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The IPL Business and the Sponsorship Conundrum

Sports fans comprise one of the most passionate and powerful demographics in the world. From companies like Barilla, to the more well-known ones like Budweiser, all brands consistently bring their A-game to sports sponsorship activities. Sponsors are finding clever ways to bring fans closer to the game, the athletes, and thereby, to their brand. The sponsorship of events represents a significant and growing component of a firm’s overall investment in marketing and promotions. While the marketing literature suggests that sponsorships may be a potential communication tool, relatively little empirical research has been devoted to studying efficiency issues in sponsorships.

The Coca-Cola and the Olympics, Rolex and the TED, and PepsiCo and NFL are some of the many long-standing sponsorships that have caught our eyes, have been stuck in our brains, and have managed to hire us as free mouths for applause. In the most memorable episode, during the 1992 Barcelona Olympics, sponsorship was used to fuel comparative advertising campaigns. VISA’s tagline was ‘The Olympics don’t take American Express’, with images of ticket windows being slammed shut in the faces of American Express cardholders. The $20 million that they had paid to the International Olympic Committee (IOC) for their official sponsorship ensured that they received no complaints about the campaign.

However, American Express responded with more style, pointing out in its own advertisement campaigns that ‘To visit Spain, you don’t need a Visa’. Before UNICEF tied hands with football club Barcelona, it was just a Catalonian football club, but soon after, the football giant became the world’s favourite football club alongside UNICEF as ‘More than a club’. Nike’s close call with Michael Jordan in a commercial “I’ve missed more than 9000 shots in my career….”, changed the brand forever. The sporting fraternity has seen it all, right from Coca-Cola’s ‘Taste the feeling’ campaign during the Rio Olympic Games of 2016 with the #thatsgold campaign, to the Arsenal player Nicklas Bendtner proudly lowering his shorts while showcasing his underpants branded with Irish bookmaker Paddy Power’s logo when millions of spectators were glued to their TV sets. Sports has had a love affair with grandstanding sponsorships.

A few months down the line Indian cricketers will compete with each other to prove their dominance and for this, they’ll take help from the foreigners too. This will take place as a festival of sorts. People will support their states instead of the country. And, we’ll get to witness a distorted form of the ‘Gentleman’s Game’ in the form of an extravaganza. The Indian Premier League (IPL) is set to host its 13th edition in the United Arab Emirates (UAE) this year and the talks around sponsorships have already fuelled. The BCCI and the IPL make money via the auction of broadcasting rights, title and corporate sponsorship, ticket sales, auction of franchise rights, and official umpire sponsorship. Though the IPL has produced ghastly match-fixing incidents, terrible fights among cricketers on the field, mass level gambling, and whatnot, people can be seen binge-watching matches on their phone and simultaneously speculating the outcomes during the 42-day long tournament. Just like the IPL, the history of IPL’s title sponsorship is also muddled with a bit of controversy, confusion and drama. Besides this, the economics of IPL churns in millions and billions of rupees.

Back in 2008, DLF, India’s largest real estate company, paid a hefty sum of ₹2 billion (around $36.25 million), to own the title rights for the first five years of the tournament. However, after the given period, DLF decided not to renew its contract. This forced Board of Control for Cricket in India (BCCI) to issue a new tender, with a base price of ₹3 billion. In 2013, PepsiCo was the new title sponsor until 2015 when it chose to terminate its contract amid rising concerns of match-fixing, and irregular and untimely blemishes on the face of the IPL. VIVO, the Chinese smartphone company was then roped in for the 2016 and 2017 season. The BCCI had a fresh deal with VIVO in 2018 that saw them earn ₹4.40 billion every year, but the Indo-China face-off across the Line of Actual Control (LAC) as well as the negative publicity of the smartphone brand, has forced VIVO to withdraw its name as IPL sponsor this season. Though VIVO will no longer be a sponsor this year, it has only sought for a one-year moratorium, keeping the door open for a 2021 return. So, the BCCI is in an eager search to find a new short-term replacement sponsor.

Amidst the rising cries and steadfast support for home-grown brands, it has been understood that e-commerce companies as well as educational e-portals are keen to get the IPL sponsorship. Others in the race include Patanjali Ayurveda and Jio, besides e-learning platforms Byju’s and Unacademy, and fantasy sports firm Dream11. Though 5 companies have given their Expression of Interest (EOI), Tata Sons are likely to win the race hands down against the others on the back of not only money power but also because of being the biggest home-grown brand. The homegrown FMCG brand, Patanjali was the first brand in the country to openly declare that they would be bidding for the title sponsorship of the IPL but the loudest of the suitors seems to have chickened out. Despite Patanjali’s antics, the BCCI need not worry as the IPL 2020 is set to get a helping hand from one of the biggest and the most credible business houses of the country. It’s unsure, given the current scenario and sudden exit of VIVO, that the final bid would be anywhere close to what VIVO was offering but it will be interesting to see to what extent the BCCI will manage to cut its losses.

For reference, the brand value of IPL stood at $6.8 billion in 2019 up 7% from 2018, according to consultancy firm Duff and Phelps. It is not clear what model the consultants have used to calculate gross value added from the cricketing extravaganza, and a lot depends on this, but cricket administrators have done well to commission such a study. There is a broader lesson here. The contribution of IPL is currently just a drop in the $3 trillion Indian economy, around 0.2%. One can assume from this fact that sports are still a very small part of the economy. Informal studies show that most rich nations have around 1.5-2% of their GDP coming from sports. Indian sports have a long way to go.

Another key question which is worthy of consideration is how do you calculate the Return on Investment (ROI) of sponsorship? It is probably the initiative that has the highest budget commitment, so it’s extremely important to ensure that the marketing dollars spent on sponsorship can be traced. There is no Bloomberg Terminal or NASDAQ exchange to provide external benchmarks of the value of sponsorship assets. And there are few accounting standards or valuation models that brands can use to determine the fair financial value of a team, stadium or athlete. There are a few ways to calculate ROI for sponsorship:

a. By taking into account the change in a brand’s share of ‘voice’ before and after the sports tournament.

b. By measuring buyers’ purchase intent using tools like digital surveys or social media audits. Especially if a brand deals in high-value products and purchases such as automobiles, IPL sponsorships cannot immediately skyrocket their sales since generally, a large investment is needed for it. Of course, inquiries can go up, but an immediate ROI would not represent an accurate picture. Purchase intent surveys can help to understand the effectiveness of sponsorships.

It’s very hard to measure the financial value of sponsorship investments. Chief Finacial Officers (CFOs) fairly argue that they lack the financial vocabulary and Key Performance Indicators (KPIs) to properly measure these complex investments that require a blend of art, science and commercialism to execute. The bigger issue marketers face as they defend their multi-million-dollar sponsorship budgets is that they fail to quantify and communicate how these investments create financial value beyond their equivalent media value. Until these problems are solved, CFOs will continue to treat sponsorship as a discretionary expense rather than a growth asset.

Until then, the whole of India looks forward to seeing their beloved soap-opera that brings all the emotions on the table. Love, joy, happiness, tears, laughter, sadness, and lots of deceit and intrigue. The white ball going against the night sky like it’s a meteor headed somewhere, bits and pieces of outlandish stump mic conversations, embellished commentary voices, and glitzy song and dance will be a feast to watch. Now attach to it the dollars it deals in, it’s all the way more interesting.

mehul.goyal

Mehul Goyal

A proud intuitive empath surrounding myself with positive things and a meaningful career. I like bringing people together and that’s what landed me to pursue a bachelor's degree in Management Studies(BMS) at Delhi University.

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