Even by the high standards of Business Breakdowns, this is a super engrossing podcast on how cleverly the IPL has been constructed from its inception in 2008. Ed Cowan does a great job of explaining the business model of the IPL and the nuances which have allowed it to create tens of billions of dollars of shareholder value for the owners of the 10 franchises. For the uninitiated, here is the background that you need to know to make sense of this podcast: “The Indian Premier League. The Indian Premier League, often shortened to IPL, is a cricket competition that takes place in India every year between the end of March and end of May. There are 10 teams, 74 matches, and the competition starts and ends within 2 months.

The biggest sports leagues tend to come with long histories. You can trace the NFL back to 1920, the NBA to 1946, and Formula 1 to 1950. In stark contrast, the IPL and its teams were founded in 2008. But despite its relative youth, the IPL is already a sporting giant. It has revolutionized the game of cricket and is the second biggest sports league in the world if you measure it on a per-game basis.”

To appreciate what the IPL has achieved, the podcast takes us back to its first year, 2008, in which the original eight franchises paid around $50mn each to get the right to own a team. Today, each franchise makes a profit before tax of around $30-40mn thanks to the $6bn media rights deal (spread over 5 years) which underpins the IPL’s profitability (the franchises get 50% of the proceeds from the monstrous media rights deal). This PBT figure, at the franchise level, has compounded conservatively at 25-30% per annum since the IPL’s inception. As result, each franchise is worth in excess of $1bn with the most lucrative franchise, Mumbai Indians, probably being worth a fair bit more than that. For the franchise owners like Mukesh Ambani to Shah Rukh Khan and N Srinivasan the IPL has therefore been a super investment.

Mr Cowan does a great job of explaining the underlying source of the IPL’s profitability. The IPL has a lock on two valuable resources. Firstly, Indian cricketers are captive to the IPL in two different ways: (a) courtesy the BCCI, they cannot play in any other cricket league anywhere else in the world thereby ensuring that India’s 1.4 bn population of cricket mad people are locked into the IPL; and (b) the players do not have a union and cannot bargain collectively for a greater share of the IPL’s profits. The podcast points out that on both of these points the IPL is unique. Point (b) allows the IPL franchises to operate with a salary cap i.e. each team cannot pay more than a certain amount for players (something that European football clubs have long wanted but cannot have due to European Union laws). As a result, even the biggest stars in cricket only earn $2mn per IPL season, a modest figure compared to the $1bn+ per season that the league earns from media rights.

The second captive resource for the IPL is a ten-week playing window in the global cricketing calendar. In this window, no other cricket league operates and virtually no international cricket is played in this window. This assures the IPL of the supply of cricket’s biggest global stars. The rest of the cricket leagues operate in the winter months of the northern hemisphere when the international season is in full swing and hence big names of international cricket are less keen to play in these leagues. The podcast does a good job of explaining the BCCI’s realpolitik to nail down this exclusive window for the IPL.

The man who emerges as the star of this podcast (although he wasn’t interviewed for this podcast) is Lalit Modi, the de facto founder of the IPL. Conflicts of interest notwithstanding, Mr Modi’s business genius shines through and Ed Cowan credits to him three pieces of business model design which have been central to the IPL’s success:
From the outset, the IPL was designed to make the franchises profitable. Even in its infancy, Mr Modi ensured that the franchises could operate with minimal fixed costs (the stadiums in which the IPL is played are not owned by the franchises, another key difference between the IPL and the sports leagues in the West), with modest salary bills for star cricketers, with assured media rights revenues and with the payment of the original $50m franchise fee spread over 10 years (to further minimise any cashflow strain that the franchises might feel).
Across the world, the success of competitive sports leagues is driven by intense levels of competition and by the lack of predictability in results. Basically, unpredictable results and tense matches going into the last over create a dopamine rush in the viewer’s brain and that gets the public hooked on to matches which in turn drives advertising revenues. To ensure this, Mr Modi made sure that no one team can dominate the IPL in the manner in which, say, Manchester City dominates the EPL. To ensure that in turn Mr Modi created a rule that every three years every franchise has to put all bar 4 of its players up for sale. Hence every team has be rebuilt every 3 years and that levels the playing field to a significant extent and ensures that 50% of IPL matches go into the final over of the match. Result: dopamine rush is all but guaranteed.
Mr Modi understood that for the IPL to succeed women viewers, not Indian men, were crucial. Why? Because in Indian families, the matriarch controls the TV remote. That in turn meant that from the outset the IPL was packaged as family entertainment and not as entertainment for middle-aged men cracking open cans of beer. Today, 50% of the IPL’s audience is women and today the women’s IPL (which is only a season old) is the second most lucrative league for women in the world across all sports! (The most lucrative league in women’s sport is the women’s NBA.)

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