Understanding the Economics of the Indian Premier League (IPL)

IPL Image

Share on: Whatsapp

The interdependence between sports and economics is one that has been deeply researched and studied over and over by various scholars. The recent World Economic Forum had many of the world’s most important leaders talking about the future of global economics. Here, the aspects of sports, economics and society came up for discussion.

Sports are becoming a more and more influential part of economics and economic strategies have a significant place in sport as well. Take Game Theory for example. It is a famous theory that is prevalent in both economics and sports. Simply speaking, it discovers and solves how events will unravel based on their motivating factors, goals, ambitions and what according to them is perceived to be the best interest.

Generally, it uses numeric models to view and observe different players and how their movements in the form of strategies might affect the loss percentage or gain a percentage of other player’s in the game. Hence, the word game because it duplicates what a coach does in sports. He/ she guides the best move forward based on all possible outcomes. The only change or variation seen here from actual sports is that use of models and statistics are made.

Various sports around the world have optimized themselves using state of the art technology and converted the game into a numerical event, an event that yields very close approximations, taking into account all variables possible. For example, looking at the basketball, the coach will plug in values representing the other team’s possible game plans and test what will unfold or develop through a quantitative model. The game theory thus proves its application to both economics and sports.

Economics plays an important role when it comes to recruiting new talent, both on and off the field. This specific idea is the basis of the story of the multiple award-winning and well-renowned book, ‘Moneyball’ which later goes on to become a complete hit amongst fans of all ages and cultures. The story revolves around the former Oakley Athletics baseball team general manager Billie Beane who breaks all industry norms and the rules of the way selection is to replace it with advanced economic techniques to identify players. Baseball had traditionally considered metrics such as batting average, strike rate and injury level to judge player performance.

As the team management was short of funds to purchase high-quality players, they were restricted to the options of players who did not necessarily excel in those areas. Beane went on to create a system using economic deductions whose skills were undervalued and overshadowed by the market consensus and pre-set metrics of the game as mentioned above. Beane went on to dominate his team’s selection via unorthodox approaches and was drastically successful at that time. Oakley Athletics were able to compete with teams such as the New York Yankees who had a much stronger and well-developed payroll and also made the playoffs in consecutive years of 2002 and 2003. Based on innovation, novelty and success of these new methods, it was duplicated by other teams in similar situations with close success such as the New York Mets making it to the World Series in the year 2015.

The success of past attempts in reality and fiction encouraged  Simon Kuper and Stefan Syzmanski to publish ‘Soccernomics’ in 2009. The New York Times described the book as something similar to what Moneyball did for baseball that this book does for soccer. It was clear that the newspaper was establishing links between baseball, economics and wellbeing, both physical and mental accounts. It also proposes the fact that similar to baseball, football needs to take a fresh approach towards available data in order to optimize the sport and bring about a revolution.

The book advocates that people who manage European football do not fully understand the business side of it. They have gone as far as saying that they do not envision the strength of the sport, bill wise. They also proposed that if a change isn’t seen soon, they are most likely awaiting a takeover by clubs and national teams in emerging economies such as China and India. Despite the amount of money circulating in football, several clubs still struggle to make ends meet. A further understanding of both terms leads to the creation of economic development that has proven time and again how beneficial it is to the world of sports.

To come back and focus on the topic at hand, let’s deep dive into the world of cricket and more candidly, the Indian Premier League and the economics that revolve around it. 

After the financial crisis of 2008, the world was in a confused state, money-wise. Millions of global businesses were threatened and were looking for ways to absorb the shock and revive. Amidst all the chaos, India’s cricketing association Board of Control for Cricket In India (BCCI) came up with a way out.

Fourteen years down the road, that master plan has fulfilled its purpose and given birth to a financial golden opportunity and a dreamland for young cricketers. Yes, we are talking about the Indian Premier League aka IPL. IPL is a combination of entertainment and thrill which revolves around the country’s favourite sport, cricket.

The manner in which IPL has industrialized the electric T20 format of the game is quite commendable. This league has transformed the way spectators view the sport and introduced a new business ecosystem that works on cautious plans and well-executed strategies. To throw some numbers into context, in 2020 alone, the BCCI earned a 4,000 crore revenue along with a 35% reduction in costs and an increase in viewership by 25% as compared to 2019.

The reputation and success of IPL encouraged the formation of other T20 leagues around the world like the Big Bash League (Australia), Natwest T20 Blast (England), Super Smash (New Zealand) and so on. Even after the introduction of these domestic T20 leagues, cricket lovers eagerly wait for the span of April-May.

The IPL is composed of 2 months of high voltage cricket played between 8 franchises (2 new ones will be introduced in the roster from the 2022 season),60 odd matches and an average stadium attendance of 35,000. The biggest names in cricket step down from their international duties for this span and fight it out for the most prestigious T20 title ever. Rivals become teammates and national jerseys become fluorescent sponsor-clad sports outfits. The shuffle amongst the age, regions and style of play seen in the IPL is top-tier excitement.

It is true that every season the Indian Premier League gives the Indian and international cricket new and upcoming cricket stars, stars of tomorrow, stars who will define the game in the coming years. Take any polished name for example. Be it Jasprith Bumrah, K.L Rahul or Kuldeep Yadav.

These young generation players are the pillars of subcontinental cricket. Virat Kohli himself entered the Indian atmosphere through the national side but made his presence known through the captaincy of Royal Challengers Bangalore (RCB) since the inception of the Indian Premier League in 2008. Take the Pandya brothers for example. Two brothers rose to the highest level of cricket because of the IPL. They played all the levels, paid their dues in time and maximised the exposure that IPL offers to make their presence known to the chief selectors. Not is this true for Indian cricket but cricket all around.

When we look at the international impact of the Indian Premier League, names like David Miller, Chris Gayle, Keiran Pollard come up who have diversified and redefined cricket and its expectations. Marcus Stoinis of Australia, Kagiso Rabada from South Africa, Ryan Ten Doeschate of the Netherlands and Andre Russel of the West Indies have made a comeback in their national sides due to their stellar performances in the IPL over the years.

Frankly put, the IPL is not only about the 17 cricketers, Indian or abroad who represent their country at the highest level and make loads of money but the whole sub-continental cricket structure benefiting from the economics of IPL.

When we talk numbers, the cricketer’s salaries and pay grade has been on a steep rise since its inception in 2008. This has resulted in massive revenues for the BCCI and the money spent on the auction table for the purchase of players.

All seasons would have had the same look but due to unforeseen circumstances of 2020, when the deadly shock of Covid-19 hit the world, a lot changed, both structurally and vision wise.  The auction was complete before Covid-19 hit and the franchises had flushed out massive amounts of money to lock in their preferred targets. To state, the IPL economy was unaffected by it and contradicting it, it was strengthened.

THE VARIOUS REVENUE STREAMS OF IPL

  • Purchase and sale of Central broadcasting rights

Broadcasters are sold media and digital rights for the IPL so as to further pass on ad space to brands for maximum brand exposure in exchange for big bucks. These ad spaces cost close to 15-18 lakh for every 10 seconds which in terms of base advertising rate comparison is very expensive. Commercial partners are also signed up to secure token money right upfront.  Star Network paid Rs 3,270 crore per year for a 5-year broadcasting rights deal which began in 2017. That sums up to an exciting  Rs 16,350 crore. The revenue collected here is then distributed amongst the franchises to use as per their wishes. 

The BCCI usually retains 50% of the money and equally distributes the rest 45% amongst the respective franchises, along with a small 5% awarded to them performance-wise. The 2022 season will see the introduction of two new teams, Ahmedabad Titans and Lucknow Super Giants. This will result in an increase in the number of matches and advertisements gradually. Larger sums of money are expected to be brought in in the 2023 season.

  • Prize Money and Ticket sales

Some spacious stadiums generate huge footfalls but post-pandemic trends suggest that they will go on to become smaller and smaller revenue components for the IPL. That’s the reason ticket sales have seen a rather gradual decline in ticket sales. Although these are low profiting channels, the IPL franchises must spend on them and make sound investing motions in this area to generate larger revenues. The two major cost occurrences are player remuneration and franchise fees.

  • Franchise Fees

The BCCI collects 20 per cent of total revenue- including sponsorships, rights and miscellaneous fees from each franchisee as a token fee. These deposits are used for the organization of matches, organisational expenses and association payments. The introduction of new franchises means an added revenue through auction prices in installments over the upcoming 10 years, an add-on to the franchisee fee.

The owners of Ahmedabad Titans and Lucknow SuperGiants, CVC Capital and RPSG Group would pay Rs 562 crore and Rs709 crore each year for the upcoming 5 and 10 years respectively. If the franchises are successful in forming a strong base of sponsors and other sources of revenue quickly, they might prove to be profitable before the end of the decade since a part of their revenue is already secured through media rights deals. Companies like CVC Capital are mainly focused on generating huge returns for their investors instead of promoting brand image and making use of the great visibility.  Some may go on to say that the commercialization of the sport to this level has resulted in a shaky IPL fan base over the years, even after the consecutive super hit cricketing seasons. 

  • Player Remuneration

As vastly known and famous, franchise players are paid heavy sums of money during the player auctions. The aim is to increase the franchise’s brand image, and consecutively make a team stronger, dynamic and better performing. For the older existing teams, player fees are the biggest cost centre, taking up 40% of the franchise’s hard-earned revenue. Fanbases are often termed shaky because the shuffle of players amongst franchises causes mixed feelings. Fans don’t follow franchises but are guided by player loyalty.

  • Sponsorships

The Indian Premier League is a spectacle for various reasons but the flashy atmosphere and razmataz of cricket is a combination that stands out. The constant bombardment of players in various adverts, playing the role of several narratives and portraying whatever it is the director in the chair wants them to do is just the beginning. Neon coloured jerseys without possible spaces for more on-jersey exposure is the uniform of this festive sporting event.

The biggest names of the business world, from all wide sectors, save a large chunk of their annual marketing and PR budget for IPL advertising specifically. Names like Pepsi, Ceat, Hyundai, Sony, Star Sports, Jio, Wrong, Vodafone, Manyawar and so on are seen in a battle to crack the best deal as soon as possible so as to secure a spot, a tiny fraction of this major spectacle for absurd amounts of money. Research has shown that the gravitas and weight of the IPL ad spots are as prestigious and wanted as the Superbowl, a major American Football sporting event. 

Sponsorships include title sponsors, jersey sponsors and so on. The franchises are allowed to make separate and private deals with all sorts of companies as long as there is an inflow of revenue. The future predictions also suggest that sponsors might get into the production and sale of NFTs based on franchises and players. The variation of all variables throughout the seasons provides for a massive data set of combinations to be explored for productions of the said NFTs.

IMPACT OF THE IPL ON INDIAN ECONOMY

  • New employment opportunities

It is a well-known fact that IPL is a massive operation that requires a large workforce in the form of several tiers of employees and operatives. It is responsible for both job creation and job boosting which thus leads to India’s economic development. The report submitted by the UN General Assembly for Peace and Development highlighted that the economic value created by the IPL is of value $3.2 billion. The existence of IPL has made cricket an advanced study in the household sense which has also resulted in a market for sports equipment and gadgets with a market size increasing to 40 billion Indian rupees.

  • A considerable amount of rise in the GDP

If we look at the economics of the IPL from a theoretical point of view, it is observed that it has been contributing massive profits to the GDP of India. A tremendous fan following, huge scale branding and a strong fan following have led to a constant rise in GDP. The BCCI has appointed KPMG (Klynveld Peat Marwick and Goerdeler) sports advisory group to undertake their operation and it revealed that the 60-day tournament yielded Rs 11.5 Billion (USD 182 million). The numbers themselves show how directly and indirectly the IPL is beneficial to the economy.

  • Boost in tourism, hotel and restaurant business

A massive revenue boost is seen generated from international tourism apart from the 32 players from international countries that play in the games for several franchises. As per Cox & Kings records, the IPl led to an astonishing 30% increase in travel revenue. Due to the multiple venue system of conducting matches, both international and national travels follow teams around the country to stay in the loop that causes recurring travel revenue. India has been ranked 11th in the Asia Pacific region and 34th in the list of most attractive travel destinations worldwide. This reporting was done by the World Economic Forum.

During the IPL season, there is an exponential rise in the accommodation circle as well for the travelling teams, management, families, support staff and most largely, the fans. The number of check-ins increases during the 50- day tournament. Large chunks of hotel room floors are booked months in advance to ensure smooth operations which results in overbooking, thus, and added revenue on top.

Restaurants have seen a rise in the number of takeaways and deliveries received during the 2 month period which can directly be associated with spectators enjoying the IPL on their couches, in the comfort of their homes.

  • The introduction of a new tax contribution

Before the introduction of the IPL in 2008, the Board of Control for Cricket in India (BCCI) was considered to be a charitable trust and was never asked to pay taxes on their revenues and incomes through association and participation in international cricket. IPL has been termed as a commercial activity from the very beginning of its existence and therefore, BCCI was required to pay tax contributions, which resulted in an increased amount of revenue for the government. BCCI has produced a considerable amount of tax money since it began.

In conclusion

To simply conclude, the Indian Premier League helps the BCCI to develop a structure in place for the development of Indian Cricket and its young and rising stars of tomorrow. This was majorly possible because of the large economies of scale in play. Frankly stated, to execute a spectacle of this volume in a country like India full of hurdles and roadblocks with such brilliance is a job worth appreciation. IPL is a golden egg for both the economy and the sport if nourished, protected and branded carefully. When it came on the television for the very first time, the decorative nature of the event sold itself as something of a reality show but little did anyone know.

It is rightly observed that the forward-thinking business acumen of Mr Lalit Modi along with commendable support from the BCCI will pave the way for the testing grounds for cricketers of tomorrow. In an era of technology taking over, events like IPL that require huge manpower will save the lower tier employment force from facing unemployment and pushing out newer positions to fill in for the better optimization of the sport.

Some great inventions were not valued in the right manner at the right time but IPL was most necessarily recognized as a driving force of youth sports and novel economic avenues of operation.  The IPL is a gift that keeps giving in two very important aspects and thus asks recognition and appreciation.

Leave a Reply

Your email address will not be published.