DLF Indian Premier League (IPL) is mix of entertainment and Twenty 20 cricket. The marketing and revenue models of IPL also make an interesting business case study.
Q: How did the idea of IPL Twenty 20 Cricket originate?
A: It all began with the formation of Indian Cricket League (ICL) by media baron, Zee group’s Subhash Chandra to counter BCCI’s strength in Indian cricket. The ICL had senior players from all cricket playing nations (most were nearing retirement) and young budding cricketers from different parts of India.
To take advantage of the growing popularity of Twenty-20 cricket, BCCI and Lalit Modi conceived of an alternative cricket tournament, with the backing of ICC, built on the larger pattern of the English Premier League.
The idea had all the ingredients to be a success – top cricket players of the world, cricket crazy Indians having a perfect viewing experience in summers/ holiday season during prime time TV, presence of Bollywood celebrities, corporate and involvement of state political leaders.
Q: How do IPL cricket teams get to select individual players?
A: The players of each IPL team are chosen through an open auction with individual player being put up for bidding by the franchises and the highest bidder becomes the buyer. Each player has a ‘base annual fee’ which is on a pro-rata basis depending on his availability. In the first season of IPL, there were 78 cricket players to choose from.
Each IPL Franchise has a maximum limit of $5 million to spend on bidding for players, and the contract for each player is for 3 years. In addition, there are icon players – like Sachin Tendulkar, Yuvraj Singh and MS Dhoni – whose fee is 115% of the highest player fee.
Q: What are the composition rules for an IPL squad?
Each franchise squad in IPL should have a minimum of 16 players and at least 4 of these players should be under the age of 22 years. There can be a maximum of 8 foreign players per squad (that cap was raised to 10 in IPL 2009) and a maximum of 4 foreign players can be part of the playing XI for each match.
Q: What is the IPL trading window?
In 2009, the IPL trade window was open for a period of 1 month where 7 players were traded among different franchises. Then we saw another auction where Andrew Flintoff and Kevin Pietersen emerged as the most valuable (read expensive) players.
Q: What is the exact format of IPL T20 Cricket?
A: Each cricket team meets the other team in the IPL league twice, once at home and once away. For instance, if there are total 8 teams in IPL, each will play a total of 14 matches. The top four teams will qualify for the semi-finals stage. The winners from the semi-finals clash in the IPL finals and thus the whole tournament will have 56 matches in all.
Economics of the Indian Premier League
Q: How does IPL make money?
- Auction of broadcasting rights
- Title sponsorship and corporate sponsorship
- Sale of tickets (20% of tickets allocated to IPL)
- Auction of franchisees rights
- Official umpire’s sponsorships
Q: How is the IPL income distributed?
- Share of broadcasting money with franchisees
- Share of sponsorship money with franchisees
- Share of ticket money with franchisees
- Inauguration expenses
- Prize money: $5 million ($3 million for winner; $2 million divided among others)
Q: What are the sources of income for an IPL Franchisee (ROI)?
- Share in revenue from broadcast rights (equal share for all franchisee after IPL’s share)
- Share in sponsorship money (60% of the amount distributed equally)
- Share in revenue from sale of tickets
- Revenue from in-stadium advertising
- Sale of players to other franchisee
- Revenue from own sponsorship and corporate sponsorship
Q: How is the Franchisee income distributed?
- Franchisee fees – 10% of total franchisee costs every year to IPL
- Players’ cost (Each franchise have paid around $4-6 million per year)
- Match fees and Inauguration expenses
- Rent of stadium (expense of around Rs.2.5mn per match)
- Marketing and promotional cost (around $3-4mn per team)
- Fee for coaches, physiotherapists and other members.
- Administrative cost
Future Opportunities for IPL Twenty20 Cricket
Title sponsorship: DLF paid around $50 million to secure the title sponsorship for the first five years and this is is renegotiable after the third year. If IPL Cricket gains momentum, it can be much higher.
Player trading: In the IPL trade window, players can be sold for many times the cost at which they were acquired.
Gate fees: Beyond the third year, gate fees can increase significantly if the IPL takes off in a big way.
Franchise sale: After the third year, a franchisee has the option to sell out. This could lead to a windfall.
Franchise forever: The franchise fee is for the first 10 years, after which franchisees continue to own the teams for perpetuity.
Potential Downsides of IPL
Not enough eyeballs: Sony-WSG and the franchises could suffer losses if IPL fails to wins over spectators and viewers, and draws a critical mass.
Not enough star players: Constant availability of top overseas players may not be possible, due to growing number of international Cricket tournaments.
Other tournaments: Potential viewership threat if the ICC decides to hold an annual international Twenty20 cricket championship.
Ad blues: Recession and change of venue could affect plans of potential advertisers.
Game pull: Business prospects may be affected if the franchisees fail to create a loyal fan following in their turf.