Twelve weeks from now, the Indian Premier League (IPL) will kick off its Twenty20 extravaganza under floodlights. It is safe to say that this will be the biggest revolution in the business of cricket since Kerry Packer set up his rebel tournament in 1977.
The Board of Control for Cricket in India (BCCI) has done a bit of a Microsoft here. Both first dismissed an innovation—the Internet in one case and Twenty20 cricket in another—and then suddenly decided to embrace it with a vengeance.
This month, BCCI has raised an astonishing $1.75 billion for the rights to a type of cricket that barely existed 12 months ago. Television broadcasters, billionaire businessmen and film stars have all piled into the opportunity that IPL offers.
Purists will continue to be offended by the smash-and-bang reality of Twenty20 cricket—and rightly so. But there is no doubt that the IPL auctions are a giant leap towards a more professional structure of the Indian cricket industry, which was till now in the vice-like grip of a feudal BCCI.
While Subhash Chandra’s rival Indian Cricket League will continue to offer a modicum of competition to IPL, the entry of people such as Mukesh Ambani and Vijay Mallya into the game will open up the market for cricket talent and (hopefully) eventually provide spectators with better stadiums and viewing experiences as well.
BCCI is still acting like a monopolist and rentier. It controls cricket and collects tolls from those who want to participate in the market as broadcasters or as team owners. If IPL succeeds, the stage could well be set for the next leap—there should be a genuinely private league.that has no role at all for BCCI.
Till then, it will be interesting to watch how broadcasters and team owners make profits from their investments in IPL.
The bids for team franchises, for example, mirror what has been happening in other countries. Microsoft founder Paul Allen owns 12 professional basketball and American football teams in the US. Thai businessman Thaksin Shinawatra bought football club Manchester United last year. Many critics feel that these are trophy investments, basically stuff you buy to flaunt rather than for profit. Rich men buy football teams for the same reason that they buy Picasso paintings: to show off. There is no money waiting for them at the end of the road.
Is that the case with the IPL investments as well? It is too early to say anything definite about this. But a quick look at the numbers suggests that the money being put on the table right now will very likely pay off handsomely over the decade.
Both the television and team franchises have been sold for $1.75 billion in more than 10 years. This means that broadcasters and team owners have to collectively earn at least $175 million a year to recoup their investments, assuming a discount rate of zero. That’s Rs700 crore a year, or about Rs16 crore per day in the first IPL season that will have matches in more than 44 days. That doesn’t seem to be a very tall order.
There are other benefits as well. It is likely that IPL will create what economists call positive externalities. The companies and individuals that own city teams may very well end up investing more than what they paid to buy the team franchise. As in cities such as Manchester, their spending on cricket could boost local economies. There is enough research to show how strong sporting teams and hosting of events such as the Olympics spur local economic growth.
IPL will be tested in the coming months—both in terms of viewer interest and the viability of its business model.
Its success could overturn the world of Indian cricket.
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