If you attend a friendly game of football in England, you’re likely to see a jersey from one of the teams of the English Premiership. But would you expect to see the same on football fields in Los Angeles or on the streets of Bangkok? If you lived in Pennsylvania or Florida, would you throng to a local arena to watch teams from London and Glasgow in a basketball tournament? In other words, can city loyalties command viewership if the action is transported to other countries? Do fans go to a game to watch, or to cheer their teams?

As the second edition of the Indian Premier League (IPL) gets under way, similar questions are on everyone’s lips. The 20-overs-a-side, or Twenty20, cricket tournament had a hugely successful first innings last year. The new-generation tournament, in which matches last just a few hours compared with several days for traditional cricket, has been shifted from India to South Africa. The reason: The 45-day event clashed with India’s general elections (over a similar period from mid-April to mid-May) and the central government said it was unable to provide adequate security to both at the same time. The IPL couldn’t change its dates, given the busy international cricket calendar, so the jamboree moved to South Africa, which won out over rivals England and Dubai.

Skepticism abounded last year on whether the new format would work (see Cricket in India: Moving Into a League of Its Own). But the IPL was a resounding success, exceeding the expectations of even the wildest optimists. There are numerous naysayers about this year’s experiment too. Cricket is practically a religion in India; in South Africa, it is just another game. And there is the identification problem with sides such as Kolkata Knight Riders, Bangalore Royal Challengers, Delhi Daredevils and Mumbai Indians. (The league comprises a total of eight teams.) Each team does have several foreign players, which should contribute to an international appeal. Most of the coaches are non-Indian.

“Cricket is a universal sport, and when you have 100 of the best cricketers in the world playing, the world-class quality of talent on display at IPL Season 2009 in South Africa is simply astounding,” says Lalit Modi, chairman and commissioner of the IPL Cricket Association and vice president of the Board of Control for Cricket in India (BCCI). Modi is widely recognized as the brains behind the IPL. “The IPL has been globally acknowledged as one of the most successful sporting innovations in the annals of modern-day sport,” Modi says. “Season 2009 will be an expansive and grand celebration of cricket with a dash of Bollywood and local South African flavor added into the mix for good measure.”

Higher Revenue, Lower Profit?

Will it work? The jury — essentially the TV audience — will deliver the verdict. The early indications are that, though IPL-2 will end up on the positive side of the ledger, it will make nowhere near the sort of money a tournament held in India would have made. “BCCI made US$130 million in revenue from IPL last year with a profit of US$10 million,” says Sandeep Bamzai, chief operating officer of sportzpower.com, a new B2B portal in the sporting domain, and the author of several books on cricket. “This time expect higher revenue but perhaps lower profit.”

The issues surrounding the IPL “can be discussed on several dimensions,” Bamzai adds. “There is the political dimension, the business dimension, the marketing dimension and the brand dimension.”

The political dimension is what caused the move to South Africa in the first place. It has also made the IPL something of an election issue. The Congress-ruled coalition in New Delhi said it was impossible to provide security, especially after a terrorist attack on a touring Sri Lankan side in Pakistan in March. Some opposition states ruled by the Bharatiya Janata Party (BJP) said they were willing to host the tournament. “The BJP states gave an all-clear while the Congress-led states said no, showing deep polarization over IPL,” Bamzai says.

Even today, the government seems on the defensive. “The organizers were trying to be too clever by putting the pressure on chief ministers,” Union Home Minister P. Chidambaram told TV channel CNN-IBN. “Ultimately, the police told the chief ministers, ‘Sorry, we cannot provide security.'” Chidambaram said he would be “among the 98% who watch the IPL on television. Only 2% watch the IPL matches on the ground.” Says BJP leader Arun Jaitley: “Chidambaram is now home minister. He was finance minister and I regret to say that, when he was finance minister, our investments were not safe. Now, when he is home minister, our security is not safe.”

Election polemics are part of the game. For the IPL, however, the issue was important at the time. Now it is of little consequence. Other dimensions — particularly the business dimension — have taken center stage.

“The move to South Africa will affect the tournament in a significant manner,” says Abhishek Nirjar, associate professor of entrepreneurship and strategic management, and chairman, management development programs, at the Indian Institute of Management, Lucknow (IIML). “The most important dimension of the IPL is that it was played in India where the fan following is the largest in the world. It will be about half as good as it would have been in India.”

According to Modi of the IPL, not everything should be seen in monetary terms. “A lot has been said about the money raised from the IPL. However, no one has gone on to report that BCCI is a nonprofit organization. All money raised is redeployed for improving the level of cricket in India.”

BCCI sources of funds are largely unaffected. These are mainly the sale of telecast rights and the fees paid by franchisees. The other main revenue streams for both BCCI and the eight franchise owners are tournament title sponsorship and on-ground sponsorship, divided between the two; sponsors and partners for each franchise through displays on clothing; and gate receipts, which, because the tournament is being played in South Africa, will have to be reworked.

Controversy over TV Rights

The first controversy over this edition of IPL, long before the political brouhaha, arose over TV rights. Multi Screen Media (MSM, the local version of Sony Entertainment Television) took BCCI to court after the latter had terminated its broadcasting contract alleging various violations. It was expected that a new deal would be signed but, given the uncertainties over IPL-2, at a lower rate. Eventually, Modi proved the more astute bargainer.

“Modi, realizing that there would be a revenue shortfall due to the shifting of the venue, came up with a masterstroke,” Bamzai says. “He ensured using legal maneuvering that MSM forked out US$1.63 billion for the nine-year telecast rights of IPL. This was significantly higher than the original 10-year deal for US$1.026 billion. The inflated revenues will be used by IPL to bridge the shortfall. Modi will also use this to compensate the travel and hospitality expenses.”

Modi agrees: “We will try to offset some of the additional expenditure of the franchisees from the central revenue pool and the new media rights deal signed. However, I am certain that every franchisee already has in place a strategy for safeguarding his business interests.”

The franchisees — which include a high-profile group of industrialists (Mukesh Ambani, Vijay Mallya), corporate houses (GMR, India Cements) and Bollywood stars (Shah Rukh Khan, Juhi Chawla, Preity Zinta) — don’t seem too worried. Once India was ruled out, they were united in wanting a foreign venue rather than scrapping or postponing the tournament. “IPL has assured us that there won’t be any losses,” said Nita Ambani, wife of Reliance Industries chairman Mukesh Ambani, after the meeting where the decision was made. The Ambanis own Mumbai Indians. “It is a great decision,” said Khan (Kolkata Knight Riders). “We will follow what the IPL and the BCCI decide.” Added Mallya (Bangalore Royal Challengers): “All the franchisees without exception wanted the show to go on.” Mallya, with five South Africans in his team, will probably command the maximum ground loyalties. And his Kingfisher Airlines has special packages for Indians heading to watch the IPL.

Opinion is divided on whether the franchisees will end up losing, and how much. Morning newspaper DNA calculated that the expenditure on each team is around US$20 million per year. Against this are incomes of US$5 million from share of broadcasting revenue, and an additional US$5 million each from sponsorships, ticket and beverage sales, and in-stadium ads. Broadcasting and sponsorship earnings are not affected. In fact, the roll call of sponsors looks even more impressive this year. But there will be no revenue from the other two items. BCCI “compensation” won’t make up for it.

Business daily Mint, on the other hand, says the teams had three to six sponsors and partners last year. This year, three have more than a dozen. While the amounts paid aren’t known, Mint estimates that the most favored teams could get US$20 million from sponsorship alone.

A Parallel Economy

But a parallel economy is affected. IPL-1 is estimated to have accounted for 30,000 hotel room nights and 10,000 airline seats. This is for the players and the officials alone; traveling fans (little in evidence last time) could top those numbers several times. Dozens of ancillary industries, such as banner makers and soft drink manufacturers, will see their bonanza go to South Africa this year. The impact will be greater there; South Africa has a population of 50 million compared with one billion-plus for India, and a GDP (purchasing power parity) of US$490 billion compared with US$3.27 trillion for India. “There is definitely an IPL economy within the larger economy, and India has missed its tryst with it,” Bamzai says.

Yet he, for one, doesn’t think that advertising revenue will be considerably lower. “Sony (MSM) is charging US$8,000 for 10 seconds against around US$4,000 last year,” he says. “But people seem to be queuing up. Airtel Digital and Vodafone are presenting sponsors and many others have come in as associate sponsors. The Sony president told me that 70% of the inventory has been sold. Almost 20% will be reserved. As the tournament progresses, rates will be hiked for spot buys. Hero Honda MD Pawan Munjal told me that the cost per TV rating point is highest for cricket buys. (But) he has done a cost-benefit analysis. Cricket gives him much more mileage than when he advertises or sponsors a big-ticket reality show like Sa Re Ga Ma or MTV Roadies.”

From Sony’s and BCCI’s point of view, the show is likely to be a huge financial success. But for team owners, damage is in terms of opportunity cost. A tournament in India would have added value to a city franchise. Some owners have been talking about future listings of their teams on the stock exchange; that, too, will have to be postponed. Modi isn’t fazed. “The IPL is [based] on the ‘My city, my team’ franchise principle popular in international sport all over the world,” he says. “We have successfully built the IPL tournament around this objective and will stay committed to it, the ‘city connects’ being one of our founding precepts.” He says more teams (and cities) will be added next year when the tournament returns to India.

“There has been only one edition of the IPL until now,” says Nirjar of IIML. “It would be hard to expect an individual brand value for city franchisees so soon, but it will happen. The average fan is very well informed and conscious about who played for whom. There is certainly a case for building city loyalties.” Bamzai says it is definitely a setback for city franchises. “Last year, one wondered whether the city-based affiliations would work, but a strange sub-tribal loyalty model came into play and it succeeded. The city-based franchise model goes out of the window this time. But I reckon this is a one-off.”

Dilution of the IPL Brand

Is there a danger that the IPL brand itself could lose out? Newspaper headlines — the IPL controversy pushed out the elections and the economy from the Page 1 lead — have suggested so. A sample: “India out of IPL” and “IPL becomes NRIPL.” (NRIPL is a reference to non-resident Indians; South Africa has a large number of ethnic Indians.)

“The extent of dilution of the IPL brand depends on what happens after this year’s edition,” Nirjar says. “Does it come back to India — I hope it does — or does it wander off to some other place? If it is back in India, the brand will get strengthened. [If] it does not come back to India, it will certainly get diluted further.”

“I do not see our compulsion to move to South Africa for Season 2009 diluting the IPL brand in any manner or form,” Modi says. “In fact, I see it as a tremendous opportunity for the league and its franchisees to create an enduring international legacy, one which will elevate the IPL brand into an international orbit.”

Then there’s the alluring prospect of the IPL transcending its Indian roots and becoming the International Premier League. It is not that farfetched; today there is more money in cricket on the subcontinent than in the rest of the world put together. The winning bids for Andrew Flintoff and Kevin Pietersen (both of England) in the player auction this year touched US$1.55 million each. (The eight franchisees have to bid for the stars they want.) That may not seem much by the standards of U.S. sportsmen. But it is several times the annual earnings of these top cricketers.

If it does evolve into the International Premier League, the Indian fan will lose. But does it really matter? As Home Minister Chidambaram pointed out, 98% watch the matches on TV. In fact, when terrorist threats were being discussed, one suggestion was to play all the matches in one venue in one city. The tournament would be held behind a security blanket without a single spectator. (Ticket sales aren’t an important revenue contributor compared with the sale of broadcasting rights.)

“Television has been the integral piece in popularizing the game and bringing the players, teams and, most important, the game closer to its fans,” Modi says. “No one can deny the important role played by the broadcaster in doing that. But having said that, I personally believe there is no feeling like being in a packed stadium with close to 100,000 fans screaming and egging on their team. The atmosphere is simply electrifying and it all adds up to enhanced viewership. One needs to experience the thrill and the fervor of a live and passionate crowd to understand what I am talking about. Attending a match at, say, the Wankhede in Mumbai, the Sawai Man Singh Stadium in Rajasthan or the Eden Gardens in Kolkata is literally an experience in itself. Taking the fans out of the stadium would be akin to a peanut butter sandwich without peanut butter.”