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No boundaries for growth

india Updated: Jan 29, 2009 11:50 IST

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The business of sports in India commences and concludes with cricket, especially professional leagues. This makes the sport vulnerable to the tremors and aftershocks of the global economic earthquake which has swallowed almost all nations, let alone corporations.

What makes cricket, especially league cricket like the Indian Premier League (IPL) and Indian Cricket League (ICL), susceptible to the state of the economy, are the sheer numbers that go into endorsing events or athletes, or the valuations that the IPL teams were looking at less than five months ago. No other league in the world could boast of such overall numbers with only 44 days of competition. But recession seems to have struck Indian cricket at an unfortunate time.

Fortunately, the chief sponsors of the IPL, those in the central revenue pool, have pledged to continue with their support this season. Since some of the nation’s top corporations are a part of this list, it is an encouraging sign which, frankly, was expected to an extent. In fact, it can prove to be a wise decision for the present economic scenario gives less room for deterrents like ambush marketing. Hence, the sponsors are likely to get full mileage from their sponsorships. How shareholders in large corporations view such expenditures in the following seasons, however, remains uncertain and can be a
potential cause for concern if the economy doesn’t improve.

The sponsorship picture is far from being rosy with regard to local sponsors that each team is responsible for securing. It is unlikely that all will fulfil their commitments as there aren’t many new sponsors this time around. Owning and running a team is an expensive affair with estimates ranging from $25-$27 million per year. Factor in the unfavourable exchange rate and the high operating costs and the prospects get bleaker. The ICL doesn’t suffer from the same volatility due to single ownership and in-house television channels. At the same time, it restricts their opportunities to earn large revenues.
The effects of the meltdown on cricket are already clearly apparent: much of the glitz and glamour that accompanied the first edition have already been toned down; an extremely sensible move. The transfer window hardly made any noise this year and there also doesn’t seem to be much interest in the upcoming player auction, as opposed to last year’s grand spectacle. The paring down of some of the domestic cricketers, though inevitable, is discouraging. They only had one-year contracts unlike the international cricketers, and members of the Indian cricket team, who sign three-year guaranteed contracts. The discrepancy could be tackled in future contracts by introducing certain clauses on performance, appearance and conduct. Two other major sources of revenue in international leagues are unlikely to increase this season: gate revenue, and merchandise. Seen as frivolous entertainment expenditures, both could be hit hard.

While television viewership/TRPs for the competition should remain strong, advertisers would not be able to justify the expenditures similar to what they had last year. SET Max, owing to the high amount it has paid for the broadcasting rights, won’t be able to reduce the prices significantly. A case in point of inability to earn advertising revenue is ESPN Star for the Champions League. But the postponement of the tourney turned out to be a blessing in disguise for the network that feared huge revenue loss.

A long-term solution for increasing revenues is necessary. Perhaps a centralised umbrella/bailout provision could be made by allocating league funds to support teams that lose more than they can afford. Local revenue pools could also be centralised in a different pool to balance the large-market teams with the small-market ones. And even if the owners are extremely wealthy, none of them would enjoy losing money or matches. A need for balance also arises from the fact that maintaining interest through the duration of the tourney is equally vital for the league’s success. Solid systems that lead to long-term success in leagues are crucial. While the league itself is likely to remain unscathed due to its limited costs and relatively secure revenues, individual franchises could get into a rut, and become perennial bottom dwellers. The owners are in it for the long haul and it’s important to maintain their interest as well.

The outlook for international cricket is potentially quite bleak. Faced with dwindling interest in ODIs, numerous boards facing bankruptcy and mass player defections in the ICL, it is likely that league cricket will steer the ship towards profitability and popularity as opposed to the other way around. These are testing times for international cricket and 2009 will be an interesting year.

How the league safeguards the interests of the franchise owners and the sponsors, while maintaining audiences’ interest, will determine how it emerges from the economic meltdown. There is every indication that cricket will survive the impending gloom it is surrounded by at present. It’s just that it is the first time that it has been put to such a test. So it needs to react and/or adapt accordingly. The best sports stories tell of success and glory after overcoming odds and adversity. It is an unprecedented period for Indian cricket. There could be no better set-up for the second season of the IPL.

(Desh Gaurav Chopra Sekhri is a Delhi-based lawyer)