Television

'Break even will take five to six years for new franchises' : GroupM ESP managing partner Hiren Pandit

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Bigger, better, richer. That is what the franchises hope the Indian Premier League (IPL) will grow into year after year.

In an interview with Indiantelevision.com's Ashwin Pinto, GroupM ESP managing partner Hiren Pandit talks about the vast revenue opportunities that are waiting to be tapped as the IPL grows into a sporting spectacle.

Excerpts:

How is GroupM ESP involved with the IPL this time around?

We do deals with franchises on behalf of our clients. There are logos on T-shirts and also innovations that have not been done before. We create revenue opportunities for the client as well as the franchise. This is in the form of licensing and merchandising.

Are franchises able to fetch better rates this year with the economic situation somewhat improving?

Keep in mind that last year local activation could not take place due to the shift to South Africa. This year, some amount of rationalisation has taken place. There is measurement in place. You know whether you should pay Rs100 or Rs 150. Most team sponsorships have been sold.

In terms of local revenue, how will franchises fare this year as per your calculations?

It will increase by around 20 per cent for each franchise. Revenues on T-shirts are anywhere from zero for Bangalore (The UB Group uses its own brands) to Rs 400 million for Kolkata. Delhi and Chennai will each earn Rs 330 million. Mumbai, Rajasthan and Punjab will individually earn Rs 300 million. Hyderabad will earn around Rs 200 million. The big difference is the logo on the right chest which will add Rs 30-50 million in revenue. Licensing and merchandising is just starting to happen. So this will take time to grow.

Kolkata will get hit in terms of gate receipts as the two large stands that seat the most number of people is being reconstructed. Mumbai's matches will happen in the CCI and DY Patil. Ahmedabad should boost Jaipur's gate receipts. I, however, do not know the extent to which Dharamshala as a venue will help Punjab. The question that remains is Hyderabad. There needs to be some clarity on where the matches will be played.

If you include the central pool, how much revenue will franchises earn?

It will be a 25 per cent growth overall. Each franchise will earn $12-14 million from the central pool. The local pool will contribute around $8-10 million. Revenues from theatres, YouTube and Colors will also kick in. This will add a certain amount but it will not be dramatically different.

Will Hyderabad's revenues be hit due to the venue being shifted?

I am not so sure that Hyderabad sponsorships will get hit as it depends on TV exposure. On the back of that, activation will be done. In-stadia activity, though, will be hit. But licensing and merchandising may stay unharmed. It depends on the kind of deals that they will do. It remains to be seen how much revenues come from ticketing.

'Franchises will see a 25 per cent growth overall. Each franchise will earn $12-14 million from the central pool. The local pool will contribute around $8-10 million. Revenues from theatres, YouTube and Colors will also kick in'

Is there a danger of sponsorship getting cluttered?

From what we gather, the number of brands on IPL was 40 in the first season and 68 in the second. We expect the number to touch 80 in the third season. It is clutter but since it is at home, clients can do more activation. There needs to be innovation done by companies in terms of their campaigns. You cannot do what was done earlier unless you are sure that it will stay fresh. It needs to be different. Just keeping a logo on the T-shirt is not enough.

Could you give me a couple of examples where team sponsors have successfully leveraged the IPL?

Idea Cellular did something different with the Mumbai Indians in the second season. Their users could have conversation with players. Wrigleys did something different by associating with all teams. Vodafone did the Zoozoo campaign which was a wake up call to competition. Sprite did the unique 'Seedhi Baat, No Bakwaas' campaign with Kolkata.

What is the key to a successful licensing and merchandising campaign?

Both parties have to make money. The distribution platform has to be solid and give access to all potential buyers. Under licensing and merchandising, the franchisee gets a flat amount and then a share on revenues - depending on sales. It will be a slow burner, though. And it will not kick in from day one. A substantial amount of promotions will be needed.

Licensing and merchandising is different from having a logo on a T-shirt. People are still struggling to figure out what is the difference between advertising and licensing and merchandising. These two categories are separate but are getting mixed up. That actually helped Wrigleys who did a smart number on franchises. They did a partnership at a low cost and signed up most franchises for three years. From what I understand, Wrigleys can now milk the value of its deals to such an extent that franchises feel that they did not get the value that they were looking for. I don't think that Wrigleys shares revenues of its products. Franchises now realise that the deal might have been a mistake for them.

Have the franchises got it right on ticket pricing?

I assume that they would have learnt from the first season. They will know what works and what does not. You need to analyse in detail what was done in the first season - what was right and what was wrong. If they have not done that the same mistakes will be made again. You also need to do activities to make fans come to the stadiums. The in-stadia experience will be far better this time. Catering is centrally managed. There are now turnstiles and so the number of people entering and leaving can be checked.

Will the break even period elongate for the new franchises as the IPL has set a fourfold increase in base price?

The revenue opportunities have grown. The break even position, however, depends on how one manages costs and the revenue generation potential of a city. Some cities will perform better than others. But generally, it will take five to six years for the new franchises to break even. The time taken to break even is also a question of how innovative can the new owners be in generating revenues. Local revenues should rule over the earnings from the central pool. Anybody who can do this will have a model that will set themselves up to making money that would justify the price tag.

Who has fared the best in this area so far?

The closest that anybody has come to achieving a great model is Kolkata. The fact that Shah Rukh Khan has lent himself to his sponsors like Nokia and Sprite has worked. He has extracted more revenues as a result. So instead of charging Rs 40 million, this franchise can charge Rs 70 million. Other teams also have values but I am not so sure that they are using it to their maximum potential. No franchise is optimising local sponsorship the way that they should.

Also, keep in mind that with more teams coming in, costs and revenues will go up. The impact will be felt across the board. Player costs, travel and stadium maintenance costs will rise. Sponsorship revenues will also go up. All this has to be taken into account by whoever is bidding.

Another issue is that current franchises will be allowed to retain some key players even after the third season. This could limit the pool of payers who are available to the new franchises. How do you see things panning out?

A middle ground will have to be found. This is a sticky issue. On one hand, you have India Cement saying that since they have invested in Dhoni and have built their team around him, he must be retained. Otherwise the team's value will be affected. On the other hand, the new franchises need to have a solid pool of players to pick from or else they might decide not to play. A balancing act will have to be performed by the IPL Governing Council.

Rajasthan Royals has tied up with other cricket clubs globally. Is this the trend for the other franchises as well?

If you have world class players who can play in different countries and fill a stadia, then it forms another revenue stream. The IPL guidelines state that Rajasthan Royals cannot play against Kolkata in, for instance, England. So by doing this kind of a tie up, they avoid that situation. Events can take place all over and more money flows in. There is an opportunity here.
Do you see the IPL playing out well in cinema theatres?

This year it will be a tried and tested concept. The concept looks very impressive. You will have high definition which makes a big difference. The 16:9 screen size will allow you to see more ground. This is the summer and people might want to go to an air conditioned place and enjoy it together. It is about the quality of experience. If it is good, then word of mouth will spread.

How important is the YouTube deal in spreading the IPL brand globally?

It is fantastic on two levels. In India, you can sit in the office and watch matches. It is a question of bandwidth. I would expect people to avail of the highlights package for matches that happen between 4-7 pm the next day. Then there is the Indian diaspora who want to watch the IPL but have no access.

The question is how YouTube is going to monetise the IPL property. Will YouTube become pay for international markets? Today they have said no. They can continue to say no if there is enough ad support.

The Champions T20 League got off to a slow start. Where do you see it going from here?

I was surprised that it got off to such a slow start. But if people thought that the Champions Twenty20 League would do as well as the IPL, then they were wrong. The IPL and Champions League are about clubs. The club culture has not yet come in the country. It will take time. The second reason is that the three Indian teams did poorly in the Champions League. The interest among audiences fizzled out.

The franchises and the IPL need to start developing a club culture. Nobody says that they want to go for an IPL match to see a particular franchise play. They simply go for great cricket. That has to change. You need to create a fan base that is passionate about the team per se, even if it comes last. Franchisees need to invest money in creating a club culture.

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