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APRIL 22, 2007
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Mobile Security
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Rough Ride
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Business Today,  April 8, 2007

Cricket R.I.P.-off
India's unceremonious ouster from the World Cup threatens to derail the multi-billion dollar industry that has developed around the game.

The scorecard read 44 for 2. Sachin Tendulkar, variously called Master Blaster and Little Master, had faced two balls. Dilhara Fernando raced in and bowled one that pitched outside the off stump and swung in, Tendulkar played forward. Instead of the sweet sound of cherry hitting willow, there was the deafening sound of the ball crashing into his leg stump. The "World's Best Batsman" was out for a duck. That scene, played and replayed on millions of TV screens in India, and across the world, was, to many, the defining picture of India's World Cup campaign. For the Men in Blue, the quest for cricket's Holy Grail was, for all intents and purposes, over.

The boys (it's funny how no captain or coach has ever referred to Indian cricketers as "men") are now back home, their reputations in tatters, their bluster gone and their futures uncertain. The debate over their performance (or the abject lack of it) will continue.

The fans are angry. And India Inc is angrier. The former feel an emotional void, betrayed both by their hopes and their heroes; the latter has taken a hit on its bottom line, let down by an over-hyped bunch of players to whom it had hitched its fortune.

Here's what the big guys of Global Inc. have committed to cricket
Official global sponsors
LG: $70 million for two World Cups and three Champions Trophy tournaments
Pepsi: $70 million for two World Cups and three Champions Trophy tournaments
Hero Honda: $40 million for two World Cups and three Champions Trophy tournaments
Hutch: $20 million for two World Cups and three Champions Trophy tournaments

Official sponsors*
Indian Oil: $2-4 million
Cable & Wireless: $2-4 million
VISA: $2-4 million
Scotiabank: $2-4 million
Johnnie Walker: $2-4 million
Red Stripe: $2-4 million
Standard Bank: $2-4 million
Note: The two on-air co-sponsors are Nokia and Pepsi while the associate sponsors are ITC Foods, LG, Videocon, Hero Honda, Aditya Birla Group, Maruti and the UB Group. These deals have been struck only for World Cup 2007 and the most recent Champions Trophy. It is gathered that the cost for each of these sponsors is in the range of Rs 22-28 crore.
* Only for the 2007 World Cup

A Losing Proposition

"Cricket is a losing proposition in today's context and it is clear that we have to be careful when we decide to spend on the game the next time," says Videocon Group Chairman Venugopal Dhoot, echoing the sentiments of all the big spenders on the game. His company, which has Mahendra Singh Dhoni as brand ambassador, is one of the seven on-air associate sponsors for the World Cup. The scenario looks grim. With India out, the viewership numbers will almost definitely take a beating. "Eyeballs could fall by as much as 40-50 per cent," thinks S. Yesudas, coo, Media Direction, the media services group of RK Swamy BBDO. His agency has done the media buying and planning for BSNL, Raymond and visa, among others.

Sony Entertainment Television (SET), the official broadcaster, which has paid the International Cricket Council (ICC) an estimated $250 million (Rs 1,100 crore) for two World Cups-2003 and 2007-and three Champions Trophy tournaments between 2000 and 2007, is already feeling the heat.

It has sold spots worth Rs 350 crore for this World Cup (See Sony's Ad Rates). Of this, about 30 per cent was lapped up by Indian companies, which now want out, or, at the very least, want discounts. But Sony rules out the possibility. "When you gamble at a casino, you can win or lose. You do not ask for a refund if you lose," says Kunal Dasgupta, CEO, SET. But advertisers are adamant. "Unless rates fall by at least 25 per cent, it will be hard to justify the spend," says Yesudas.

One formula that is being bandied about involves Sony offering advertisers more free commercial time (FCT), free sponsorships on other shows on the network or spreading out the funds committed beyond the World Cup. Sony, obviously, will have to negotiate a discount from the ICC before it can offer any largesse to its advertisers. And this won't be easy.

"You have to look beyond numbers when you are speaking of cricket. It is the only reach driver even in the current circumstances"
R. C. Venkateish
Managing Director, ESPN India

Companies in India, both domestic and multinational, provide ICC with about 75-80 per cent of its revenues and it is depending quite heavily on the 2007 World Cup to recoup the massive investments it has made; so, India's exit is not good news for it. "The preparations for the ICC cricket World Cup began in the West Indies even before the 2003 World Cup. The 2007 World Cup has seen massive investments in stadiums and infrastructure across the nine countries that will host the warm-up matches and the event itself," says ICC's annual report for 2005-06.

The Economics of Cricket

SET earned about Rs 250 crore from the 2003 World Cup and is expected to make another Rs 350 crore this time. The three Champions Trophy tournaments (2000, 2004 and 2006) and subscription revenues are expected to generate another Rs 300 crore. That's Rs 900 crore against a total acquisition cost of around Rs 1,100 crore. Sony is sitting on unsold inventory of about 800 seconds per match, which it hoped to sell for Rs 50-55 crore. That would have made the transaction profitable for it. But now, with advertisers demanding discounts, FCT and other freebies even on sealed and signed deals, the fate (and value) of this unsold inventory becomes uncertain. Is it, for example, willing to hand over a part of this inventory to its advertisers to compensate them for the losses they expect to suffer? "Our stance is that there is no room for negotiations simply because these deals are non-negotiable and non-cancellable. When two parties sign a deal, it has to be honoured," points out Rohit Gupta, Executive Vice President, SET.

Incidentally, the state-run Doordarshan, which is also telecasting 16 matches (all the India matches, the semi-final and the final), is said to have cut its asking rate by about 25 per cent, following India's exit. There are also murmurs that some media agencies are joining hands to renegotiate the whole issue afresh with SET. How the story unfolds will be interesting to watch.

Endorsements to be Hit

But advertising and broadcasting is only one part of the story. There is a whole world of sports marketing and endorsements that's worth about Rs 800 crore in India; and cricket accounts for more than 90 per cent of this pie. The front end of this universe is manned by the likes of Sachin Tendulkar, Rahul Dravid, Sourav Ganguly, Mahendra Singh Dhoni, Yuvraj Singh and Virender Sehwag. At the back end are the marketers, advertising pros and manufacturing and services sector executives who conceptualise, create and finance this set-up. This world will now shrink.


PLAYER: Rahul Dravid
KEY BRANDS ENDORSED: Hutch, Bank of Baroda, Max New York Life, Castrol, Videocon

"When you commit money, you have to factor in both wins and losses. It is important to treat cricket as one of the opportunities to get across to your customers"
Harit Nagpal
Director, Hutchison-Essar


PLAYER: Sachin Tendulkar
KEY BRANDS ENDORSED: Sunfeast, Reliance Communications, Pepsi, TVS Motors

"India not making it to the Super 8 has definitely resulted in low levels of enthusiasm. We will keep evaluating all options"
Ravi Naware
CEO, ITC's Foods Division


PLAYER: Sourav Ganguly
KEY BRANDS ENDORSED: Puma, Pepsi, Hero Honda

"We signed on Sourav for a TV commercial which was to be shot later. We will be going easy now and will focus on brand marketing instead"
Rajiv Mehta
Managing Director, Puma Sports India


PLAYER: Mahendra Singh Dhoni
KEY BRANDS ENDORSED: Videocon, Reebok, Pepsi, Reliance Communications, Brylcream

"We are extremely disappointed. We have made big investments. For the next few months,we will use only the commercial with Shah Rukh Khan"
Venugopal Dhoot
Chairman, Videocon Group


PLAYER: Virender Sehwag

"If you do not play well, you will automatically lose your contract. We have very strong exit clauses in this business"
Latika Khaneja
Director, Collage Sports

For example, television manufacturers like LG, Samsung, Videocon and others, who were hoping for an upswing in sales during this World Cup, are expected to be stuck with excess inventory. Collectively, TV manufacturers had invested hundreds of crores on ad campaigns centered around the World Cup. They will be hard put now to recoup this amount. LG has been with the Indian cricket team since 2000 and the seven-year contract ends with this World Cup. "Whatever purchases had to take place would have taken place before the World Cup," says LG's Vice President (Sales and Marketing), Girish Rao. Videocon's Dhoot, however, admits that sales have been affected but declines to reveal numbers. Interestingly, a large player like Samsung has decided to focus on print media during the World Cup. Its "Ek Size Bada Milega" campaign has a budget of Rs 10 crore, says the company spokesperson.

Says Shailendra Singh, Managing Director, Percept D'Mark, a sports management company: "Cricket has lost its credibility. We will need very strict exit clauses in contracts and the base price will reduce." The fixed-to-variable component, which was 90:10 till recently, is expected to change to 60:40, he adds. Singh's firm handles brand endorsements and sponsorships for players like Sourav Ganguly and Yuvraj Singh. "Money will now go into other sports like football. We will ask sponsors not to put all their eggs in one basket," he says.

Interestingly, some of the larger advertisers have decided not to use cricketers in their campaigns. Airtel is one such; it has decided not to renew its contract with Sachin Tendulkar and will stick with Shah Rukh Khan. "Of late, our advertising has used sports, rather than cricket, as a category. For instance, we have sponsored hockey at the national level. We have not had much to do with the current World Cup," says a company executive. Coke, too, has not adopted the cricket route. "We did not pursue cricket or cricket stars for any short-term gain during the World Cup," says the company spokesperson.

Bob Woolmer: A victim of betting?

SET paid close to $250 million (Rs 1,100 crore) for the 2003 and 2007 World Cups and three Champions Trophy tournaments; this was dwarfed by ESPN's bid of $1.1 billion (Rs 4,840 crore) for pretty much the same number of matches between 2007 and 2015. The world gasped in awe at these figures. But even the most conservative estimates place the illegal betting economy during the current World Cup at four times that figure. And if India had clashed with Pakistan in the finals, that number would have gone not just through the roof, but into orbit as well. The betting for that one match could easily have topped $300 million (Rs 1,320 crore). The unexpected defeats against minnows and the early exit of the two teams are believed to have cost the betting syndicate thousands of crores. It has been reported that as much at Rs 300 crore was riding on the India-Bangladesh match. Was it rigged? Experts say it is difficult to rig entire matches as several players from both the contesting teams have to be recruited. Given the increased level of surveillance and scrutiny, this is a difficult and dangerous venture to attempt.

But sophisticated new products, popular in stock markets and in countries where betting is legal, are now being offered on the illegal betting market as well. One such product is "spread betting". This is how it works: If you place a Rs 1,000 bet on Player A scoring, say 100-110 runs, and the player scores only 10, you lose Rs 90,000-1,00,000 (the 90-100 runs that the player fails to score multiplied by Rs 1,000), plus your bet amount. Such bets are easier to rig as all they require is one corrupt player to make it possible.

The remedy: legalise betting, and put in place a regulator along the lines of the one in the stock market. Legalising gold imports wiped out gold smuggling. Legalising betting is also likely to have the same effect. But it will still be too late to save Pakistan coach Bob Woomer's life.

"The costs (of cricket-related ads) had gone out of control and this jolt was probably required. I see it as a wake-up call with respect to risks," says Madison Media's CEO, Punitha Arumugam. She handles the media services for clients such as Airtel, TVs Motors and Coke. Pepsi, one of the largest advertisers, has taken its advertisement with four Indian cricketers off the air. The company concedes that its creative strategy was based on the Indian team doing better. "In the light of India's performance, there will be some changes in the short term as far as advertising is concerned," says Punita Lal, PepsiCo India's ED, Marketing.

From a shorter-term perspective, tour operators, who were hoping for a pick-up in sales of World Cup-related tour packages and hotels and restaurants, which, typically, see a spike in footfalls during matches featuring India, are also counting their losses.

But not everyone is despondent. Indians, after all, are a very emotional and forgiving lot; and many are hoping that Team India will bounce back. "There is no change in our cricket strategy and we are clear that cricket is a premium product. The next World Cup will be played in the sub-continent and we are optimistic about it," says R.C. Venkateish, Managing Director, ESPN India, which paid $1.1 billion (Rs 4,840 crore) for the rights to the 2011 and 2015 World Cups and three Champions Trophies.

Victory of hope over experience? The answer to that lies in the boardrooms of India Inc., which, many say, have become the real sanctum sanctora of Indian, and, indeed, world cricket.

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