will peak again as the tournament enters the final phase, when the rush for the semifinal spots becomes frantic. As the world watches with astonishment, another set of important questions rears itself: who is making the big bucks really? The players? Yes. The BCCI? Definitely. The television channel? Probably. The franchises? Maybe not. "The inaugural match at the DYP Stadium on March 12 notched up a TVR of 10. In 2008, it was 5 while in 2009 it went up to 7," reveals an expert. Clearly, the ratings are improving by the year. More significantly, "The overall ad-spend during IPL telecast is expected to rise from Rs 5 billion in 2009 to Rs 7 billion this year. "We expect the gross profits of all teams to be in the range of Rs 190 million to Rs 430 million," says the India Infoline report The bigger problem will arise when two more teams are added into the IPL family. At a base price of $225 million, the new entrants will really have to scrounge around, just to break even. As the final price is expected to go up to about $250 million, it is only likely to be
a bitter fight for the last penny in the market.
"I don't really know how sustainable it is going to be to buy a franchise at such a high cost,"' says Aluri Srinivasa Rao, Managing Director of Morgan Stanley private equity. Rao, incidentally, had fronted the bid for ICICI ventures in 2008 when the first ever bidding for franchisees took place. He eventually backed out though. "In 2008 itself, with a base price of $50m, we thought that franchisees would not be able to break even, even after the first four or five years. Now, at $225m, I don't see how the cash flow is going to add up," he argues. When the IPL becomes a 10-team affair, there will be as many as 28 matches more to contend with. The overall tally will go up to 94; that is not so significant in itself. The problem is that the window allotted for the event is not going to change: all the games will still have to be completed in 45 days. In simpler terms, it means two matches per day, and on occasions three too. If you thought six hours of cricket was too much, what do you make of 11 hours in a day? The real killing, however, will be made by the so-called cheaper teams: their valuations have already gone up impressively. For Rajasthan Royals (bought for $67m), Kolkata Knight Riders ($75m) and Kings XI Punjab ($76m), the overall valuation of the tournament going up by almost 200 per cent is something to be really happy about. . As per the original revenue allocation plan, the franchisees were guaranteed 80 per cent of the television rights money for the first three years. Funnily, the money was divided equally between all the teams, irrespective of the amount they paid to become the owner. The same goes for the new teams, who are expected to shell out anything up to $ 250 million. The BCCI is, of course, laughing all the way to the bank. Its profit for 2010, according to reports, is expected to touch the Rs 700-crore mark; that works out to over 25 per cent higher than what it made last year and 37 per cent more than it made in 2008. By bringing in the likes of Google (YouTube.com), a flurry of mobile companies and a general entertainment channel too on board, IPL commissioner Lalit Modi seems to be milking the cash cow all the way. SetMax (now Multi Screen Media) too announced that it is expecting revenues to the tune of Rs 650 crore this year - a claim substantiated by experts; it had apparently sold almost 80 per cent of its inventory even before IPL III began. The IIFL report too underlines that this year more than just one franchise might show a profit. After all, individual sponsorships per franchise, in-stadia advertising and media tie-ups have shot up. Maybe, there is a method behind all the madness at the stadiums. Maybe, the numbers are really adding up.
Mumbai The Maharashtra government will levy entertainment tax on T-20 matches conducted by the Indian Premier League (IPL) in the state. A decision to this effect was taken at a meeting of the state cabinet chaired by Chief Minister Ashok Chavan today, official sources said. While the quantum of tax for matches held in Mumbai will be 25 per cent of the revenue generated from the event, for those played at venues located within the jurisdiction of other municipal corporations it will range between 15 and 20 per cent.
Meanwhile, reacting to the state government’s decision IPL Chairman and Commissioner Lalit Modi told reporters at a media conference that the league had no issues over it. “It is not an issue at all. If there is an entertainment tax, we will pay it,” he said. The IPL had held the auction for the third edition of the league here yesterday.Owners of the franchises include a leading Bollywood actor, one of the world's richest men and a Formula One team boss.
The commercial success of the first edition saw the IPL contribute close to 1 billion rupees ($19.65 million) to the exchequer last year, but the BCCI does not expect to make much profit during the second edition due to huge extra costs involved.
The Board of Control for Cricket in India (BCCI) wanted to stage the event overseas after failing to get government clearance for security cover as the tournament's dates clash with the country's general elections.
The IPL, which involves many of the world's leading players, was a huge success in its inaugural edition in cricket-crazy India last year, primarily because it is structured around city-based franchises with a fan base in home and away matches.
Some analysts feel the shift would eroded sizeable value from the Indian market for the second edition, adding to the woes from the global economic downturn.
The BCCI has reportedly sanctioned an initial $10 million to the league to cover the costs of the switch and is willing to triple that sum. It is also ready to underwrite a part of the franchises' expenditure. Indian media has speculated the loss of revenue to small ancillary firms, merchandising companies, local sponsors and entertainment companies alone could be between 500 million and 750 million rupees. The loss from gate receipts is estimated at over 500 million rupees.
VIEWS OF THE EXPERTS REGARDING EFFECT OF RECESSION ON IPL. Ness Wadia: Every business has to adapt to its external environment and King's XI will do so without compromising on quality or delivery in all that we do. Tim Wright: Delivering an outstanding in-stadium experience is crucial. We intend to put more into that this year. Manoj Badale: Franchises know they are still in the early stages of investing. We are not immune to recession, which will affect sponsorship and financing capacity; but we should not forget that over 80% revenues are guaranteed. B Vanchi: Recession will impact IPL. IPL is a business and it is unlikely that it will remain unaffected by the economic situation. I expect franchises to be restrained in their spending and show-casing of the event. R Balachandran: Key directions and foundation were set in the first season. Now some fine tuning and adjustments are needed. The need for adjustments and changes are not fundamental, but only incremental.
CALCULATION OF BRAND VALUES:
Brand values are a reflection of a brand‟s ability to generate future income. So this is a forward looking study that uses historic performance and future trends to predict future activity. The actual brand valuation calculation is relatively straight forward. It attempts to derive the amount the brand owner would be willing to pay for its brand if it did not already own it. This approach is called the relief from royalty methodology as it calculates how much the brand owner is relieved from paying by virtue of owning the brand. The more complicated parts are the components that contribute to the calculation. These three stages illustrate the process, simply:
1. FORECAST SALES Last years‟ historical sales data was gathered for each franchise brand. Despite their relatively short existence we have assumed that the brands have indefinite lives in line with the lives of brands in more established sport franchises such the English Premier League –11 of the 12 original members of The Football League formed in 1888 are still running. The compound annual growth rate (CAGR) is adjusted to reflect the brand‟s long term ability for growth. This reflects more accurately a brand‟s growth prospects based on its current and historical performance. 2. ROYALTY RATE To determine the strength of the brands, each brand was scored on three measures of brand strength, provided from qualitative panel data –owner equity, awareness and perception. Each brand was also measured on hard data including heritage, popularity, salience, loyalty, price premium and IPL record. The average of these two total scores (panel brand score and hard brand score) was then positioned between a royalty rate range. This determines a unique royalty rate for each brand. The royalty rate appears to be a simple percentage but in fact this hides the depth of understanding required to determine a rate that reflects accurately the profit/cash flow generated by the brand alone –separate from other elements of product delivery. 3. DISCOUNT RATE Future sales are then multiplied by the royalty rate and reduced at the relevant tax rate. They are then discounted to calculate the net present value of those future cash flows. The discount rate reflects the time value and risk attached to those cash flows and for the purpose of this exercise a 14% discount rate has been applied.
BRAND SCORES RANK
01 02 03 04 05 06 07 08
DELHI DAREDEVILS KINGS XI PUNJAB CHENNAI SUPER KINGS KOLKATA KNIGHT RIDERS MUMBAI INDIANS ROYAL CHALLENGERS BANGALORE RAJASTHAN ROYALS HYDERABAD DECCAN CHARGERS
55% 54% 53% 52% 51% 50% 47% 44%
IPL is a monumental incident which is indicating where the world economy is heading towards 21 st century. India is taking the driving seat slowly. The IPL is one of the indicators of it. Finally we Indians found the formula to make money, though for this a free outflow of cash was there but still it is a great revenue generating game. IPL soon might be turn out to be the super bowl of India. A player can earn from one session of IPL as much amount of money which he could earn for playing international cricket for five years. It is an indicator of the future of Indian economy which is rising slowly.
Bibliography • • •
Issues of Times of India Issues of Business Today http://en.wikipedia.org/wiki/Indian_Premier_League http://casestudy.co.in/economic-recession-effect-on-bollywoodand-ipl/2010/02/04/
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