IPL ecosystem value declined by 3.6% to Rs 45,800 cr in 2020: Duff & Phelps

2020 was a challenging year with economic distress and uncertainty due to the COVID-19 pandemic. The sports economy was not immune to this crisis, and the pandemic disrupted the sporting calendar for the year, with a string of tournaments being postponed or cancelled. Duff & Phelps today released key findings from its IPL Brand Valuation Report 2020, a study of brand values in the Indian Premier League (IPL).

The IPL also felt the heat of the pandemic, and the findings of the seventh edition of this annual IPL study suggest that the IPL ecosystem value has decreased by 3.6% in constant currency terms to Rs 45,800 crore from Rs 47,500 crore last year. The individual franchisees have also witnessed a reduction in their brand values over the last year, mainly due to reduced franchisee-related sponsorship revenue, loss of gate receipts, reduced food and beverage (F&B) revenue and certain teams’ on-field performances.

“Similar to the impact on other businesses and the overall economy, the pandemic led to a decline in the IPL ecosystem value. However, with people forced to spend time at home, there was an increase in IPL television viewership. The 2020 edition was a huge success for broadcasters as it broke viewership and advertising revenue records. Television ratings skyrocketed and advertisers tapped into this opportunity to scale up their brand image. Despite the challenging year, this momentum is indicative of how strong the IPL brand has become,” said Santosh N, External Advisor, Duff & Phelps India.

“With the economy opening and COVID-19 cases decreasing in India, we expect sponsorship deals to be back to their pre-COVID-19 levels. We have now entered a more stable phase in terms of the IPL ecosystem's value; the value appreciation is not expected at the rate of previous years. However, an increase in the number of teams in 2022 and the renewal of media rights in 2023 could enhance the IPL ecosystem value in the future,” Santosh added.

Commenting on the future of the sports ecosystem in India, Varun Gupta, Managing Director and Asia Pacific Leader for Valuation Advisory Services at Duff & Phelps, A Kroll Business, said, “The IPL reflects the evolution of the modern cricket business, with clubs benefitting not only from the sport's enduring popularity in India but also from the game going global and from some great marketing initiatives. We believe that for growth trajectories to maintain their momentum, all teams need to continue broadening their footprint, forming relationships and generating revenue opportunities in growth markets.”

In 2020, IPL Season 13 has seen lower sponsorship revenues as compared to previous years (Dream11 paid Rs 222 crore for the season, as against Vivo’s cancelled contract of Rs 440 crore per season for the IPL title sponsorship). However, IPL’s impact on its sponsors/ partners continues to be remarkable. Following the announcement of central sponsorships by the Board of Control for Cricket in India, the title sponsor Dream11 secured $225 million in funding, one of the official sponsors Unacademy joined the Unicorn club with funding of $150 million, and another official sponsor CRED secured $80 million, bringing it closer to Unicorn status.

Mumbai Indians retained the top spot in the franchise brand rankings for the fifth consecutive year. However, its brand value was down 5.9% from last year to Rs 761.0 crore.

Chennai Super Kings (CSK) and Kolkata Knight Riders (KKR) have also seen their brand value erode by approximately 16.5% and 13.7%, respectively, compared to last year.

CSK’s brand value has reduced from Rs 732 crore to Rs 611 crore, while KKR’s brand value has dropped from Rs 629 crore to Rs 543 crore.

The IPL Ecosystem represents the value generated by the IPL as a business. It basically includes the business value of all the franchisees and IPL governing body, that is, BCCI. The IPL Ecosystem has been valued using a method under the Income Approach known as the Discounted Cash Flow (DCF) Method. The DCF Method is a valuation technique that provides an estimate of the value of an asset or a business based on the cash flows that the asset or business is expected to generate over its remaining useful life.

Impact of COVID-19

At the height of the coronavirus pandemic, economists were debating whether the fallout of COVID-19 will be bigger than the 2008 financial crisis or the Great Depression of the 1930s, or something far worse. As we witnessed during the initial months of 2020, never has the world gone into a lockdown, where nearly 75% of the population was indoors. The economic and financial ramifications of the shutdown of global sports leagues were equally bad, with all major sporting leagues or events scheduled during 2020 were either suspended indefinitely or postponed.

March 2020 plunged the IPL into uncertainty when the Government of India and various state governments banned public gatherings and imposed restrictions on all travel across India. As a result, the BCCI had to initially suspend the IPL till mid-April from the original start date of March 29 and then postpone the 2020 season indefinitely. After further deliberations, the BCCI decided to hold the IPL in the UAE, with matches being played behind closed doors. However, it was only possible after Australia refused to host the ICC T20 World Cup in October due to the rising COVID-19 cases in that country and the severe quarantine restrictions imposed by local governments.

The keenness of various broadcasters to fight for the IPL broadcast rights in 2017, which Star India eventually won for a whopping $2.55 billion for five years, was a validation of how big the IPL has become. Currently, the IPL is in the august presence of the global sporting leagues, when one compares the average per match broadcast rights fee of the IPL with those of global leagues such as the English Premier League (EPL), NBA and NFL. On an annual fee basis, the compounded annual growth rate (CAGR) of the IPL broadcast rights works out to approximately 18.9%.

On an average, the IPL franchisees’ earnings from match day revenues (including ticket prices, merchandising, and food and beverages) account for less than 20% of their overall revenues, as they rely heavily on the central pool revenue that they receive from BCCI along with their team sponsorship revenues.

Things have started to look better after the IPL 2020 season was successfully organised by BCCI in UAE and the subsequent immensely successful India tour of Australia. BCCI has allowed spectators into the stadium from the 2nd Test match onwards of the India-England test series, which would pave the way for the IPL being organised in India, with the presence of spectators, albeit with a reduced stadium capacity. This would bring more cheer to the game and the franchisees, if the COVID-19 situation remains as it is or continues to improve in India. However, given the rise in COVID-19 cases in several states, the organisers are keeping a close watch on the developments.