The IPL Business Model Deciphered

The other night, shortly before a disastrous viewing of Alice in Wonderland, I asked a family relative who works in consulting and sports economics about the Indian Premier League’s business model (if it isn’t all based on irrational exuberance).

Unlike other sports leagues in the West, he said, the IPL probably gets most of its money from television rights. In the United States, for instance, the Major League Baseball gets a surprising percentage of cash from stadium concessions, whereas franchises also rely on marketing goods like jerseys and hats.

Neither product sounds particularly lucrative for Indians at this point. That might change in maybe ten years, after layers of tournaments start to breed franchise resentments and loyalties, but not just yet. It seems, then, that television — and, by extension, advertising — is the name of the game for the IPL. If it can prove it can attract the best demographics — the family sitting around the television after work, enjoying a quick dose of cricket as opposed to an 8-hour saga — then there’s very little Lalit Modi needs to worry about.

Well, maybe there are two things: my unnamed relative said, at this point, cricket talent remains relatively inexpensive (compared to the mammoth salaries athletes earn in America). If that ever starts to go up — and, really, $1.5 million for a Sachin Tendulkar isn’t all that much, no? — Modi might have a problem. (Especially since franchises may rebel against arbitrary caps, like the ‘silent auction.’ If there’s enough demand, prices will go up somehow.)

The second problem: other Twenty20 leagues. I’m not convinced about this, because it’s hard to argue with 300 million viewers, but my in-law noted that the KFC Twenty20 Bash did very well in Australia, and there are continued murmurs of an England-South Africa-Australia tie-up. More competition is always a good thing; in this case, we might see players shop leagues and then play for them exclusively.

Again, this is all based on one conversation, not anything I’ve heard or read. So apologies if I’m missing something glaring (and feel free to point it out in comments). But if this description of the model is correct, we’re seeing one benefit of having such a huge Indian population. The market’s just so big, and as the middle-class continues to grow, with its voracious desire for goods and status and leisure (as well as, one hopes, better governance), the products will start to skew to them (and away from Test cricket, for instance, historically tied to the upper-classes).

UPDATE: For a hint of how other leagues work, take a look at this graphic from The Economist. It shows the incredible amount of money fans paid European football teams for stadium tickets, which just doesn’t matter to the IPL (recall its famous move to South Africa).

What could this mean for Indian cricket? I’m not sure: on the one hand, authorities will realize that television is the golden goose and continue to treat Indian stadium audiences badly. On the other, franchises might see a lucrative source of revenue and spruce things up to attract more people (or maybe create luxury boxes that cost gazillions of rupees). Not sure.