Spot the bubble

So, Sahara has once again successfully bid for the Indian team sponsorship. Nice. Sorry, it’s the official sponsors for only the Indian men’s team and not the Women’s team or U-19 or India-A. But why? Because “the group was not interested in spending an extra Rs 10-15 crore”, it seems. They are willing to spend nearly 492 crores for the men’s team, but want to save 15 crores when it comes to the other Indian teams. Fine. But how do they measure their ROI on these sponsorship and on what criteria did they decide to spend 492 crores on one and not spend 10-15 cr on another? Let’s not forget that they had recently bought a franchise in IPL for $370 mio (approximately 1740 Crores).

The group’s presentation in the website proudly advertises their association with sports, including Indian women’s cricket team, U-19 and India-A team. Now, where did that pride go? Or because they didn’t see value in it, this time? Fair enough, now come out and show us the valuation for the Pune bid? Hang on, Which group of Sahara is paying for this, anyway? Are public shareholder's money being utilised for this purpose?

The group’s presentation also proudly announces their overall CSR spending(some 655 crores or something), good. So, the management is earning Karma points by leveraging on the shareholders’ money (I am assuming their CSR spending also includes that of the group's listed entities), very good. Gideon Haigh had written a brilliant article about Corporate Governance in Cricinfo today, but he’s far ahead of the curve. Let’s sort out the corporate governance mess at the corporate level first, before we can move onto BCCI and other Cricket Boards.

Let me leave the corporate governance mess out of a Cricket blog for a bit, and quote the break up of the sponsorship amount for different formats of the game now:
“Under the terms of the previous deal, Sahara paid Rs 1.91 crores ($ 412,000) per Test, Rs 2.09 crores ($ 455,000) per ODI and Rs 1.57 crores ($ 340,000) per Twenty20. The new price is the same across all three formats, and more than doubles the price of a Twenty20 game, highlighting its appeal and popularity” – excerpt from Cricinfo.

Let’s conservatively assume it costs Sahara Rs.3 crores to sponsor the team for a T-20 game. And compare that with Rs.1.91 crores for a test match. Now, ask yourself this question? Despite considering the dwindling interest (personally I don’t think so, but let’s live with that narrative fallacy for now) in Test Cricket and the rise in popularity of T-20, what’s the premium that one should pay for a T-20 over a test match? 57% premium seems reasonable (3-1.91/1.91), but that’s not a fair comparison. Let’s make it an apple-apple comparison.

A test match generally has 5*6=30 hours of Cricket, whereas a T-20 has hardly 3 hrs of Cricket. So let’s convert the sponsorship amount into per hour unit. As a measure of conservatism, let me take the avg no.of hrs in a test as 24 hrs, leaving a day for rain, early finish et al. Per hour sponsorship amount for Tests – Rs.7.96 lacs per hour and per hour sponsorship amount for T20 – Rs.1 crore per hour. That’s a whopping 1157% premium over a test match. It’s not even funny, this bubble. Apart from the huge premium, T-20 investment is also more risky, imagine the cost of an abandoned T-20 for the company!

PS: As an aside, I find this whole sponsorship thing weird. Why would a group with businesses which are primarily high-involvement purchases from the customer’s point of view, spend so much on sponsoring a cricket team? With a company like Nike, it’s a direct connection. Even with Pepsi and a celebrity, its fine - they are low involvement purchases which can be influenced by people you look upto. Extend that to cars, they may be high involvement purchases but they are again fairly personal choices, So I may have an inclination (albeit a lesser inclination than say in the case of buying a Nike T-Shirt) to go for the car which Federer endorses, either because I like Federer and/or because I believe Federer endorses a product which performs like how he does on a tennis court. These decisions are not the most rational but we all make such decisions. But housing, insurance, jute, townships? You are kidding me. Outside of their media biz, Celebrities don’t help Sahara much in improving business performance. Even for the media biz, film personalities are a better and probably cheaper bet than a Cricket team.