A study by BrandFinance on IPL V to value IPL Brand and its Nine ...
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1 A study by BrandFinance on IPL V to value IPL Brand and its Nine franchisee brands Brand Finance India, 4 th April 2013
Transcript of A study by BrandFinance on IPL V to value IPL Brand and its Nine ...
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A study by BrandFinance on IPL V
to value IPL Brand and its Nine franchisee brands
Brand Finance India, 4th April 2013
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Team Owners/
Team Players
BCCI – The
IPL Brand
Owner
Sponsors &
Other
Partners
National &
International
Audience
The IPL Brand
•Central axis along which stakeholders
need to be aligned
•Captures all stakeholder’s
understanding of IPL brand vision
•Acts as a shorthand for the IPL business
and its long term vision
•Building an “intangible” asset of long
lasting significant value to be
monetised through Audience and
stakeholder relationships
The Pivot of a Dynamic Value Exchange
Cash FlowsTrust Flows
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IPL Ecosystem
• Three teams from India (2 finalists and the top league
finishing team)
• The top 2 domestic T20 teams from South Africa, England
and Australia, and the domestic T20 Champions from New
Zealand, West Indies and Sri Lanka
BCCI the Apex governing body
organizes various tournaments
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Sony WSG
Broadcaster
BCCI
Organizer (IPL)Franchisee
Television Advertisers Central Sponsors
Team Sponsorship, Merchandising,
Gate receipts, and In Stadia
Advertising
• Franchise fees,
• Local revenues payable to IPL,
• Gate receipts payable to IPL/Stadium Lease
• Team expenses /Players Salaries,
• Advertising/administration
• Umpire Salaries & Prize Money
• Theatrical Rights
• Internet Rights,
• Blimp Sponsorship,
• Title Sponsorship Pepsi
• Partners – Vodafone, Star Plus, Yes Bank
• Official drink & Ground Sponsor
Production Cost
Broadcasting feesShare of Broadcasting fees &
Sponsorship fees
Understanding the Eco-System of IPL
Revenue Streams
Costs
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TV broadcasting rights
Marketing support
Franchise fees
Title sponsorship – Pepsi
Title sponsorship
Ground sponsors
Umpire Sponsor
Official drinks sponsor
Merchandising
Share of local revenues
Share of gate receipts
Blimp Sponsorship
Internet Rights
Theatrical Rights
• Broadcasting rights to franchisees
• Sponsorship to franchisees
• Merchandising to franchisees
• Marketing costs
• Administration
TV broadcasting rights 10 year
Marketing support 10 year
Franchise fees 10 year
Title sponsorship – Pepsi 5 year
Umpire Sponsor 5 year
Official drinks sponsor 5 year
Blimp Sponsorship 1year
Internet Rights 2 years
Theatrical Rights 10 years
IPL revenue, expenditure & sponsorship details
Title Sponsor
Partners
Official Broadcasters
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IPL Brand led Business Valuation – IPL V
$ 3.67 billion USD - 2011
Combined Trademark Value of all the franchisee
$325.8 million USD 2013
$321.12 million USD - 2012
$ 3.03 billion USD - 2013
Brand Value added by IPL Brand to BCCI
$ 4.13 billion USD - 2010
$ 2.92 billion USD - 2012
4%
Growth*
* - After considering 7.5% increase in Exchange Rate
1%
Growth*
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IPL Brand led Business Valuation
• Brand Finance has treated the IPL as a single commercial entity in order to evaluate its worth.
This means that we have aggregated the income that both the BCCI and the franchisees will
achieve, and the expenditure that each will incur. All cross-charged income/expenditure has
therefore been ignored. Brand Finance is calling this concept the “IPL System”.
• Our approach has been to forecast the profits expected to be made by the IPL System in
total, using publicly available data, both in terms of income and expenditure, and to apply a
common rate of tax to these profits (33.99%), and then discount the cash flows back to their
net present value (NPV).
• We have assumed that after the initial ten years the IPL concept will be continued. This
assumes that there will be no viable competing domestic, or international, Twenty20
tournament, and that the best domestic and international players will continue to be made
available to the tournament. A domestic tournament, in this case, means any tournament in
any of the cricketing nations that is sanctioned by the respective Governing Body, which has
the potential to reach the scale, and dynamism, of the IPL. On this basis of this assumption
we have applied a perpetuity value to the IPL System.
• We have estimated that the combined business value created by the IPL brand is estimated
to be $ 3.03 billion.
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The following nine franchisees were valued
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Franchisee Valuation Methodology – Overview
Each franchisee is valued, after analysis of Financial Performance and Marketing &
Commercial Strategy
(based on information available in the public domain)
FINANCIAL ANALYSIS
• Identification of revenue and expenditure streams
• Building of financial forecast
• Royalty rate determination
• Brand Value determination
THREE PILLARS OF EVALUATION
• Cricketing Excellence
• Marketing Excellence
• Corporate Governance
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Franchisee Team
Brand Value Excellence
Framework
Business sustainability pillars of franchisees
Analysis of Brand Value Excellence
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Cricketing Excellence Corporate GovernanceMarketing Excellence &
Commercial Strategy
• Team Selection & Team
Composition Consistency
• On field performance &
Success rate
• Professional approach to
team management
• Bench Strength
• Individual players
performance
• Ownership Structure
• Transparency in the
approach
• Separation of ownership
and management
• Franchisees ability
•Sponsorships, alliances and Strategic Partners
•Ability To attract and retain Sponsors / merchandising deals
•Fan Base Engagement through Initiatives / events – enhanced through Social Media Engagement
•Brand leverage
•Gate Receipts & Ticketing Innovations
•Catchment Population and Stadium capacity
•Presence of Stars, Celebrity, leadership & Owners Charisma
Three Pillars of Evaluation
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D
D
DD
DDD
DDDD
C
CC
CCC
B
BB
BBB
A-
A
A+
AA-
AA
AA+
AAA-
AAA
AAA+
AAA+
Extremely Extremely
WeakWeak
Extremely Extremely
StrongStrong
Composite scores based on evaluation of
each franchisee on all three factors impacts
Brand Rating and Brand Strength
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Str
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Franchisee Team
Brand Value Excellence
Framework
Business sustainability pillars of franchisees
Value Excellence leading to Strong / Weak Brand Ratings
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Financial Analysis
Central broadcasting
Central sponsorship
Team sponsorship
Gate receipts
In-stadia advertising
Merchandise sales
Media tie-ups
Prize money
Franchise fees
Player salaries
Stadium fees
Travel and
accommodation
Team promotions
Other costs
The financial forecast was extended to 2019 using
qualitative analysis and considering the IPL terms on
revenue sharing details.
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Franchisee Valuation details
Rs 54.39 = 1 $ Convertibility rate which is average rate for 2013 IPL 6
Rs.50.62 = 1 $ Convertibility rate which is average rate for 2012 IPL 5
Rank
2013
Rank
2012
Franchisee Brand Value
2013
Brand Value
2012
Change
%
Brand
Rating
2013
Brand
Rating
2012
1 2 Chennai Super Kings 45.42 45.28 + 0.05% AA AA
2 4 Kolkata Knight Riders 44.98 39.03 + 15.2% AA A
3 1 Mumbai Indians 44.62 48.21 - 7.4% A+ AA
4 3 Royal Challengers
Bangalore37.81 41.15 - 8.1%
A- A+
5 5 Delhi Daredevils 34.22 32.19 + 6.3% A+ A-
6 - Sunrisers Hyderabad 31.49 BB -
7 8 Kings XI Punjab 30.78 28.66 + 7.4% BB B
8 7 Pune Warriors 29.45 28.88 + 2% B BB
9 9 Rajasthan Royals 27.05 26.93 + 0.04% B B
All Figures in $ Millions
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Franchisee Brand Valuation results - Summary
$ 44.98 mln
$ 29.45 mln
$ 45.42 mln
$37.81 mln $ 31.49 mln
$ 27.05 mln
$ 44.62 mln
$34.22 mln
$ 30.78 mln
Rank 1 Rank 2 Rank 3
Rank 4 Rank 5 Rank 6
Rank 7 Rank 8 Rank 9
Leading in Value
Creation
Holding a lot of Promise
Struggling to create
value
All Figures in $ Millions
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Formidable
Team Brands
Still pack a
punch
The
Stragglers
These franchises have created strong team
strategies, resulting in cricketing excellence.
Consistency and Coherence across the
three key drivers of performance
These franchises have lost some of their Past
Glory – thereby impacting their cricketing
performance
Still have huge potential to destroy any
opposition..
Clubs which are still getting their house in order
thereby struggling in all fronts of performance.
How they stack up…..
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All franchises – Fortunes seem to be turning around..
But is IPL Ecosystem Fit for the LONG RUN?
• Brand Finance has evaluated each franchisee on following three broad parameters :
1. Cricketing excellence
2. Marketing excellence
3. Corporate Governance
• All the franchises have recovered in value by 2% to 15% across the board, however a new
category of “still pack a punch” has emerged with erstwhile leaders having lost their sheen in
terms of cricketing performance and team rhythm.
• The franchises who found team composition and leadership in place, are creating a huge
impact on fan base, on merchandise and also on their winning ability !
• Franchises are trying new ways to woo their fan base – innovative Social Media initiatives are
creating new engagements – but this has yet to result in revenue streams for the team
owners.
• As the 10 year window is coming closer, Franchises will have to rapidly learn to stand on their
own feet as the components of support from the central pool of revenues are increasingly
going to be tempered downwards.
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IPL 6 – Turnaround visible but is IPL Fit for the LONG RUN?
• IPL Ecosystem continues to struggle with governance issues. Team & ownership issues prop up
regularly thereby creating ambiguity in the stability of the Ecosystem.
• Franchises have begun focusing on consistency in on-field performance, governance and fan
engagement to ensure that strong revenue streams are generated. Dependence on central pool
will need to gradually reduce. Survival of each franchise is also key to IPL’s own survival in the
long run.
• With ever increasing costs like players’ wages, running costs and ground activation costs, there
is going to be a squeeze on cash flows going into the future.
• The teams which concentrated on delivering cricketing excellence (not just win – but a great
fight), have created a large fan base, even beyond their home cities. This is enabling top ranked
teams to better engage fans & TV viewers - creating new long term revenue streams. Sponsors
are vying for these type of teams as they are building character. Teams like Kolkata Knight
Riders & Delhi Daredevils have created a mark of their own by concentrating on team dynamics
and this has resulted in accelerated value creation.
• IPL is also seen as the flag-bearer of Twenty20 innovations – many leagues exist which envy the
momentum garnered by the IPL. Any long term damage to the IPL may see a global cascading
effect on all Twenty20 leagues.
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Team Cost – Auction process and Players salaries
• Team cost is expected to go up as franchisees will make best possible attempt to retain keyplayers as new franchisees would be ready to pay significantly higher for star players. Also, in theinitial phase of franchise's identity development, heavy investments need to be incurred inground activations to drive fan engagement & loyalty.
• In a rush to create / embrace new vehicles of fan engagement, Franchises need to be cautiousdealing with Social Media – while it is enabling some teams to create momentum, it is alsorapidly eroding fan equity due to poor planning & response from Franchises.
• Already the IPL is second only to the American National Basketball Association ( NBA ), whoseannual average salary is 2.9 million pounds, whereas the annualised IPL's average salary is 2.65million pounds - Annual Review of Global Sports Salaries- 20th April 2011
• The problem of the wage bill impacting operating profits is a global phenomenon and themajority of clubs are struggling to contain players’ costs. Ranging from 55% to 60% of total cost,the IPL Franchises have not reached that level but they are not far away.http://www.bbc.co.uk/news/10249101
• If franchises do not maintain a careful balance between players’ wages and organic growth, itcan set up a vicious cycle which will have a direct impact on operating profits and businesssustainability.
• IPL franchises need to be particularly conscious so as not to fall into this obvious debt trap.
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Methodology
Furthermore, we have valued the ‘brand’ IPL, using the Royalty Relief methodology. The 'Royalty Relief' (also known as Relief from Royalty) method is based on the notion that a brand holding company owns the brand and licenses it to an operating company. The notional price paid by the operating company to the brand company is expressed as a royalty rate. The NPV of all forecast royalties represents the value of the brand to the business
Our approach has been to forecast the profits expected to be made by the individual franchisee, using publicly available data, both in terms of income and expenditure, and to apply a common rate of tax to these profits (33.99%), and then discount the cash flows back to their net present value (NPV)
The income of the individual franchisees comprises the following revenue streams:
– Broadcasting
– IPL Sponsorship
– Team sponsorship
– Merchandising
– Gate receipts
We have assumed that after the initial ten years the IPL concept will be continued. This assumes that there will be no viable competing domestic, or international, Twenty20 tournament, and that the best domestic and international players will continue to be made available to the tournament. A domestic tournament, in this case, means any tournament in any of the cricketing nations that is sanctioned by the respective Governing Body, which has the potential to reach the scale, and dynamism, of the IPL. On this basis of this assumption we have applied a perpetuity value to the IPL System
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� Thank you
Brand Finance works for a wide range of clients conducting national and international brand valuation and brand strategy assignments. Brand Finance has a global footprint over 20 offices worldwide. For more information please refer to our website: www.brandfinance.com
Unni Krishnan
Global Strategy Director – Brand Finance Plc.
Mob. +91 984 4140 640
