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The Indian Premier League (IPL) – economics

with 3 comments

Today is the final cricket match between the Chennai superkings (led by M S Dhoni) and the Rajasthan Royals (led by Shane Warne)!

Redefining cricket has once again been attempted with great pomp and flourish deacades after the great Kerry Packer (http://en.wikipedia.org/wiki/Kerry_Packer) introduced the world series cricket in Australia (http://en.wikipedia.org/wiki/Limited_overs_cricket).

Please also see: http://en.wikipedia.org/wiki/History_of_cricket

Lalit Modi (the scion of the $2billion, Modi enterprise) has done just that with the fusion of India’s icons – the cricketers themselves who are auctioned, the owners of the teams (each IPL cricketing state has been bought out by the bigwigs), the Bollywood actors, the large # of spectators and of course, the television viewers in millions of viewers across over 100 countries.

Its been a success – without doubt, but is this the key to the future of world cricket?

 Will the IPL (read: BCCI) outstage the ICC as the cricketing hub of world cricket? Its already this way, albeit, on an informal scale. The staging out of Jagmohan Dalmiya along with a power struggle staged by Lalit Modi and Sharad Pawar in 2005 was an attempt that has truly benefited the BCCI as it helped open up more sources of revenue to the already cash-rich BCCI. The BCCI is a private club consortium (http://en.wikipedia.org/wiki/Board_of_Control_for_Cricket_in_India), Lalit Modi and others are office workers for the BCCI and claim to not to look at the BCCI to make money. By the way, the BCCI is one of the richest sports bodies in not just India but the entire world.

The IPL has added another $2 billion to the BCCI’s coffers by virtue of sponsorships and television rights etc. to large players such as Sony etc.

Let’s address the concept of the T-20 – each side gets to bat 20 overs apiece and tries to beat the hell out of the opposition. It’s a test of accuracy, attention to detail, strategy to control the rampaging batters, consistency to win matches continuously – overall – every concept of the productization of the fast paced modern world applies to the T-20 series as well.

I have written about the T-20 when it was staged by the ICC in South Africa last year and India won a thrilling finale against arch rivals – Pakistan! Our cricketers were made into instant heroes and we knew something revolutionary had arrived. It was another example of disruptive innovation that changed the rules of the game (pun intended)!

I had followed almost every match – from start to finish – and must say, it’s got a unique sense of urgency in the game. Everything appears as though it works in fast forward. The fast bouncy wickets of SA were conducive to the batters but the bowlers also did well then on certain occasions. The odds are that if you are a bowler, you will get thrashed, and this improves the bowler’s accuracy for the larger version of the game.

The heady cocktail of the Bollywood stars, the money makers in the Indian Political circle, the cash-rich governing body – the BCCI, the cricketers, the big money involved, the purchasers of the individual teams (SRK, Preity Zinta, Mukesh Ambani, Vijay Mallya etc.) really culminates into an addictive mix.

Players get rewarded handsomely so cricketers (past/present/future) across the world cricketing nations are attracted to this league form of cricket.

What will this do to the test cricket and 50-over cricket?

I personally think the brand value of 1-day cricket will take a beating due to the popularity of the 20-over T-20 series – simply because, it’s a faster version of the game and more exciting! This is not to say that 50-over cricket will get phased out but it’s a classic case of product cannibalization.

I also think that test cricket will stand largely unaffected. By history, one-day cricket did not upstage test cricket so T-20 cricket will also not upstage test cricket.

Economics of T-20

I think I did mention earlier too that T-20 is a lot more economical. Ticket prices are more affordable. The fun and excitement is more. Two matches can be played at the cost of the operational aspects of the same field as even that totals up to only 80 over’s in all (20 over’s a side * 2 teams * 2 games).

Even if the stadia are floodlit, the cost does come down. In an age where everyone is getting cost conscious, this is a boon!

Basic cost-benefit is there because the productivity of players is high, organizers benefit due to the ticket sales and the advertisements as also the brand promotion (ex: Kingfisher – a Vijay Mallya brand). If anyone has visited the KSCA stadium, there is a permanent display of a Kingfisher branded Force India Formula 1 car. Mallya’s intentions are clear – he wants to use every platform to promote the Kingfisher brand especially when he starts taking its low-cost sister airline service, Deccan, later this year into the skies across the world.

Social cost-benefit is also there since the game keeps people glued to their television sets attracting eyeballs and thereby keeps a lot of vehicles off the roads!

An economic analysis reveals that the family comes together to watch this tournament. The kids are exposed to something nice, interesting and are learning – a lot of things – in a lighter form of the game – things like strategy, brand promotion etc.

The return on investment for the owners is varied simply because each owner of the IPL teams has paid a large sum of money and that varies. Vijay Mallya and Mukesh Ambani have paid a huge sum so obviously they will take another 2-3 years to recover their investment and make any decent profits. You have to add the opportunity cost of what they would have incurred because they could have pushed the same investment into another business.

So, bottom line: The IPL is here to stay. The T-20 series that rocked the world of cricket last year in South Africa has cemented itself in the Indian scenario and world cricket will never be the same again.

 

 

 

I have written about the fantastic victory India had last year at South Africa – https://ecofin.wordpress.com/2007/09/24/india-wins-the-icc-twenty-20-world-cup-at-south-africa-2007-congratulations/

 

 

 

They say, cricket is a form of unification of the large 2 billion populace of India (including the expats). I think it will work wonders and the owners of the various teams of the IPL will be laughing all the way to the bank in a couple of years!

Will rival leagues such as the ICL dent the popularity of the IPL? I don’t think so.

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Written by Naveen Athresh

June 1, 2008 at 8:42 pm

3 Responses

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  1. Nice analysis at the economics of IPL and well conveyed too.
    Have a look at my blog for my opinion on IPL.

    Saru

    June 4, 2008 at 8:50 am

  2. Simple and accurate, Thanks for the information I cld understand the business of IPL reading this.

    Rahavendra

    June 17, 2008 at 7:52 pm

  3. what about business model of cricket clubs in bangalore??
    I my self being a fan of cricket .. not as a reader and watcher but as a player.. i hardly found anyb organization easily avalable in bangalore which offer a pay based mdel of club cricket .. u might have academy .. but as a business model to exploiet the revanue from from ppl intrest and love for game is missing here in bangalore .
    i wud have hardly misssed this in delhi or bombay .. as there are such setups??
    why u dont see an opportunity there ???
    a SIMPLE Concept that ppl have money and bachlors have more spending which is quiet high in banglore .. considering the outsiders .. u will get ppl eaisly who are willing to pay for a joy of 1-2 hour .
    plz dont mind abt language

    proclaimed existence

    January 7, 2009 at 2:29 am


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