Study of the sustainability and competitiveness of business model of IPL

Abstract

The first IPL season has been touted as a major success. IPL is also considered by many to be the first concrete step towards institutionalization of sports entertainment industry in India with participation from major corporate houses & media personalities. The IPL franchises are considered to be the next big value creators by the financial investors. But the scenario in the second season of IPL is changing a lot. The major impact was because of the shifting of the hosting of the entire tournament from India to South Africa. Due to these factors we felt that the study of IPL business model would bring out impacts on the Indian economy as well as the economy of participating countries. Here we tried to identify the factors that add to the revenues of IPL as well as it stakeholders. We followed a model of stakeholder analysis to understand the IPL business model. We also tried to understand the pricing model used for the auction of the players. We especially liked to study this because the franchisee owners at present have an upper cap on the bidding price for a player, but it is very likely that this may be removed in the nearby future leaving giant business tycoons with more money power to build strong teams. The following study shows the distribution of major revenues like sponsorship rights, broadcasting rights among BCCI & franchise owners & also makes a comparison with other such cricket leagues where we found that such share for franchises was much higher. The revenue distribution is crucial for any sports league and we highlight how IPL used broadcasting rights money to de risk the business model and lure big corporate houses to make bids. The study also highlights that the IPL success would translate into maximum benefit for the BCCI. However for the franchise owners, some of them have done well in the initial year but the biggest value driver is maximizing local revenues through merchandizing & gate receipts. We also considered the fact that maximum revenues of advertisement were coming from India, which stops in most of the tournaments with the knockout of Indian team. But because of the structure of the IPL, each team have Indian players which pumps in the advertisement revenues coming from India throughout the tournament irrespective of which team gets to the final. We also studied various economic theories involved in managing professional sports league and drew a comparison of how those principles have been incorporated in IPL. Unlike a monopolistic firm, a sports league thrives on competition and IPL structure achieves that by allocating iconic players to specific teams and also keeping a cap of player bid amounts in the initial years. Such a competitive balance promotes “joint profit maximization” by all the teams.