Economics of IPL

Now that the IPL saga has come to an end (or started depending upon which part of it you find more interesting: Cricket or controversies) I thought about writing this post to discuss the impact of IPL not just on Cricket but on us as individuals. The most striking thing about IPL has been the figures that we have seen. Before you head into the wrong direction let me clarify that I am not talking about the figures of cheerleaders who had the privilege of dancing in front of almost 40-50,000 people daily (something that even big actresses in Hindi film industry dream of). Though there were some matches where the stadium was emptier than my wallet and add to that some boring display of batting in a couple of matches which made it possible for cheerleaders to take some rest and even play a game of cards in between! However, I am talking about the financial figures which were unheard of in Cricket. One UK agency Brand Finance which put the brand value of EPL at around $12 billion put IPL’s value at around $2.01 billion in 2009 and $4.13 billion in 2010! Surprising thing about this is not the figure but the fact that EPL has been around for a while and IPL is only three-years old! It is difficult not to smell foul play in this as it is quite clear that as far as IPL is concerned it is a valuation game. It started with some moderate figures (have to call them moderate considering the current trends) where the most expensive team was Mumbai Indians ($112.9 Million). Even with players, Dhoni who was the most expensive player got around $1.5 Million which made news for weeks. There was also the concept of icon players who were not put up for auction (thank god we were not subjected to something like "Tendulkar sold for...!"). Icon players got 1.15 times the amount received by the highest earning member of their team. Laxman was one of them but he himself opted out (again thank god he did that as it would have been disturbing to see someone like him get more than Symonds or anyone else for that matter!). However this concept was discontinued from this year (finally sanity prevailed). Second year of IPL saw a few transfers between teams and auction of players like Kevin Pietersen and Andrew Flintoff for $1.55 Million each (i.e. higher than Dhoni). It was the 3rd IPL which saw bids going through the roof for players as well as for the new teams. Figures of these teams were astonishing to say the least: Pune franchise was sold to Sahara for $370 million and Kochi went to Rendezvous Sports World Limited for $333.33 million. So a total of $703.3 Million for two teams compared to $725.5 Million for eight teams! Accordingly these new teams will be paying up huge amount of annual fees: 10% of cost of franchise (very expensive maintenance, I must say, compared to old teams). Third IPL saw Bond going to KKR for $1.3 million and Pollard to MI for $2.75 million (whereas base price for him was just $200,000). Let's just put these figures in perspective: Pollard would get only $7, 50,000 of $2.75 million (a player can't get more than $7, 50,000 according to the rules) and the rest of the money will go to IPL. There was a tie for pollard at $7, 50,000 and then there was silent tie-break (read money-spinner for IPL) where the highest bid was made by MI. So MI got the player all right but the process is such that bids are bound to reach new heights every time there is a tie-break as the maximum price is kept at a relatively lower level inducing all teams to go up to that level and then for the tie-break and the way things are going you can rest assured that there are going to be more and more tie-breaks!

Ad rates went up like anything considering what the sponsors have paid this year compared to the last couple of years. Ad revenues for IPL 1 were around 300 crores, 450 crores for IPL 2 and, reports say, revenues for IPL 3 are around 750 crores. Ad rates were about Rs. 1-1.5 lacs (for a 10-second slot) for first season then it went up to Rs. 2.5 lacs in second and third season saw ad rates reaching the heights of 4.5-5 lacs. The 10-second slots were sold for almost 9-10 lacs for the finals in IPL 3, higher than the Rs 8 lacs for T20 World Cup final between India and Pakistan. One thing to be noted here is that the TRP for the World Cup Final was 9.21 whereas for IPL 3 it was much lower!! (One more example of over pricing) But still things are only going to get better for SET Max next year with the addition of two teams. Even if we assume that the ad rates will remain constant (which is very unlikely) the sponsors will have to shell out more as the number of matches will increase to 94 and according to the rules the sponsors have to buy some minimum seconds per match.

Now look at the impact of IPL on us. One simple rule is if somebody is earning money then somebody must be paying it. Let’s consider this from the perspective of IPL. When someone says that IPL has been a money-spinner for one and all, one question that deserves an answer is who pays them? Delving more into it we realize that money earned by IPL (going into central pool and then getting divided between franchise owners) comes from various sources like Gate receipts, In-stadium or On-ground advertising, Rights sold to Broadcasters etc. Now the money that is generated in the form of tickets is paid by us, which is perfectly fine (though there has been a steep increase in the price of tickets for IPL 3 compared to IPL 1). Now, what about the rest of the money (major chunk of IPL income) that comes from selling broadcasting and advertising rights. SET Max makes money like anything which is quite obvious from the figures given above. Companies (advertisers) don’t agree to pay up huge amount of money to the channel and for on-ground ads for nothing. Whatever money is spent by these companies (for Television ads, In-stadium, On-ground ads) becomes part of their marketing budget, I am sure. This marketing budget is part of an overall cost structure of any product or service. So when the margin on that product or service is decided, it would be over and above all the costs including the unbridled costs of marketing which will lead to a higher price. And surprising thing about all this is that we will be paying up for all this as we only consume all the products and services offered by these companies (read sponsors)!! We may not realize (or should I say mind) this when it will come to us in the form of increased prices. It will be interesting to compute IPL index to track this!

My objective is not to question the business model whose success is quite obvious and I have followed it all through (leaving office early in the name of customer visits!). I am game even if the next season of IPL starts next month! But what I want to convey through this post is that let’s just not consider it a success because of the quantum of money that is getting exchanged between a select few paid by all of us directly or indirectly. Let’s just give some credit ourselves who don’t mind paying that extra bit directly (tickets etc) or indirectly (increased prices of products). So IPL owes its success to us! So we all need to take a call here: Either we all agree to pay whatever is asked for in the form of ticket prices and increased prices of products without questioning it or we don’t (please note that we have no choice but to agree!). From the perspective of a viewer and consumer I just hope that IPL continues and continues for a long period of time. But for that to happen it needs to make sure that there is no overdose of Cricket (come on guys, brace yourselves for 94 matches next year!!) or commentators who can bore you to death with their commonplace comments like “I think they need to take early wickets” or “First few overs are going to be crucial” (especially of people like Atul Wassan who has taken 20-odd wickets in his bowling career at international level but always has some advice for players like Tendulkar!) and that valuation of players and teams are done rationally! Because unless this is done, I feel, it will become unsustainable for franchise, in their race to outbid each other, and for advertisers as well. They should not take the viewership numbers for granted. That is why I feel all the controversies surrounding IPL may turn out to be blessing in disguise for IPL as not many companies would like to be associated with a tainted league. I actually hope these controversies (discussed in detail below) turn out to be true so that IPL may lose a bit of bargaining power with stakeholders helping in turn to keep a check over money being exchanged and overall valuation (which seems exaggerated). This will be good for us (Cricket fans as well as consumers) at least! Till then its game on!
Controversies:

I am covering this topic separately as I don’t want the controversies part to mix with what I was trying to say, which is a different topic altogether. Recently IPL has been making news for all the wrong reasons. It all started with Lalit Modi tweeting as to how he was asked by Shashi Tharoor to not ask for ownership details of Kochi team. Sunanda Pushkar (a friend of Shashi Tharoor) got equity in the company when she was not entitled to it. So she was rightly asked to forfeit it. Then the news channels went crazy discussing ownership details of all teams, with some of then tracing their roots to Mauritius. (The problem with news channels is that when they are good to you they’ll talk about all your virtues even the ones you were not aware of, like they did with IPL and team owners. I remember one channel going to the extent out counting hugs given by Shilpa Shetty to her team members! And after this controversy they started questioning the Mauritius connection of all teams). I believe this is one issue which was blown out of proportion as even some well known companies have been using the Mauritius route of investment for a long time which entitles them to certain monetary benefits. So there was no need to get shocked on hearing this and make an issue out of it. After that, news came that IPL isn’t paying any taxes and working as a charitable organization (this may qualify as the joke of the century) and that it has been using all its earnings to promote the game of Cricket! There were also accusations of match fixing and betting. If all this is proved true then the league may lose some reputation for sure. Till then all is well, almost!
In case you have survived the whole post here’s some numbers for you.

Following information has been taken from newspaper articles and it is by no means exhaustive in fact there are newspapers quoting different figures. There are other sources for income as well for which information wasn’t found. So do share if you have any.

* Icon Player Concept (System removed from 2010)
They earn 15% more than highest earner in their team. Players covered: Sachin Tendulkar, Rahul Dravid, Sourav Ganguly, Yuvraj Singh, Virender Sehwag)
* Money going into the central pool to be divided in ratio of 40:54:6 for IPL:Franchise:Prize Money. Ratio after 2017 will change to 50:45:5.
* Broadcasting rights went to SET Max and WSG for Rs. 8700 Crores for 10 years. They re-sold parts of their rights in different countries.
* Kingfisher paid Rs. 106 crores for 5 years (Ads on Umpires)
* DLF Group US$50 million for 5 years
* Hero Honda $22.5-million for 5 years
* PepsiCo $12.5-million for 5 years
* Vodafone $25 Million (not sure about the duration)
* Rights for Mobile applications went to DCI Mobile Studios/Sigma Ventures of Singapore till 2017 (amount not known)
* Live Current Media Inc. won the rights to run IPL portals
* Contract with YouTube for 2 years
* Theatre rights went to UFO Moviez covering 1700 screens
* licensing deal with Colors for abour Rs. 600 crores for 3 years

Never seen something like this

Last Saturday I managed to leave office early as I had some personal work (read buying vegetables for my home). When I reached the vegetable market I felt almost the whole of India had come to buy vegetables in Ghatkopar. It was so crowded I am sure even air would have found it difficult to make its way through! Finally I was able to locate the vegetable that my mother had asked me to buy. This market is a long lane where vendors are situated on both sides covering almost all the shops behind them. When I was browsing through the stuff I realized that many people had gathered around that particular area. When asked, the vendor drew my attention to the nearby shop selling clothes. There was this guy standing outside the shop wearing a Sherwani, a crown of sorts on his head, hand gloves and what not. He was actually playing the role of a mannequin outside the shop. Every five seconds he would do a namaste to people standing outside and those coming to the shop as if welcoming them. Then the vendor told me that he had been doing this since 9 in the morning and had taken just two breaks for 15 minutes and it was already 7.30 in the evening! I was amazed to see this and so were the others who had actually started taking pictures and shooting with their cell phones. He was sweating like hell but still doing his namaste continuously aware of the fact that people were staring at him and taking his pictures just five feet away from him. I stood there for about 25 minutes and saw him doing it at regular intervals of about five seconds. He was so accurate and consistent with what he was doing that it was difficult to believe him as human. Finally I decided to leave praying nobody would ever have to do something like this and hoping that person would be paid adequately for this. Just when I started walking I came across another shop selling clothes. Window display of that shop had one amazing sight to offer: there was one light green shirt with a picture of a cartoon, never-seen-before, just below the pocket. The funny part is not this but the fact that there was a small board right on the shirt reading “Buy 3 FORMAL Shirts for Rs. 499”!!!

Train Journey part 2

Coming back to platform no. 7 of Kurla station, while I was waiting for my train yesterday, I saw one train carrying people from Panvel to CST for work. Thing that attracted my attention to that train was the ad printed all over it. It was the NSE ad saying “Engine that fuels a billion dreams”. It was a fitting tribute to that train engine carrying hundreds of people pursuing their dreams. Just when I was appreciating my sense of observation I was distracted by one couple who I bet is a case of extra marital affair. It is just the way they talk, look, and smile each other and the way people stare at them you can be sure that they are married but not to each other but still love each other! I make it a point to travel with them so that I can be a witness to their affair.
There are also some who have advice for Obama as to what should be his next step and how he should go about maintaining relations with India, Pakistan and Gulf. One more love story involves a gujju guy (I know he is a gujju as I have seen him laugh at a joke being shared by two gujjus sitting beside him) who boards the train from Kurla with his friend (who looks and sounds like a south Indian) and they are joined by one Maharashtrian girl (I know she is a maharashtrian as I have heard her talk on the phone with someone)) at chembur. Girl and that gujju guy say hi to each other and that is it. From then on the girl and that gujju guy would only talk to the other guy but never to each other. They get down at Nerul but between Chembur and Nerul I see them looking at each other at different points of time. One need not be the god of love to find out that they like each other but feel shy (a case very rare indeed nowadays, as sometimes people feel shy looking at couples!) talking to each other. And I have seen that other guy sometimes wink at the gujju guy as if asking him to talk to the girl but still I haven't seen them talk to each other apart from the daily 'hi". If you find this story interesting just give me a call I'll give you daily updates.
There are a couple of B-Schools that side whose students spend more time reading Economic Times than their textbooks (one reason why sales of Economic Times are increasing and number of pages getting Xeroxed is reaching new heights!). I forgot to mention a group of gujjus (five boys) who travel in the same train. I hate them more than I hate the dressing sense of Rakhi Sawant as I rarely hear them talking in gujju language. More than this I hate them because I heard one of them saying once "my daadi sends me messages in Gujarati, I find it so difficult to understand, it is just irritating and she wants me reply to it" with all his friends agreeing with him. Worst part is his daadi took the efforts to learn how to send a message, which very few would know of her age, to keep in touch with her grandson but that guy doesn't want to reply as he finds it boring and irritating.
You must have observed the posters that we see in trains which make tall claims but everyone knows that they are not genuine. Generally they would be of unknown companies but yesterday I saw one poster written with worst font possible, white background and third class quality of paper, it was of Barclays bank offering loans to people from 25k-5l with minimum documents required. Companies are spending money to build their brands and this company is spending money to destroy it. But one ad that I would never forget is the one that I saw last week where a pic of a bikini clad girl was pasted on the name of the company and along side written was the this ad "pay Rs.6000 for unlimited trading for three months and that too limited period offer"! I hope you enjoyed reading this post as much as I did experiencing and writing it. In case you want to be a part of it you can always join me at Kurla Station for the 08.03 train to Panvel!

Train Journey part 1

If there is one place in Mumbai where you can encounter people and emotions of all kinds then it is the public transport system of Mumbai, especially the local trains. Here are some of my experiences. There is this guy who takes the same train as I do everyday at Kurla station. He has an Ipod and a Nokia N73; he wears branded glares, likes to talk loud on his cell phone so that everyone around him notices him, changes shoes almost every month but still travels by second class. His case just amazes me if he has the money to spend on things that I have just mentioned why in the hell does he have to travel by second class? I just wonder whether whatever he wears or uses is borrowed from someone else as those things get changed as quickly as a 20-20 match. I know I would never know the truth but still he is a character worth mentioning.
There are also people who don't like spending money on newspaper but like reading them. So they come a bit early, miss a couple of trains and spend those few minutes reading newspapers at a newspaper vendor on platform! They go through all the newspapers they can get their hands on. The vendor can not force them to buy the paper or ask them to go away, he can only hope that some of them would actually buy it but nobody does as a person wanting to buy would not waste his time going through all newspapers; he would just buy it and go away. You would also encounter some great athletes there who could actually win a gold medal at Olympics. I am talking about those who put their lives at stake and cross tracks just to save a few seconds. One set of people that makes me laugh the most is the group of students who spend almost an eternity at a vendor selling chips, chocolates etc going through everything that is there to be sold and eventually buying one Mentos each for themselves! These are not just one-time incidents as I encounter these people everyday and travel with them in the same train. This reminds me of one-off incident when I saw one guy wearing a superman t-shirt with matching slippers walking with such confidence as if he just bought the station ten minutes ago.
One of the painful sights that I experience everyday is the sight of a poor aged lady begging for a living. On one hand we talk about India being one of the fastest growing economies in the world but there are number of people like her (aged and begging) who deserve a better life (I don't support those beggars who are young and can work but still beg for a living, unless they are unable to find work). When countries sit down to calculate the so called development index they should consider whether people like her get at least two meals a day because unless this happens the development gets restricted only a few. One observation that I have made concerning beggars is that when a person gives money to them it has a huge impact on people standing around as even they reach out for their wallet. This may not be true all the time but it does happen. So the next time you give money to someone make sure that you get noticed by people around you. One more request: as far as giving money to beggars is concerned one would agree that for years the amount that we give to them remains unchanged. Even today people give fifty paise or a rupee like they used to give five-six years back. I hope you all would agree when I say that the inflation affects everyone (including beggars) so if the money that we give remains unchanged, real income in their hands decreases so kindly give more. This however may have a negative impact because if everyone starts giving more then they may lose an incentive to work so make sure that you give only to those who actually deserve. Here also question arises whether to give to young but we would never know whether they are jobless by choice or not so take your call. If I have bored you with this topic then one thing about them on a lighter note: I read in one newspaper 2-3 years ago that Mumbai beggars earn Rs. 180 crores a year! And just for your information there are a few beggars in Mumbai whose daily earnings range from 1000-2500 and some of them have properties whose value run into lacs!! In case you want to see them beg (or rather mint money) you can find them at places like Lokhandwala, Charni road, Azad maidan.