Monday, January 28, 2008

IPL franchise deals

The kind of money coming into IPL is shocking.

First, the telecast rights. Sony Entertainment Television (SET) and World Sports Group (WSG) have come together to acquire the rights from IPL. Sony, at one time wanted to acquire a lot of cricket rights and held ICC world cup telecast rights for India. Later, Sony decided to quit cricket by not bidding for world cup rights in the subsequent years. World Sports Group was the entity (at that time, backed by Murdoch's News Corp), which had picked up the ICC rights and onsold the Indian rights to Sony then, through their vehicle Global Cricket Corporation (GCC). Subsequently Murdoch bought out GCC fully when there were financial troubles for WSG.

Now, WSG and Aony have come together again to acquire the IPL telecast rights at roughly $1 billion for 10 years. (Why are we still talking in dollar terms? US Dollar is going to keep falling, and surely it is in the interests of BCCI to peg the bid in INR?) Around $108 million will be spent on marketing and promotion (probably not including home ads shown in Sony network) and $908 million will be paid to IPL (BCCI).

This television money ($908 million) is not going to entirely go to BCCI. Instead, a substantial portion is going to be given to the team franchises.

That brings us to the franchise bids. Several wealthy businessmen and bollywood characters have bid large sums for owning city teams. Mukesh Ambani has picked up Mumbai. India Cements has picked up Chennai. (India Cements boss Srinivasan is also the treasurer of BCCI and this has made some people talk about conflict of interests. Given that his company has won the bid in a transparent manner, I think it is fair.) In all, eight city teams have been sold out for US$ 723.59 million. There are four more city franchises available, and no one has bought them so far - no one was willing to put up the reserve price of US$ 50 million.

Suppose the franchises get 80% of the television revenue for the first 3 years. The next 7 years, they will get around 60% of the television revenues. (I am not sure about the exact formula, but this is the best guess I can make out.) This would mean, on an average, each franchise will get back USD 6 million per year for the first 3 years and $4.5 million per year for the next 7 years. Thus, they will claw back US$ 50 million over the ten year period. I am assuming that each of the franchises will get equal television money. Instead, it could be through a more complicated formula.

The franchises will have to spend money hiring the players as well. There could be transfer rules like it exists in the US, UK professional leagues.


ICL - the rival league set up by Subash Chandra, in the meantime has had a few games but has not had major success in capturing the fan interest. The games should have been on a free to air television to really get more people interested. Instead it was on their pay channel in the metros. I didn't watch them.

ICL needs a very different idea to compete with IPL, which has support from the boards around the world as well as the ICC.

And to add to this, IPL has far more money and solid support from franchise owners, which ICL will have to struggle to get over the coming years.

PanIIT Mentoring Programme

I participated in the PanIIT Mentoring Programme held yesterday (Republic day) at IIT-Madras. This was an event conducted across 16 centres, with the intention of mentoring at least 1,000 prospective entrepreneurs.

I had the opportunity to interact with five people. Some had just started new ventures. Rest were in the process of quitting their regular jobs to start new ventures. I was glad I could offer them some directions based on my experience.

I think more such informal meetings should be organized.

At the end of the programme, ex-President Abdul Kalam addressed the gathering through a webcast link, from Hyderabad. He talked glowingly about Periyar PURA, one of the instances of his pet project. The Q&A at the end was a bit boring, though.