More details have emerged regarding the T20 league in articles that appeared in ESPNCricInfo and Bloomberg.
By Venu Palaparthi
Nearly a month after CricketNext.com reported that Cricket Holdings America's US T20 league will be launched in 2013 with six teams, more details have emerged regarding the T20 league in articles that appeared in ESPNCricInfo and Bloomberg.
On the subject of infrastructure, CHA had previously stated that the US T20 would look to venues where 'things could be prepared for cricket with minimal work.' In an interview that appeared in ESPNcricinfo on October 5th, CHA's CEO Neil Maxwell said that cricket should think beyond what is traditionally acceptable. "A lot of major sports have moved to artificial surfaces," Maxwell said.
Untethering the league from cricket-specific venues vastly expands the potential venues. "What we want to do is broaden this game to mainstream America as quickly as possible," Maxwell said.
A look at the economics
According to the Bloomberg article, the T20 league will have a salary cap of $1 million in the first year. According to unconfirmed reports, each team will have 2 marquee players, 4 top tier players, 6 to 7 tier two players and two US developmental players. The $1 million salary cap might work fine. In Australia's Big Bash League, teams had a salary cap of $1 million during the first season and the minimum contract was set at $20,000.
The Bloomberg report also noted that CHA expects to sell each franchise for $40 million payable over ten years. Just for comparison, the IPL average franchise cost at the time of that league's launch was $80 million.
According to Brand Finance, IPL teams had brand values ranging from $27 million and $48 million in 2012. Low brand valuation not withstanding, actual transaction prices have varied in the IPL. Pune Warriors was sold for $370 million in 2010. Shilpa Shetty and Raj Kundra acquired 12% of Rajasthan Royals for $16.8 milion valuing that team at $140 million. When the Deccan Chargers sought a new owner this year, a bid for $176 million was received and rejected*.
Broadcast revenue forms the bulk of the IPL central pool and the central pool revenue per franchise forms the bulk of total franchise revenues. At inception, IPL's ten year central revenue pool was estimated to be $1.1 billion (it was later revised to $1.6 billion). The Sony broadcasting contract with IPL translates to roughly $1 million per match.
Assuming US T20 franchises are sold for $30 million to $40 million, math suggests that CHA central pool should be in the range of $500 million to $800 million over a 10-year period if investors target the same ROI. From a broadcast revenue standpoint, the biggest challenge for the US T20 is the short 2-3 week long season compared to the 5-6 week 76 match season at IPL.
The US T20 target revenue from broadcast deals would need to be between $500K and $1 million per match. Viewership numbers for ESPN3's recent ICC T20 World Cup broadcasts may help CHA in their negotiations but a $1 million per match fee puts the US T20 in the same league (pun unintended) as the IPL.
Major League Soccer as bellwether
Major League Soccer (MLS) serves as a good bellwether when analyzing cricket's prospects. In 1996, owners paid roughly $5 million for each franchise and valuations have ticked upwards as the league has gained stability.
According to a Forbes magazine article, MLS' 19 teams were losing money but the value of each of its teams was increasing. Earlier this year, it was reported that investors Erick Thohir and Jason Levien of Philadelphia 76ers acquired 60% of D.C. United in a deal that valued D.C. United at $50 million. Forbes called it the most expensive soccer franchise in the U.S. Also, Montreal Impact, the 19th team in MLS which started playing in 2012, is said to have paid $40 million.
Let's take a look at MLS' broadcast revenue. According to the Sports Business Daily, the MLS-NBC deal is worth $10 million a year for 49 matches. MLS also signed a 7-year TV deal in 2007 with Univision and ESPN that netted it $425 million. From a broadcast standpoint, MLS is thought to have an average TV viewership of just less than 1 million across the three networks. All told, the soccer league earns an estimated $60 million per year in broadcast revenue.
In order to justify a $40 million price tag, US T20 needs to demonstrate solid numbers from the start. From the owners' perspective, they will undoubtedly look for capital appreciation that is comparable to IPL. While this is not impossible, the beauty (or the devil) is in the details.
India's participation is key
Neil Maxwell told Bloomberg that he would look to 'combine Hollywood and Bollywood and integrate celebrities' in order to take the product to a bigger audience.
According to a sports industry veteran we spoke to, Bollywood and Hollywood presence could certainly help, but the 800 lb gorilla was, is and will always be India - Indian players, Indian broadcasters, Indian viewers and Indian sponsors.
"In order to justify MLS style valuations, especially when all you are looking at is a clean slate, you must really go where the money is. Bangladesh and Sri Lanka had existing cricket audiences and their T20 leagues have not matched up to the IPL yardstick. That is because of the lack of Indian participation," he said speaking on condition of anonymity.
"The high franchise cost, artificial surfaces and the relatively short duration of the tournament are not optimal but if CHA can secure BCCI consent and Indian players are allowed to participate, then the game is on," he said.
[*Hours after this article was published, Deccan Chargers agreed to sell the Hyderabad franchise to Kamla Landmarc. The estimated price tag is $220 million.]