As the action in the DLF IPL Twenty-20 cricket league heats up, the big question on everyone?s lips is: how much money will the franchisees make?
Back-of-the-envelope calculations carried out by FE, together with analysts and media planners, reveal that cutting through all the glamour and glitz, running a team will be a tough business proposition.
While earnings may be positive from the first year, it will take around seven or eight years before the operations start to pay back the initial capital spend.
Payback from The Kolkata Knight Riders?owned jointly by Shah Rukh Khan and Juhi Chawla?though, could start as soon as in five to six years. That?s because the team has developed strong merchandising properties and its home stadium, Eden Gardens, can seat 1.20 lakh spectators.
Franchisees like SRK keep 80% of gate takings. And with local hero Sourav Ganguly leading stalwarts like Shoaib Akhtar and Ricky Ponting, sport crazy Kolkata will certainly see full houses for home matches.
Average capital costs for each franchisee are estimated at Rs 380 crore. That includes the cost of acquiring the franchise for ten years and signing on key players for five years. These will be primarily serviced by revenues from television rights (80% in the first year, tapering off in later years), which are expected to fetch Rs 20 crore in year one.
Around 80% of ticket collections will be shared with local associations. An average capacity of 40,000 at an average ticket price of Rs 500 was assumed for calculations. Overall, revenues and promotions work out to around Rs 63 crore. Merchandising and other alliances will add to the takings.
Expenditure, on the other hand, would be around Rs 23 crore, of which advertising spend would be a crucial head, as would be logistics. If all goes well, in the second year and beyond, revenues from television royalties would decrease, but so would branding costs and player sign-ups. But it all hangs in a very tight balance. Clearly, it?s not just the players that will sweat it out at each match.