Will the IPL do a “Dhoni” for Indian brands?
The IPL is scheduled to be held in the UAE between September to November. With Indian brands having been largely struggling this year, it gives them a massive opportunity to push sales
It would not be too much of a stretch to describe financial services as an industry of “side bets”. Consider the Credit Default Swap, for example. It is a contract that pays out in case a particular company defaults on its debt. The beauty of the CDS is that neither the buyer or seller of the swap needs to have any interest in the company whose debt is referenced by the swap.
Once it had been conceptualised, the market for CDS grew rapidly. Having seen these “swaps” work on sovereign and corporate credit, investors extended them to other kinds of bonds as well - municipal bonds, mortgage backed securities, tranches of CDOs and what not. In fact, there is a school of thought that says that the 2008 Global Financial Crisis was as bad as it was because of the large number of “side bets” that bankers took on the instruments they had been trading on.
So, when they realised that some of the original instruments had been grossly mispriced, the side bets went massively awry. Lehman Brothers went down. Bear Stearns and AIG had to be bailed out. People lost jobs. People lost their homes. You know the story. If not, Andrew Ross Sorkin’s Too Big To Fail is a good book describing events that led to the crisis.
While side bets made and then unmade (to some extent) the financial derivatives industry, they are not exclusive to finance. In fact, side bets are key to several other aspects of life, and several companies exist to offer services that are sort of dependent on some independent events.
When we are in the middle of a global pandemic, it is easy to classify certain activities as “frivolous” or “non essential” and decide that they don’t need to take place. However, with each such bureaucratic decision on what is “essential”, we essentially put into jeopardy all the side bets that are based on the event, and all the livelihoods that are dependent on those.
Hence, when there are events on which lots of side bets ride on, every effort is made by the parties involved to make sure that the event goes on, in some way or another. This way, the impact on the side bets, and the livelihoods that depend on them, is mitigated.
Now that was a rather long preamble. It is really hard to know whether you know what we’re talking about so here goes - this edition of The Paper is about the Indian Premier League, and the decision to organise it between September and November in the UAE. And no, we are not talking about the kind of side bets that involve tucking towels into one’s waistband.
The 2020 Indian Premier League (IPL) will be played between September 19 and November 10 in the UAE. Brijesh Patel, the IPL Governing Council chairman, told ESPNcricinfo that the final could be played on November 8 or 10, with a definitive decision expected soon.
Even as the BCCI has set the ball rolling for relocating the IPL to the UAE, it still needs the nod of the Indian government. Earlier this week Patel had said that the permission "will come" and had confirmed Dubai, Abu Dhabi and Sharjah will be the three main venues for the tournament.
With the covid-19 situation not yet being under control in most of India, there were doubts over whether this year’s tournament would even happen. However, with the World T20 scheduled for this October being shifted to 2021, a window opened up for the IPL to be played, and the BCCI has decided to hold it in the UAE.
Why UAE, though? Essentially, it offers three high-quality grounds (at Dubai, Abu Dhabi and Sharjah) in close proximity and has also hosted the IPL once before (in 2014, thanks to a clash with national elections, the first half of the IPL was held in the UAE). Moreover, it offers high quality practice facilities and hotels to ensure a “bio-secure environment” for the players and officials. The UAE is also one of the few countries that still continues to have regular international air travel.
The Indian Express reports that with the covid-19 situation being under control in the UAE, there is even a small chance that spectators might be allowed to watch games (albeit with a reduced capacity).
The same article has more about the economics of the IPL, and how staging it in a foreign country, possibly behind closed doors, could affect the economics.
Usually, gate revenue is around Rs 250 crore, eight franchises combined. According to an official, each IPL franchise is going to lose at least Rs 15-20 crore if the tournament is played behind closed doors.
So from the point of view of the BCCI and host broadcaster, it doesn’t matter much if the IPL matches are played before empty stands. The same applies to the IPL franchises, too. But as a franchise CEO put it, “in the middle of an economic recession caused by the pandemic, overall sponsorship revenue will come down by 10-15 per cent”. According to industry estimates, the eight franchises in total are expected to earn sponsorship revenue worth Rs 450-500 crore.
That the IPL is likely to go through represents a huge sense of relief for the BCCI, which stands to lose more than ₹3000 crore (₹30 billion, or $400 million) if the tournament doesn’t go through. The Indian Express article has more numbers:
Star, the host broadcaster, pays the Board Rs 3,270 crore per year, which the latter shares with the franchises in a 50:50 ratio. So the BCCI would have suffered a broadcast revenue loss north of Rs 1,500 crore. Vivo, the IPL’s title sponsor, gives the BCCI Rs 439 crore per year, while Dream11, the IPL’s official partner, forks out Rs 161 crore annually.
Putting the numbers together, broadcast revenue for the eight franchises put together stands at ₹1635 Crore. Sponsorship revenues will be around ₹450 -500 crore (a third of TV rights). If gate receipts are of the order of ₹250 crores (all franchises put together), that accounts for about 9.5% of the total revenues (about ₹2350). Other revenue streams such as merchandise sales, which are important contributors to revenues in sports such as football, contribute a negligible amount to IPL franchise revenues.
In the larger scheme of things, given that this year’s IPL almost didn’t happen, a 10% dip in revenues should be bearable for the franchises (though they might face higher costs thanks to the event being in the UAE).
The Fifth Quarter
Teams aside, marketers are thrilled that the IPL is likely to go through, and in what is the peak “festive season” in India. With non-stop daily prime time action for the better part of two months, the IPL has represented a great opportunity for marketers to build their brands.
This article is from March, when the IPL was supposed to have originally begun, but the message stays the same.
At times, it is scarcely believable that the VIVOIndian Premier League (IPL) is only a 12-year-old tournament. When compared to some of the world’s biggest and oldest sporting leagues, the VIVO IPL is very young. Yet, the mega-event has managed to command a humongous audience and carve a unique niche in the annual cricket calendar.
The numbers back the VIVO IPL’s place as a juggernaut in the cricket world. According to Broadcast Audience Research Council’s (BARC) findings post the 2019 season, the overall viewership for the tournament jumped up by 12 percent when compared to the previous year.
The article, which is a “Brand Connect Initiative” (in other words, an advertorial, so take with a bucket of salt), goes on to list campaigns designed around the IPL that have made an impact.
Here is another article (hopefully not an advertorial - it doesn’t mention anything to that effect) that lists eleven memorable IPL campaigns.
Back to this season, there is optimism that spending will be completely back to normal (from the pandemic-induced lows) by the time the IPL comes around, and that it will present marketers an opportunity to make up for lost sales in the earlier part of the year.
While the average spends in April was almost 55-60% lower than the pre-Covid period, it was only 28-30% for June and the numbers for July and plans for August look better, indicate top media agency executives. The view of the rest of 2020 is looking up due to the addition of cricket to the ‘Fifth Quarter’, an informal name for the festive season.
Rahul Deorah, VP - marketing of home services brand Urban Company, which had actively advertised during the last edition of IPL, says it is difficult to crystal ball the future right now. However, he says, “IPL should add excitement to an otherwise grim and lacklustre year. It should lift the spirits of consumers and the market, hopefully improving economic activity.”
Speaking exclusively to The Paper, Rashi Goel, Marketing and Communications Director, Nestle India, said:
IPL is like the super bowl of India and hence the outreach to consumers through this platform does enable scale reach for brands. Given the lockdown situation and that many people will still avoid going out, I believe this year, IPL viewership on TV and OTT mediums should be at an all-time high.
Brands would need to work extra hard to run advertising that breaks clutter as most mass brands would want to be present on this platform. Having said that, for the same reason, I would imagine only brands that already enjoy high salience should be advertising on IPL to further build on existing consideration.
Following the 2019 season, the brand value of the IPL was estimated around $6.8 billion (or ₹47,500 crores) according to an analysis by Duff & Phelps. This represents a 110% growth from 2014, when the same organisation had valued the IPL brand at $3.2 billion. The most valued brand belongs to Mumbai Indians (MI), who pipped Chennai Super Kings (CSK) to the 2019 title in a dramatic last-ball finish.
MI’s brand was pegged at ₹809 Crore ($108 million) at the end of the 2019 season, with CSK coming in second place at ₹732 Crore ($98 million). At the other end of the spectrum, the brand of Rajasthan Royals, who had won the inaugural edition in 2008 but whose performances have since fallen away, are valued at only ₹271 Crore ($36 million) - a third of MI’s brand value.
Like with everything else to do with India’s business nowadays, the IPL will be played under the shadow of the border conflict with China. You might recall that India has banned 59 Chinese apps and held up goods from China at customs to express dissatisfaction with China’s incursion into India’s borders in Ladakh. The title sponsor of the IPL is Chinese mobile brand Vivo, and there are calls from some team owners to sever ties with Chinese sponsors.
Kings XI Punjab’s co-owner Ness Wadia has called for a gradual end to Chinese sponsorship in the Indian Premier League amid escalating tensions between the two countries owing to the violent clash in eastern Ladakh earlier this month.
“We should do it (sever ties with Chinese sponsors in IPL) for the sake of the nation. Country comes first, money is secondary. And it is the Indian Premier League, not the Chinese Premier League. It should lead by example and show the way,” Wadia told PTI on Tuesday.
However, there are more practical matters at play, including termination agreements that are part of the contracts. So it seems unlikely that the BCCI will chuck Vivo out of this year’s IPL sponsorship.
“We said we will review sponsorship. Review means that we need to check all the modalities of the contract. If the ‘Exit Clause’ favours VIVO more, why should we terminate a Rs 440 crore per year contract. We will only terminate if ‘Exit Clause’ favours us,” he added.
It is learnt, some BCCI are officials are of the view that unless VIVO backs out on its own in prevailing circumstances, the board should honour the remainder of the contract, which ends in 2022.
Sudden termination of contract could mean that BCCI may have to cough up substantial compensation.
Also, there is no guarantee that BCCI will get a short-time matcher in such an economically hostile environment.
Critics of the IPL have maintained that it is all about money and not about cricket. Supporters of the IPL have pointed out how the money involved makes it a fairer game, providing cricketers better opportunity.
As things stand, IPL in the Emirates seems like a win-win-win all round. Cricketers are going to get an opportunity to perform. Indian brands, struggling under the pandemic-induced slowdown, get a massive opportunity to reach the consumer. Cricket fans, so starved of cricket during the pandemic, will have two months of non-stop action to look forward to. And a Chinese brand will continue to lead sponsorship of India’s largest annual event.
We only need to hope that the tournament goes through in a safe manner, and no cricketer gets affected by the pandemic in the course of a tournament. There is way too much riding on it.