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The economics of IPL show

The economics of IPL show
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First Published: Tue, Mar 23 2010. 12 08 AM IST

Illustration: Jayachandran / Mint
Illustration: Jayachandran / Mint
Updated: Tue, Mar 23 2010. 12 08 AM IST
Anybody who sat through the weekend match between Kings XI Punjab and Chennai Super Kings with his nails intact has nerves of steel. It is such close matches that have helped make the Indian Premier League (IPL) such a success with viewers.
Lalit Modi’s colourful travelling circus has just got two more troupes, with the Sahara Group and Rendezvous Sport paying almost as much as the eight original franchisees paid in 2007. This means that the business value of IPL has grown by four times in three years. The Financial Times cites an official from Brand Finance India, a brand valuation firm, as saying that the IPL brand is now worth $4 billion and has “the potential to grow further”.
Illustration: Jayachandran / Mint
We compared this estimate with the Brand Finance Global 500 listing of most valuable brands that was released in April 2009. IPL is likely to be the second most valuable brand in India after Tata and Reliance, and one of the 200 most valuable brands in the world.
Meanwhile, IIFL, a brokerage, said in a recent report that it expects most of the original franchises to make healthy profits this year, “driven by higher ticket and merchandising sales and lower administration costs”. This should put to rest the worry that many investors bought IPL franchises as trophy assets to show off to the world and not to earn profits.
The IPL business model will be tested once again. The entry of two new teams will boost the number of games every season from 60 to 94, which means that unless the league is split into divisions the number of teams cannot be increased further. A huge increase in the number of teams will dilute the capital value of existing franchises as well, so their existing owners too are unlikely to be happy about too many new teams in the fray.
The other danger is that too much of IPL could lead to viewer fatigue. We are already seeing data that suggest viewers are now being more finicky and watching only those matches that feature their teams. It is likely that IPL may not keep getting new viewers, but existing viewers may be spread across more matches. Since broadcasting revenues are so critical to profitability, this is a risk the IPL management will have to grapple with.
IPL has been a spectacularly successful start-up, but it now has to manage growth in its years of maturity.
Is the IPL business model sustainable? Tell us at views@livemint.com
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First Published: Tue, Mar 23 2010. 12 08 AM IST