Duff & Phelps’ Santosh N takes a look at the ways the IPL ecosystem will be affected in the case of truncation as well as cancellation due to COVID-19.
We might just be in the first quarter of 2020, but the year has already seen the unprecedented shutdown of global sports leagues due to COVID19. The last such shut down happened during World War II when all major sporting events across the globe including the Olympics in 1940 & 1944 were cancelled.
Major sports leagues across the world including EPL, La Liga, Seria A, NBA, Champions League, bilateral cricket tournaments are suspended at least until the first week of April as governments scramble to contain the spread of the virus which has been declared a global pandemic by the World Health Organization.
UEFA EURO 2020 and COPA America 2020, the two major football events scheduled to take place this year in June have also been pushed to 2021. Even the Olympics 2020 being held in Japan face the threat of cancellation or postponement if the pandemic does not subside in the next couple of months. More recently, the Indian Super League finals between ATK & Chennaiyin FC had to be played behind closed doors.
Indian Premier League (IPL), one of the most keenly awaited events in India has also felt the heat of Coronavirus, with Board of Cricket Control of India (BCCI) deciding to postpone the start of IPL season until April 15 with no clear visibility of its start date and a major threat of cancellation looming around. The Government of India and various state governments have mandatorily banned public gatherings in view of public health and safety concerns. The government has also suspended visas from most countries which might impact the availability of foreign players who are a vital cog in the IPL. Given this background, the options before BCCI are somewhat limited.
Duff & Phelps has undertaken a study to analyze the impact of COVID19 on the value of the IPL Ecosystem, which was estimated in our IPL Brand Valuation Report 2019. We have considered various scenarios which were addressed by BCCI President, Saurav Ganguly, during his press conference over the weekend and have estimated the impact on IPL Ecosystem value under each of those scenarios.
The scenarios considered are:
Scenario 1: Truncated IPL with the number of matches reduced to half, a high possibility as per BCCI.
Scenario 2: The entire IPL 13 season getting cancelled
Our impact analysis has been carried out on the IPL ecosystem value calculated by Duff & Phelps last year which was US$6.8 billion in 2019. The analysis doesn’t reflect the current value of the IPL ecosystem which would have been estimated after considering the factors available post completion of IPL 2020.
According to BCCI officials, in case the IPL season commences on April 15, it will be truncated as more than 15 days would have been lost by that time. In our analysis we have assumed that in a truncated season, each team will play against the other only once, instead of the home & away format, thus reducing the number of league matches by half.
We have also factored in two situations — one where the spectators are allowed inside the stadium and another where the matches are played behind closed doors, effectively impacting the in-stadia revenues including gate receipts and food and beverages. The impact of revenue loss on account of lack of gate receipts is negligible on the IPL value.
It might, in fact, benefit the broadcasters if the shutdown persists and more people are forced to spend time at home thus increasing the television audience for IPL, though none of the stakeholders, including the broadcasters, prefers this option.
Further, we have factored in the loss of revenue from broadcasting and sponsorship, as broadcast partners and sponsors will renegotiate the contracts based on the number of matches being played. We have also considered the impact of a truncated tournament on the sale of official merchandising and associated revenues.
Overall, under Scenario I, the IPL ecosystem value estimated by us last year is expected to reduce by USD 200 Million to USD 350 Million range (3.0% to 5.0%).
Under this scenario, we have assumed the possibility of the entire IPL 13 getting cancelled, a high possibility if the current situation persists. This scenario will have a massive impact on the IPL Ecosystem value as it will also consider larger economic and financial consequences.
In this scenario, we have considered two sub scenarios. First, there is no impact on the next year’s edition and the second, a complete one year set back from revenue perspective for all the stakeholders. In sub scenario 1, we have considered nil cash inflow from the broadcaster or title & associate sponsors for the 2020 season as the same is assumed cancelled. Likewise, franchisees will not receive their share of the revenue from central pool nor will they be required to share profits with BCCI as part of their franchise fees.
However, we have considered the expenses incurred by BCCI, IPL franchisees and other stakeholders with respect to advertising, promotional events and other general administrative costs including salaries to their non-cricket playing staff, etc.
In sub scenario 2, apart from the cash flow impact considered for the 2020 season, we have also considered economic impact due to the one year set back, where we have anticipated that the sponsorship revenues might not grow at desired levels next year due to the current disruption.
Under Scenario 2, we estimate the IPL Ecosystem value to reduce by USD 700 Million to USD 1,000 Million range (approx. 10.0% to 15.0%). Our analysis under this scenario does not capture a financial recession like event which would further impact the IPL Ecosystem value.
This article has been authored by Santosh N, Managing Partner D and P Advisory LLP and external advisor, Duff & Phelps.