In How Many Years ISL Breakeven?

Economic Times reports:

When Athletico de Kolkata host Mumbai City FC at the 68,000-seater Salt Lake Stadium on Sunday, it will see India's two big passions -- Bollywood and cricket - come together with the hope of creating a third one that pulls the masses, feeds their hunger for stardom, brings in the money and is for keeps.

Thay have basked in, or seen, the rush for the Indian Premier League (IPL), the city-based cricket league. But they will find the Indian Super League (ISL), football's answer to the IPL in India, to be a different ballgame, one that will take a lot more to come together and will need much more time to do so. "We should reach close to breakeven by year five," admits Gaurav Modwel, CEO of FC Pune City, the Pune franchise. "In the long run, I think, it might be bigger than the IPL."

There are many parallels between the ISL and IPL models. They are both city-based sporting leagues, with eight teams each. The bulk of a team's revenues come from dividing what is called the 'central pool' in the IPL, which comprises TV rights and principal sponsorships.

In IPL, this central pool was substantial from the start and has since grown further. It's what enabled cricket franchises operating on annual costs of Rs 100-150 crore to post a profit or, at worst, end with a marginal loss.

ISL is, by comparison, a smaller operation. Each team is looking at an average annual cost of Rs 50 crore. It's not yet clear how much revenue they will end up with. A crude calculation done by ET, based on individual metrics provided by stakeholders in the league, suggest that teams are looking at a loss of Rs 20-30 crore in year one.

Besides the lower popularity of football, ISL also presents fewer --and smaller -- opportunities to monetise than IPL. Take advertising. A three-hour IPL match offers about 40-42 minutes of TV advertising, spaced out between overs.

By comparison, a 90-minute game of football only has a single break, of 15 minutes. "In this, seven-eight minutes will be for ads and the rest for programming," says Sanjay Gupta, chief operating officer at STAR India, the broadcaster and co-promoter of ISL. In addition, there will be about four minutes on either side of the match. That's about 16 minutes in all.

In the case of IPL, since TV rights were sold, the size of the central pool was known at the outset. In ISL, since STAR India is a co-promoter, along with sports management firm IMG and Reliance Industries, it is not paying any TV rights money. What comes to the central pool from the TV side is effectively a function of how many ads can be sold.

According to two stakeholders who didn't want to be named, at least half of these 16 minutes will go to the league sponsors. Hero MotoCorp is the principal sponsor, Maruti Suzuki the associate sponsor and Pepsi, Puma, Nice Gel and Muthoot Finance the remaining sponsors. Hero is paying Rs 54 crore for three years and Maruti Rs 20-22 crore, says a senior official of a media-buying firm representing a sponsor on condition of anonymity. "It always helps to get in early," says Manohar Bhat, vice president, marketing, Maruti Suzuki, while declining to reveal the sponsorship amount. "We are betting on the fact that it will be a success."

In the first year, back-of-the-envelope calculations show that if STAR sells eight minutes of ads per match at Rs 1 lakh per 10 seconds -- the rate for the recently concluded Fifa World Cup -- it will earn about Rs 29 crore from TV advertising.

Extrapolating the numbers reportedly paid by Hero and Maruti, the best-case scenario for sponsorship is about Rs 41 crore.

That's a total central pool of about Rs 70 crore. Of this, about 60-70% of central revenue is expected to be split among the eight teams -- or Rs 6-7 crore per team. Other revenue streams are expected to fetch teams about Rs 15 crore, resulting in a net loss of about Rs 15 crore.

It still might not be a bad longterm business, feels Vinit Karnik, national director, sports and live events atGroupM ESP. "Profit and loss is not the only metric to look at ISL," he says. "It's eventually a valuations game."

One lever for valuations is what makes India a 'can't-ignore' for global business and sport: its population, next only to China. About 150 million TV viewers in India watch soccer, primarily the European soccer leagues. "The challenge, however, is how are we going to convert the followers of European football to Indian football," says Karnik.

ISL franchises will look for tie-ups with global clubs. It's a symbiotic relationship. The foreign clubs can feed the Indian clubs marquee players; the Indian clubs can provide the foreign clubs new fans.

"Look at what happened in Chinese football," says Sameer Manchanda, chairman and managing director ofDEN Networks, which owns the Delhi franchise. "Alibaba recently bought a 50% stake in Guangzhou Evergrande Football Club for around $192 million," he says. "This is the kind of opportunity we are looking at in ISL too."

The seeds of such partnerships have already been sown. Atletico Madrid, a leading Spanish league team, has tied up with the Kolkata franchise, Dutch club Feyenoord with Delhi and Italian club Fiorentina with Pune.

Some like Manchanda of DEN Networks, which owns 100% of the Delhi Dynamos team, also see ISL as a platform to build and crosspromote its new broadband business.

For now, most team owners --which include industrialists (like Sanjiv Goenka, Harsh Neotia and Venugopal Dhoot), cricketers ( Sachin Tendulkar, Sourav Ganguly, MS Dhoni and Virat Kohli) and Bollywood stars (Salman Khan, Ranbir Kapoor and John Abraham) -- are talking about passion for the sport.

"The idea is to build Indian football," says Modwel of the Pune franchise. "If the sport does well, we will gain from the increase in valuation as well. But the real valuation game starts after the first few years."