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In its fourth and longest edition yet, IPL (Indian Premier
League) continues to grow as a brand, with over 70 sponsors,
national and regional, associated with it. The principal owner,
BCCI (Board of Control for Cricket in India), remains in a
sweet spot, as franchisee fees touch astronomical highs.
Meanwhile, pre-emptive ad sales by the broadcaster, Sony-
Set Max, have put it in a profitable position, though ratings
for the current edition are down ~20% YoY. On the other
hand, challenges exist for the franchisee owners, as cashflows
remain muted, and the lack of growth avenues limits
upside. Our DCF estimate for an older franchise yields a value
of US$87m, which suggests the bids for the newer franchises
are unviable. We believe the franchises have to outgrow the
umbrella brand, IPL, and build a loyal fan base to better
exploit alternative revenue streams.
BCCI in a sweet spot: The principal owner of brand IPL, BCCI, is
likely to garner revenues (post-sharing) close to Rs10bn from this
year’s IPL. The 3x jump in bid amounts for the new franchises, an
increase in BCCI’s share of the central pool of revenues, and
lucrative deals for online rights have also contributed to the surge in
BCCI’s revenues.
Pre-emptive ad sales skirts drop in ratings: Our interactions
with professionals in the industry suggest that Set Max had
successfully sold a large part of the ad inventory at rates higher than
last year’s. This was largely on the back of the surge in ratings for
the IPL in 2010, and this has helped the broadcaster skirt a 20% YoY
drop in ratings. Set Max’s overall ad revenue from IPL 2011 is likely
to be more than Rs9bn, ensuring a profitable edition.
Revenue growth for the franchises a challenge; costs largely
fixed: Central broadcasting and sponsorship revenues, which are
quasi-fixed, constitute ~50% of the total revenues for the
franchisees, and this share is set to grow further. On other hand, a
large proportion of costs are fixed, and this business model limits
upside to cash flows. In our view, the franchises have to outgrow the
umbrella IPL brand and build a loyal and passionate fan base to
generate alternate sources of revenues.
Deal-making difficult; valuations stretched; focus on cricket:
We believe the frenzy surrounding possible stake sales is a thing of
the past, given expensive valuations, complex shareholding
structures and possibilities of further controversies. Our DCF
valuation of one of the older franchises yields a value of US$87m,
which is less than 30% of the bids for the newer franchises. Going
forward, we expect greater focus on cricket and competition, which
should help project the IPL as something more than entertainment.
BCCI in a sweet spot
Reaping the benefits of owning brand IPL: The IPL is halfway
through its fourth season, and despite multiple controversies
dogging the lead-up to and lukewarm ratings for this year’s edition,
brand IPL continues to be a cash cow for the BCCI, in our view. We
estimate BCCI’s cumulative revenue from this year’s event at close
to Rs10bn.
Revenue sharing remains the same as 2010
Figure 1: Formula for splitting the major revenue streams for a ten‐year period till 2017
Central broadcasting revenue Central sponsorship revenues
Year 1‐3: BCCI gets 20%, teams get 80% Year 1‐10: BCCI gets 40%, teams get 60%
Year 4‐5: BCCI gets 30%, teams get 70%
Year 6‐10: BCCI gets 40%, teams get 60%
Source: IPL franchisee prospectus, IIFL Research
Major revenue streams intact: Post the renegotiation in 2009,
broadcaster Sony Set MAX is scheduled to pay US$1.8bn over a
nine-year period ending in 2017. Of this, 35% is to be paid out in
the first four years of the contract, and the rest over the next five
years. For the year 2011, this translates into a gross annual payout
of ~Rs7bn. However, we understand that the payout to the BCCI is
net of production costs incurred by Set Max in providing the telecast.
In the absence of any concrete data on the actual payout made by
Set Max, we extrapolate the revenue data disclosed by the two
franchises owned by listed companies―Deccan Chargers and
Chennai Super Kings. We have assumed that Set Max’s production
costs for 2011 are around 30% of the gross payout to be made.
Central sponsorship deals with DLF, Hero Honda, Citibank, Karbon
Mobile and so on remain intact, and we estimate total spend from
these sponsors at ~Rs1.7bn every year.
New expensive franchises a boost: Despite several controversies
surrounding the bidding process, IPL 2011 has finally seen the
addition of two new teams to the roster. The bid amounts for these
two new franchises (US$703m) is only marginally lower than the
total bids for the original eight IPL franchises (US$725m) in 2008.
Note that the franchise fee is to be paid out by the owner to the
BCCI in equal instalments over a period of ten years. Consequently,
this revenue stream for BCCI is set to nearly double from the
previous year’s levels.
Figure 2: Astronomical valuations for the new franchises a windfall gain for BCCI
Team Bid amount (US$ m) Annual amount payable (Rs m)
Pune 370 1,665
Kochi 333 1,499
Mumbai 112 504
Delhi 84 378
Hyderabad 107 482
Bangalore 113 507
Kolkata 75 338
Chennai 91 410
Punjab 76 342
Rajasthan 67 302
Source: Industry , IIFL Research
New revenue streams too see an uptick: New revenue streams
such as Indiatimes.com’s ~Rs2.6bn deal with IPL for four years of
online rights is a significant uptick on the ~US$2m/ 2-year deal
struck with Google last year for online broadcast of IPL matches on
Youtube. There is no clarity on the status of the Google deal, but
there has likely been a revision, as majority of deals signed under
the previous IPL commissioner, Lalit Modi’s, supervision came under
the scanner in 2010. Google, incidentally, has signed a deal this year
with Indiatimes.com to be a non-exclusive partner for IPL content
for two years.
IPL a brand-wagon: advertisements pre-booked
A veritable brand-wagon; ~70 brands on board: The IPL has
emerged as a favourite for advertisers on a number of counts: 1)
consistently high ratings over the past three years; 2) the glamour
quotient and entertainment value of the T-20 format which attracts
the occasional cricket-watcher as well, and makes for an audience
different from the usual cricket matches; and 3) the franchises have
emerged as suitable vehicles for a number of local advertisers. From
a rough count, this year’s edition is acting as an advertising vehicle
for close to 70 brands.
Advertisers swayed by consistency in ratings till 2010: Our
interactions with media buyers suggest that Set Max had actually
pre-sold a large part of its ad inventory this year at rates higher
than last year’s levels, with its lead and associate sponsors picking
up close to 55% of the total inventory. Our calculations suggest that
ad revenues for Set Max are set to cross Rs9.3bn for IPL 2011. This
was largely due to the surge in ratings in IPL 2010, when the event
returned to India, and also the consistency in ratings seen over the
past three years. Average TVRs for the 3-hour IPL matches over the
past three years compare favourably with the peak ratings of the
most watched daily soap on Star Plus last week.
Deal outlook pessimistic
The frenzy of 2010 is unlikely to be repeated: We believe the
frenzy surrounding possible deals and exits by the current owners
reached a peak before and during the 2010 season. The
astronomical amounts bid for the two new franchises also added to
the frenzy. But the deal environment is likely to be a lot more sedate
going forward, as:
1) some of the controversies which erupted post the 2010 season
are yet to see a final closure;
2) current shareholding structures of franchises remains extremely
complex; and
3) our estimates of DCF valuations of franchises work out much
lower than values imputed from the new bids.
Controversies yet to see closure: The end of the 2010 season
saw multiple controversies surrounding Mr Modi’s role in the IPL and
ownership structures of the new franchises. We do not expect any
further controversies surrounding the new franchises, which were
inducted into the IPL after several rounds of reviews. However, we
do not rule out the controversies surrounding the original bidding
process for franchises and allegations of malpractices in the
awarding of the various media rights from cropping up again post
this season.
Shareholding structures remain fairly complex: Current
shareholding structures for the various franchises remain varied and
fairly complex. We also believe that the ownership interests for
varied parties range from strategic business fits to mere investment
vehicles. Consequently, we see this also acting as a barrier to any
future deals in this space.
DCFs suggest market values are stretched: Our DCF valuation
of the franchisee most likely to make cash profits in this year yields
a value of US$87m. This is still in the range of the initial bid
amounts in 2008, but less than 30% of the bid amounts of the new
franchises which have come into the fold in 2011. Our forecast
period for cash-flows ends in the eleventh year of operation of the
franchisee i.e., when cash-flows are no longer burdened by the
franchise fees payable to BCCI.
Franchisees need to grow out of the umbrella brand
Payoff skewed towards brand IPL: We believe that though the
IPL has grown to be a formidable brand, the same cannot be said of
the individual franchises. Consequently, payoff from the entire
exercise remains skewed towards BCCI, which is in effect the owner
of the IPL brand. In comparison, the individual franchises remain
fairly small brands.
A loyal supporter base critical for brand-building; also a
function of time: For the individual franchises to emerge as
standalone brands is as much a function of the broader consumption
trends in the economy as a function of a loyal and passionate
supporter base. This is the case for teams such as Manchester
United, which have been in existence for more than 100 years. This
is also reflected in the valuation of the club, which is estimated at
more than US$1bn. IPL, by contrast, remains largely an
entertainment event, and is yet to move viewers to shedding tears
on defeat or in celebrating victory. We believe a lot more activity
and time is required before these franchises build a loyal supporter
base. This may involve some capital expenditure like setting up
cricket clubs and otherwise engaging with viewers.
Focus on cricket and competition; controversies to be
avoided: Going forward, we expect this year’s trend to be
maintained, and expect the focus to remain on quality cricket and
competition. A complete absence of controversies too is necessary,
in our view, to engage the Indian cricket-lover and make the IPL
something bigger than entertainment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In its fourth and longest edition yet, IPL (Indian Premier
League) continues to grow as a brand, with over 70 sponsors,
national and regional, associated with it. The principal owner,
BCCI (Board of Control for Cricket in India), remains in a
sweet spot, as franchisee fees touch astronomical highs.
Meanwhile, pre-emptive ad sales by the broadcaster, Sony-
Set Max, have put it in a profitable position, though ratings
for the current edition are down ~20% YoY. On the other
hand, challenges exist for the franchisee owners, as cashflows
remain muted, and the lack of growth avenues limits
upside. Our DCF estimate for an older franchise yields a value
of US$87m, which suggests the bids for the newer franchises
are unviable. We believe the franchises have to outgrow the
umbrella brand, IPL, and build a loyal fan base to better
exploit alternative revenue streams.
BCCI in a sweet spot: The principal owner of brand IPL, BCCI, is
likely to garner revenues (post-sharing) close to Rs10bn from this
year’s IPL. The 3x jump in bid amounts for the new franchises, an
increase in BCCI’s share of the central pool of revenues, and
lucrative deals for online rights have also contributed to the surge in
BCCI’s revenues.
Pre-emptive ad sales skirts drop in ratings: Our interactions
with professionals in the industry suggest that Set Max had
successfully sold a large part of the ad inventory at rates higher than
last year’s. This was largely on the back of the surge in ratings for
the IPL in 2010, and this has helped the broadcaster skirt a 20% YoY
drop in ratings. Set Max’s overall ad revenue from IPL 2011 is likely
to be more than Rs9bn, ensuring a profitable edition.
Revenue growth for the franchises a challenge; costs largely
fixed: Central broadcasting and sponsorship revenues, which are
quasi-fixed, constitute ~50% of the total revenues for the
franchisees, and this share is set to grow further. On other hand, a
large proportion of costs are fixed, and this business model limits
upside to cash flows. In our view, the franchises have to outgrow the
umbrella IPL brand and build a loyal and passionate fan base to
generate alternate sources of revenues.
Deal-making difficult; valuations stretched; focus on cricket:
We believe the frenzy surrounding possible stake sales is a thing of
the past, given expensive valuations, complex shareholding
structures and possibilities of further controversies. Our DCF
valuation of one of the older franchises yields a value of US$87m,
which is less than 30% of the bids for the newer franchises. Going
forward, we expect greater focus on cricket and competition, which
should help project the IPL as something more than entertainment.
BCCI in a sweet spot
Reaping the benefits of owning brand IPL: The IPL is halfway
through its fourth season, and despite multiple controversies
dogging the lead-up to and lukewarm ratings for this year’s edition,
brand IPL continues to be a cash cow for the BCCI, in our view. We
estimate BCCI’s cumulative revenue from this year’s event at close
to Rs10bn.
Revenue sharing remains the same as 2010
Figure 1: Formula for splitting the major revenue streams for a ten‐year period till 2017
Central broadcasting revenue Central sponsorship revenues
Year 1‐3: BCCI gets 20%, teams get 80% Year 1‐10: BCCI gets 40%, teams get 60%
Year 4‐5: BCCI gets 30%, teams get 70%
Year 6‐10: BCCI gets 40%, teams get 60%
Source: IPL franchisee prospectus, IIFL Research
Major revenue streams intact: Post the renegotiation in 2009,
broadcaster Sony Set MAX is scheduled to pay US$1.8bn over a
nine-year period ending in 2017. Of this, 35% is to be paid out in
the first four years of the contract, and the rest over the next five
years. For the year 2011, this translates into a gross annual payout
of ~Rs7bn. However, we understand that the payout to the BCCI is
net of production costs incurred by Set Max in providing the telecast.
In the absence of any concrete data on the actual payout made by
Set Max, we extrapolate the revenue data disclosed by the two
franchises owned by listed companies―Deccan Chargers and
Chennai Super Kings. We have assumed that Set Max’s production
costs for 2011 are around 30% of the gross payout to be made.
Central sponsorship deals with DLF, Hero Honda, Citibank, Karbon
Mobile and so on remain intact, and we estimate total spend from
these sponsors at ~Rs1.7bn every year.
New expensive franchises a boost: Despite several controversies
surrounding the bidding process, IPL 2011 has finally seen the
addition of two new teams to the roster. The bid amounts for these
two new franchises (US$703m) is only marginally lower than the
total bids for the original eight IPL franchises (US$725m) in 2008.
Note that the franchise fee is to be paid out by the owner to the
BCCI in equal instalments over a period of ten years. Consequently,
this revenue stream for BCCI is set to nearly double from the
previous year’s levels.
Figure 2: Astronomical valuations for the new franchises a windfall gain for BCCI
Team Bid amount (US$ m) Annual amount payable (Rs m)
Pune 370 1,665
Kochi 333 1,499
Mumbai 112 504
Delhi 84 378
Hyderabad 107 482
Bangalore 113 507
Kolkata 75 338
Chennai 91 410
Punjab 76 342
Rajasthan 67 302
Source: Industry , IIFL Research
New revenue streams too see an uptick: New revenue streams
such as Indiatimes.com’s ~Rs2.6bn deal with IPL for four years of
online rights is a significant uptick on the ~US$2m/ 2-year deal
struck with Google last year for online broadcast of IPL matches on
Youtube. There is no clarity on the status of the Google deal, but
there has likely been a revision, as majority of deals signed under
the previous IPL commissioner, Lalit Modi’s, supervision came under
the scanner in 2010. Google, incidentally, has signed a deal this year
with Indiatimes.com to be a non-exclusive partner for IPL content
for two years.
IPL a brand-wagon: advertisements pre-booked
A veritable brand-wagon; ~70 brands on board: The IPL has
emerged as a favourite for advertisers on a number of counts: 1)
consistently high ratings over the past three years; 2) the glamour
quotient and entertainment value of the T-20 format which attracts
the occasional cricket-watcher as well, and makes for an audience
different from the usual cricket matches; and 3) the franchises have
emerged as suitable vehicles for a number of local advertisers. From
a rough count, this year’s edition is acting as an advertising vehicle
for close to 70 brands.
Advertisers swayed by consistency in ratings till 2010: Our
interactions with media buyers suggest that Set Max had actually
pre-sold a large part of its ad inventory this year at rates higher
than last year’s levels, with its lead and associate sponsors picking
up close to 55% of the total inventory. Our calculations suggest that
ad revenues for Set Max are set to cross Rs9.3bn for IPL 2011. This
was largely due to the surge in ratings in IPL 2010, when the event
returned to India, and also the consistency in ratings seen over the
past three years. Average TVRs for the 3-hour IPL matches over the
past three years compare favourably with the peak ratings of the
most watched daily soap on Star Plus last week.
Deal outlook pessimistic
The frenzy of 2010 is unlikely to be repeated: We believe the
frenzy surrounding possible deals and exits by the current owners
reached a peak before and during the 2010 season. The
astronomical amounts bid for the two new franchises also added to
the frenzy. But the deal environment is likely to be a lot more sedate
going forward, as:
1) some of the controversies which erupted post the 2010 season
are yet to see a final closure;
2) current shareholding structures of franchises remains extremely
complex; and
3) our estimates of DCF valuations of franchises work out much
lower than values imputed from the new bids.
Controversies yet to see closure: The end of the 2010 season
saw multiple controversies surrounding Mr Modi’s role in the IPL and
ownership structures of the new franchises. We do not expect any
further controversies surrounding the new franchises, which were
inducted into the IPL after several rounds of reviews. However, we
do not rule out the controversies surrounding the original bidding
process for franchises and allegations of malpractices in the
awarding of the various media rights from cropping up again post
this season.
Shareholding structures remain fairly complex: Current
shareholding structures for the various franchises remain varied and
fairly complex. We also believe that the ownership interests for
varied parties range from strategic business fits to mere investment
vehicles. Consequently, we see this also acting as a barrier to any
future deals in this space.
DCFs suggest market values are stretched: Our DCF valuation
of the franchisee most likely to make cash profits in this year yields
a value of US$87m. This is still in the range of the initial bid
amounts in 2008, but less than 30% of the bid amounts of the new
franchises which have come into the fold in 2011. Our forecast
period for cash-flows ends in the eleventh year of operation of the
franchisee i.e., when cash-flows are no longer burdened by the
franchise fees payable to BCCI.
Franchisees need to grow out of the umbrella brand
Payoff skewed towards brand IPL: We believe that though the
IPL has grown to be a formidable brand, the same cannot be said of
the individual franchises. Consequently, payoff from the entire
exercise remains skewed towards BCCI, which is in effect the owner
of the IPL brand. In comparison, the individual franchises remain
fairly small brands.
A loyal supporter base critical for brand-building; also a
function of time: For the individual franchises to emerge as
standalone brands is as much a function of the broader consumption
trends in the economy as a function of a loyal and passionate
supporter base. This is the case for teams such as Manchester
United, which have been in existence for more than 100 years. This
is also reflected in the valuation of the club, which is estimated at
more than US$1bn. IPL, by contrast, remains largely an
entertainment event, and is yet to move viewers to shedding tears
on defeat or in celebrating victory. We believe a lot more activity
and time is required before these franchises build a loyal supporter
base. This may involve some capital expenditure like setting up
cricket clubs and otherwise engaging with viewers.
Focus on cricket and competition; controversies to be
avoided: Going forward, we expect this year’s trend to be
maintained, and expect the focus to remain on quality cricket and
competition. A complete absence of controversies too is necessary,
in our view, to engage the Indian cricket-lover and make the IPL
something bigger than entertainment.
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