Premium Sporting event Indian Premier League (IPL) and the entire ecosystem faces a threat of losing up to $ 1 billion if COVID-19 pandemic leads to the cancellation of the 13th edition, according to report by global financial consultation firm Duff & Phelps. The report has also revealed an economic set back to the league under different scenarios enforced by COVID-19.
The IPL 2020 season, which was originally scheduled from 29th March to 24th May 2020, has already been put off till 15th April as the BCCI is monitoring the COVID-19 situation and contemplating various options to reschedule the matches – ranging from a full or truncated league in the April-May window or a full-fledged IPL 2020 between July and September.
With corona out break threatening global sports schedules like Tokyo Olympics, cancellation of the entire IPL 2020 season cannot be fully ruled out at this stage. Such a scenario will diminish the valuation of the IPL ecosystem by anywhere between $ 700 million and $ 1 billion. The firm has an estimated 10-15% erosion in the IPL brand valuation, which it had estimated at $6.8 billion.
Duff & Phelps Managing partner Santosh N, has revealed the outcome of a study to analyze the COVID-19 impact on the value of IPL Ecosystem, based on the estimates of the company’s IPL Brand Valuation Report 2019.
The report is based on, and has taken into consideration, various scenarios discussed by BCCI president Sourav Ganguly during his Press conference last week.
“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 canceled,” says Santosh.
Duff and Phelps has considered the following two scenarios and several other sub-scenarios:
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
The impact analysis were carried out on the IPL ecosystem value of $ 6.8 billion, based on the Duff & Phelps 2019 report. “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,” says Santosh.
In scenario 1: If the IPL season commences on April 15, 15 days would be 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 and 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 prefer this option.
The study has further 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. The impact of a truncated tournament on the sale of official merchandising and associated revenues is also taken into consideration. Overall, under Scenario I, the IPL ecosystem value estimated by the company last year is expected to be reduced in the $200 million to $350 million range (3.0% to 5.0%).
Scenario 2: If the entire IPL 13 is cancelled, which remains a strong threat if the current situation persists, a massive impact on the IPL ecosystem value will result in larger economic and financial consequences.
The study in such an extreme event has 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.
Sub scenario 1: It deals with the situation when there will be zero cash inflow from the broadcaster or title and associate sponsors for the 2020 season as it was assumed that there is no IPL 13.
Similarly, franchisees will not receive their share of the revenue from the central pool nor will they be required to share profits with BCCI as part of their franchise fees.
The study, however, has taken into consideration 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.
Sub scenario 2: Apart from the cash flow impact considered for the 2020 season, the study has also considered economic impact due to the one-year setback, where it is anticipated that the sponsorship revenues might not grow at desired levels next year due to the current disruption.
Under Scenario 2, the IPL Ecosystem value is set to receive the biggest hit of between $700 million and $1,000 million (approx. 10.0% to 15.0%).
The analysis at this stage does not capture a financial recession-like event which would further impact the IPL Ecosystem value.