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IPL 2021 Called Off - How Much Will It Cost and Whom?

May 5, 2021 2:59 PM 5 min read

May the 4th sadly took the full-throttle force out of IPL 2021 as the BCCI indefinitely postponed the massively popular cricket tournament effective therefrom.

Many supporters of the game vouched for its role in bringing evenings of respite to a billion plus audience. Audience which was shaken with news of the daily Himalyan ascent in coronavirus case numbers and deaths. But no further support could justify carrying it forward once multiple players tested positive, indicating a burst in the tournament's so called bio-bubble. 

But how much is the cancellation of these matches going to cost? And which entities will have to pocket the maximum losses? 

Let's find out!

A Slowed Revenue Pitch 

First thing's first. The IPL is run on a 50:50 revenue sharing formula between the BCCI and the franchises. A central pool is created from the proceeds earned through various revenue sources, such as: media rights, brand sponsorships, title sponsorships, ticket sales, merchandising and prize money.

Absence of ticket sales in light of social-distancing norms has certainly created a hole in the revenue pool. Consequently, teams have begun to rely more aggressively on alternate sources. But on account of an ongoing economic slowdown occasioned by the pandemic as well as a generally restive business climate over the past year, a number of problems have arisen in revenue collection. 

Let's start with media rights. Star India acquired IPL's media rights for 2018-2022 for a whopping ₹16,347cr ($2.2bn), a 3.5x% increase from what Sony Entertainment paid for the previous period on a per game basis.

This averages to a ₹3,269cr ($441m) realisation per year. But seeing as only 29 matches (out of 56) were held in the 2021 calendar so far, the media proceeds would only account for around half of the annually earmarked figure. BCCI keeps a cut from selling these rights before distributing it to the team franchises.

Sponsorship has been yet another tricky field for the organisers to score on. Owing to the anti-Chinese sentiments rising from the Galwan Valley crisis last year, Vivo dropped out as IPL's title sponsor resulting in Dream 11 stepping in. But the latter only paid ₹220cr ($30m) in contrast to ₹440cr ($59m) agreed with the former. 

2021, however saw a revival of the Vivo-era as the company returned as the title sponsor and committed to pay ₹484cr ($65m). In addition, five on-ground partners - Tata Safari, Dream 11, Unacademy, Cred and Upstox - were slated to pay ₹200cr ($27m). Plus, Umpire partner Paytm and Strategic time-out partner CEAT were to bring in another ₹60cr ($8m). 

All of these combined were expected to beef up the sponsorship treasury by a 30% upward margin compared to IPL 2020. 

Half of all the revenues earned by BCCI from broadcasting rights and sponsorships are put together in a central pool which is then distributed equally to the participating franchises. This actually turns out to be the biggest revenue source for the franchises, worth as much as even 90% for some of the smaller teams. The rest of the revenue comprises team specific sponsorships, ticket sales etc. 

Alas, the recent COVID-surge seems to have disabled those expectations. If the 2021 season isn't renewed any time later this year, a force majeure is likely to take effect and hold broadcasters and sponsors liable for the prorated payments only depending on the number of matches played so far. 

Ergo, revenues slashed by almost half. If 2020 IPL was a moderate season with a lower-than-expected collection of ₹4,000cr ($540m), then 2021 is suffice to say, a muted one.

Compromised Strikes

Last year saw a spectator-less organisation of matches out of the country in a severely scaled-down version. But in spite of loss in stadium and gate revenues and drop in sponsorships, franchises managed to stay profitable. 

Why? Because the ‘central pool’ for broadcasting fee is quite meaningful as alluded to earlier!

Furthermore, costs were cut by an unprecedented 35% by any means employable (cut down on venues, reduced travel costs, prize money etc.) adding modest margin upside. A postponement has irradiated all those possibilities. 

The valuation of the tournament has been severely stymied amidst the pandemic due to a host of reasons. Games being played behind “closed-doors” resulting in lower ticket sales, lower food and beverage consumption and a downtick in several other offline events have driven slightly choppy consumption patterns pressuring the value of the entire ecosystem.

However, the broadcasting revenues had thus far somehow offset those losses. Star increased slot rates for advertisers this year from ₹11-12L ($14,852)per 10 seconds to ₹13L ($17,553).

The aim was to break beyond the 2020 revenue target of ₹2,500cr ($337m). But with domestic sentiments at an all-time low on account of the second wave's travesty, TV viewership had already begun to reduce before postponement was announced. 

With statewide lockdowns in effect, co-promotions and off-stadium marketing deals that the organisers had with bars, clubs and restaurants for live screenings etc. have also not worked out. Star is reportedly expecting losses to the tune of ₹2,000cr ($270m) this year. 

Where's the Insurance Powerplay?

Remember how Wimbledon made news last year after receiving a staggering $141m in insurance payout for cancellation of events in the 2020 tournament? So, where's IPL's safety net, one might wonder?

The net, unfortunately, does not exist because BCCI didn't have the same foresight as the All England Lawn Tennis Association to take out a worldwide pandemic insurance policy. The usual coverage for "force majeure" or "superior force" clauses that are included in policies to cover for unexpected circumstances, does not apply to COVID-19. The pandemic is deemed as a "standard exclusion" in BCCI's now-redundant ₹3,500cr ($472m)-large insurance cover! 

Seems like the IPL got knocked right off the bat this time. One would still like to think that the decision to call the series off at the expense of huge financial losses was done well ahead in time. Financial losses may be recoverable but loss of health and human lives arising from something as festive as the game of cricket, is hard to overlook.


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