IS CRICKET becoming a leitmotif for rivalries? A battleground, a playground or a gridiron. Are Hindi film industry and Indian business battles going to be mirrored in the Indian Premier League? Well, it appears so. I watched Salman Khan, one of Hindi film industry’s most bankable stars in recent times (though right now he needs an adrenalin booster shot for his career is sagging) talking the talk to a talk show host on one the channels Sunday night and he was elucidating on how he is keen to pick up a franchise in the IPL. Salman’s next two movies Wanted and Main aur Mrs Khanna are make or break efforts for the pocket Hercules. Is this a publicity stunt for his forthcoming movies?
Why do I ask?
Well, Lalit Modi told me the other day that the base price for the two new franchisees will be in the vicinity of $200-250 million. The tenders are expected to be put out by December and the two highest bids will be awarded franchises by mid January. Modi also told me that he expects the top two bidders to come in closer to the $300 million mark. That is serious money. Agreed that the $ 300 million is over a 10 year period which translates into approximately $ 30 million per year. At the current exchange rate, it works out to Rs 1.46 billion and change per year. Yes, a substantial portion of the telecast rights revenue which accrues to the board is shared by the franchises, but the reality is that to run a franchise is a tough job which requires more than anything else a deep financial insight.
So, do you reckon that Salman Khan can first raise this kind of money and then run a franchise efficiently? After all we know what happened to the badshah – Shahrukh Khan. At the end of the day, running a franchise is nothing short of running a full fledged business. John Buchanan ran a mom and pop shop at Knight Riders at the cost of SRK and Jai Mehta. There are complex organisational issues which can imperill the entire franchise. Big Industrialists like Mukesh Ambani, Vijay Mallya, N Srinivasan, G Mallikarjuna Rao, newspaper baron Venkat Ram Reddy, Mohit Burman, Ness Wadia, Emerging Media’s Suresh Chellaram and Manoj Badale are still grappling with the harsh reality of running a sporting franchise. There so many elements and facets to a sports franchise. Who would have thought that a domestic tourney like the IPL would have to be staged in double quick time in South Africa because of a security spectre? The IPL is only two seasons old and as the management teams begin to come to grips with the innards of a sporting franchise, I am sure they will overcome all the imponderables.
Now let us examine the system as it stands. First there is an entry cost and then there is a running cost. There is a management staff, players, support and coaching staff, marketing personnel, the list is endless. All these people need to be paid. When I visited Goa for the player auction earlier this year, I saw flashes of what the IPL eco system is like. Believe me, it is huge. Much like an iceberg – you can see only 10 per cent of it because the rest is under water. Very much so, that would be the best analogy to give.
In the UK, the city based franchise model is a success, but it has become popular over a period of time. Russian oligarch Roman Abramovich owns Chelsea Football Club. Fulham is owned by Harrods owner Mohomed Al Fayed, Manchester City is now owned by oil billionaire and member of the ruling family of Abu Dhabi Mansour bin Zayed Al Nahayan while Portsmouth is owned by another Gulf multi billionaire Sulaiman Al Fahim. Our own Laxmi Mittal has a stake in Queens Park Rangers along with F1 boss Bernie Ecclestone in the Championship. Corporatising is the only way forward.
Even the other clubs have big wealthy owners behind them. Sounds flashy and stylish, but there is another side to the EPL. The financial side to all this glamour and glitz, fast cars and record transfer fees. Fifteen of the 20 EPL clubs were subsidised by their owners as operating costs went through the roof last season.
The Deloitte Annual Review of Football Finance shows that the EPL’s 20 clubs during the ’07-08 season spent a record $ 1.9 billion, combined on player wages, up 23% from the ’06-07 campaign. The teams’ combined income during the ’07-08 season rose 26% to $ 3.1 billion, “largely as a result” of the league’s combined overseas and domestic TV revenue of $ 1.5 billion. However, “realistic hopes of generating substantial profits remain as distant as ever for most clubs,” as the EPL’s combined debt has risen to an all-time high of $ 5 billion. The EPL’s “big four” clubs – Manchester United, Chelsea, Liverpool and Arsenal – are “responsible for almost two-thirds of that sum.” However, Deloitte analysts “remain largely upbeat about the English game’s future, even as the recession bites,” and predicts that EPL clubs “will continue to grow revenues in 2009-10, albeit at a slower pace.”
Gunners Arsenal alone had a debt of $ 673 million, Man U an astounding $ 1 billion, Liverpool $ 485 million and Fulham $ 318 million and so on. Fancy that, anybody?
So, I am not casting aspersions on anyone’s business acumen, but the IPL or EPL is not something for the faint hearted. You need nerves of steel and a deep rooted understanding of the business of sport. With a stiff entry barrier and humungous operating expenses, my guess is that only some of the big industrialist types will be able to venture into bidding for a franchise, unless it is a combination of friends with a comprehension of finance. Kings XI Punjab for instance have Dabur’s Mohit Burman, Bombay Dyeing’s Ness Wadi and the owner of Apeejay Surendra Karan Paul. They are friends who studied and grew up together in the UK, share a common passion for the game and bring different skill sets to bear in the franchise. They bought the franchise for $ 76 million. Rajasthan Royals has a similar structure – Nigerian shipping magnate Suresh Chellaram, private equity player Manoj Badale, British businessman Raj Kundra and Lachlan Murdoch – have come from disparate backgrounds, but understand money and talk together.
My sense is that three or four actors coming together and forming a consortium to buy a cricket franchise in India doesn’t make very good business sense. To be a brand ambassador does. Running a franchise is a tough job and one should leave it to men or women who understand the nuances of such an enterprise. Actors don’t have the time to devote to running what is much akin to a corporation. For them it is a toy, after a while they will get bored of it. SRK practically fled SA and never returned after casting his ballot in Mumbai. Actors should stick to acting or they should devote time, effort, energy to running the enterprise actively or through business managers who know their job. Imagine Dr Vijay Mallya despite being a successful businessman chose Charu Sharma to be the CEO of his franchise Royal Challengers and then cribbed and cribbed. He chose a Dad’s Army to perform and they failed. Dang! You can argue that everyone makes mistakes. But when you go into war, you cannot afford to make the slightest error.
The Indian owners of the IPL clubs have realised to their chargin that it is not easy to run a franchise. Anil Ambani, Subrato Roy Sahara and others may well join them by season 4. Modi told me that he has been approached by 28 people for the two slots available. Even if the majority are bombast and nothing else, there will be some who are willing to write a cheque. And that is when their problems begin. For they will have to find their way in a densely populated jungle, learning as they go along and at all times attempt to make money. RR did in season 1, so it is not that it cannot be done. But you need to get a handle on things…
