Thursday, March 6, 2008

Indian Premier League or Initial Public Offering?

The year has been wonderful for cricketers. Even if it has not been raining runs and wickets for some of them, they have been drenched in crores of rupees by the Indian Premier League which has shown the world how to sell a product for a huge premium and created enormous hype about a revolutionary concept (for cricket certainly …) and got franchisees to pay enormous sums of money.
Actually, the word ‘enormous’ seems woefully inadequate, and to borrow an expression from my all time favourite author, the “imagination boggles.” The BCCI has earned Rs 4,124 crore from media rights, Rs 2,909 crore from team sales and some smoke money of Rs 200 crore from DLF, the title sponsor, while the earnings from player sales have not been disclosed.
As for the players, Mysore Sandal soap might consider M. S. Dhoni a slippery customer because he is alleged to have reneged on his contract, but the Chennai franchisee India Cements paid Rs 6.03 crore for him to lead its side. The Hyderabad franchisee Deccan Chronicle bought the explosive Andrew Symonds for Rs 5.43 crore and floored him and hopefully he will be better behaved in future.
Let me mention an astonishing fact just to give you an indication of how outlandish these prices are. Ishant Sharma, the latest Indian new ball bowling sensation, will earn Rs 1 lakh for every ball that he bowls in the Indian Premier League while millions of poor people like you and me will cheer him on even as we count our paises. All this hype and hoopla reminds me of two things: Clearly, the twenty-twenty format is a lottery which the cricketers and the BCCI have won.
The second is that all this hype and hoopla reminds me of the Indian stock market where any idiot could make money, or so idiots like me were led to believe as IPOs flooded the market at fancy P/Es and investors just had to get allotments for them to make a killing.
Reliance Power’s issue, which was oversubscribed 73 times, had the company laughing all the way to the bank as the company raised Rs 11,700 crore.
Sadly, the investors had nothing to smile about as the stock opened below the issue price and did not recover till Anil Ambani offered a bonus. Several other proposed offerings like Wockhardt and Emaar MGF quietly withdrew their offers.
My question is simple: will the much-hyped, much-talked-about, brilliantly-marketed IPL be just another IPO that promises much, is wonderfully packaged and something that will hurt the people who have bought into the concept? And more significantly does it offer any exit options to the investors who get hurt in the bargain?

Core competence out of the window
There is a point of view that I agree with about the theory of core competence and “sticking to your knitting.”
That view is based on the premise that these theories have relevance for Western economies which are stagnant or have low growth rates and companies have to think several times over before undertaking investments in unrelated fields.
In India, it is different as we have a booming economy and companies have cash from unsuspecting investors like you and me who cheerfully subscribe to IPOs without bothering to read the prospectus and so are able to take decisions like the franchisees have taken without worrying too much about the consequences or the returns.
But many of the franchisees would be hard-pressed to justify this investment as they have had no prior association or long-term commitment to cricket. GMR is from infrastructure, Deccan Chronicle is a media house, India Cements manufactures and sells cement, while Preity Zinta and Shah Rukh Khan fuel dreams.
Of course, Reliance can get into anything and make a success of it, though they seem to have started out badly with a poorly composed team for Mumbai.
Significantly, several of these franchisees recently launched Initial Public Offerings and collected enormous sums of money, including DLF, the title sponsor. They seem to be unfazed by the fact that it may take a decade to recoup the investment (if at all) and are making some gloriously vague statements about “image” and “corporate social responsibility” being the driving forces behind this decision.
I would have loved to be a part of these discussions and this reminds me of the decision one of my clients took several years ago to sign on Amitabh Bachchan as a brand ambassador.
Those were the pre-KBC (Kaun Banega Crorepati) days and the Big B was actually on the way to being a “has been” while my client’s brand was right up there. He signed him up for a fantastic sum of money so that he could spend time with the actor who had been his idol and it was a great ego boost for him that he was actually on first name terms with the great actor and must have caused enough ripples in the cocktail circuits in those days!
Now many of our great cricketers have been signed on by franchisees for enormous sums of money that, to my mind, at least, is disproportionate to the returns, hopefully not for similarly trivial reasons like being able to rub shoulders with these celebrities whom one might not have met otherwise.

Hyderabad? Chennai or Tasmania?
One of the reasons why the format may fail is the fact that most cricket fans are rabidly nationalistic and chauvinistic.
Recently, one of the Indian fans had a placard at Sydney which read “Symonds, Hyderabad welcomes you” and our TV commentators, who are as rabidly nationalistic as you can hope to meet, said that here was evidence that Indians are a sporting race.
I nearly choked. I am sure they do not witness cricket matches from the stands here. There is a death-like silence when an Indian wicket falls and huge cheering for every edge the local batsman comes up with. I can’t imagine Ponting being supported in Mumbai and Symonds being cheered at Chandigarh. Involvement of the fan with the teams playing is crucial to success and that is not merely sporting the T-shirt of the local team and that will come with time, if at all. How the teams build links with the local community will be crucial. If you look at the English county system, people like Shane Warne have a tremendous following in Hampshire as he is loyal to the team, lives there during the season has captained the team and nurtured young talent.
Will that happen here? I am not sure as this seems like a quick and ready passport to instant wealth or financial security for a lot of retired or retiring Australians who must have done some wonderful things in their previous janams as their karma is kicking in cash in droves.

BCCI can sell and even threaten but ...
While the BCCI may have pulled off a tremendous marketing coup and made the world sit up and take notice, it is perhaps relevant to recollect the past and the BCCI’s track record. It is the same organisation that had Jagmohan Dalmia and now Sharad Pawar.
One is reminded of the handling of the leaked e-mail and the Ganguly-Chappell spat. It has never bothered about the end consumer or cricket.
You just have to watch a one-day game in India to understand what acute customer discomfort is. It sells the TV rights for crores of rupees to broadcasters who consistently eat into viewing time with commercials that are casually aired in the first ball and during the last ball. Where will the BCCI find the organising capability to handle this mammoth event?
The sale has been made but what about after-sales? Do they have the capability? I am not sure. Will people watch?
Remember the timing clashes with all the soaps. Will housewives let their husbands watch the cricket while their favourite soap is on air? Remember many households in India are still single-TV households.
The pricing of TV spots seems fancy at this point in time. The Sony formula of sports and entertainment that was widely touted as breakthrough had limited appeal in my view. One believes that you may get new viewers but diehard viewers like me may not show the same enthusiasm.BCCI can learn from Anil Ambani
Let me go back to the IPO example that I started with of Reliance Power. The issue, though tremendously oversubscribed, started really disappointingly at the bourses when it was listed initially. The overall depression surrounding the US recession and a combination of factors ensured that the market crashed and the IPO was hit. Clearly, Anil Ambani was shocked and all the euphoria surrounding the tremendous subscriptions evaporated at the poor opening.
Mind you, this was the market and not really a function of the issue. Everyone knew that the issue was overpriced, but they went ahead and bought the issue. They did get hurt and Anil Ambani stepped in and offered a bonus as he was concerned about the real owners of the company – the investor.
The real owners of Indian cricket are people like you and me who love the game. People who watch the game on TV for hours on end support the team and even travel abroad to support it. I only hope the BCCI will show the same concern for us while running the IPL and itself in future. That will be Indian cricket’s greatest gain — not the enormous revenue it has got from IPL.

Ramanujam Sridhar is CEO, brand-comm and the author of “One land, one billion minds”.

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