The Economics of the Indian Premier League

Cricket, more than a game is like a religion in India which has a huge fan following. According to the market research conducted by the International Cricket Council (ICC), cricket has over a billion fans globally with the Indian sub-continent alone constituting more than 90 percent of them. Even on the streets and narrow footpaths of India, one can expect to see children playing street cricket, while the elders watch or listen to cricket updates. With such a large and passionate viewer base, the Board of Control for Cricket in India (BCCI) decided to capitalize on the situation by introducing a domestic cricket league. This led to the birth of Indian Premier League (IPL) in 2008. Within few years after its inception, it became the most lucrative annual sporting event of BCCI.

Background and Revenue Implications of IPL:

The IPL is a tournament with approximately eight to nine teams on board. Much like the English Premier League of football, the model envisaged a home and away match for each team. It is basically a T20 tournament which means that it is a twenty over match between the qualified cricket clubs of India. It was planned and executed under the leadership of Lalit Modi, the then BCCI commissioner who believed that it would be a good way to popularize T20 cricket in India. He wanted to make cricket more exciting, and enlisted the help of celebrities and businessmen to take various roles including the ownership of these cricket clubs. These teams were named after various cities and were brought under professional teams of management. Also, the system was developed in such a manner that the teams were allotted to the owners through a bidding process, followed by the auctioning of domestic and international cricket players. The main source of revenue for the teams was sponsorship and prize money.

Interestingly, the launch of the IPL brought in huge revenue for the BCCI and coincidentally for the Indian economy. The study of KPMG revealed that in 2015, the IPL had an economic output of Rs.2605 crores and its contribution to India’s Gross Domestic Product was Rs.1150 crores. It simply highlights the possible economic implications of the ongoing IPL tournament. Therefore, an analysis of the economics of the IPL with respect to its macro-level contributions to the Indian economy and micro-level contributions to the teams and the players makes good sense at this juncture.

Macro Level Implications:

The most prominent macro aspect is the contribution of IPL to the size of India’s GDP pie as highlighted by the KPMG survey. It was also brought to light that during IPL season, there was a significant rise in tourism with large number of international visitors from countries like, United Kingdom, South Africa and Australia. These are cricket loving nations with large fan bases. During the IPL season, cricketers from these countries come to India to play for various clubs, thus bringing with them their fans, which result in increased sport tourism in India. Another area highlighted by the study is the employment generation during these months owing to huge demand for staff members. This includes demand for medical teams for every team, club specific cheerleaders, coaches, stadium employees, security and so on. In short, it generates a vast number of employment opportunities across various sectors.

Another important highlight of the same study was the upliftment of tier-2 cities because of media exposure. Since IPL cricket matches are played all over India, they bring vast media coverage. Tier-2 cities are investing more in the city’s infrastructure and development benefits from IPL’s media exposure, and see a rise in tourism related activities which can generate greater revenues for the city.

Furthermore, while the IPL has increased the BCCI revenues, it also resulted in greater tax contributions, which means higher government revenues. BCCI has paid around Rs 3,500 crore as tax since the financial year 2007 – 2008. Until the IPL, the BCCI did not pay taxes as it was considered a charitable organization. However, after the commencement of the IPL, the Income Tax department declared IPL to be a commercial activity and ever since then the BCCI has been taxed amounting to Rs 350 crore a year.

Micro Level Implications:

At a micro level, it is interesting to see how the IPL gains revenue for the BCCI and what exactly makes IPL so lucrative. The IPL generates a lot of revenue through sponsorship, ticket sales, and advertisement and broadcasting rights. In fact, the IPL has signed a five-year contract worth $2.55 billion, with a $510 million annual fee, for its worldwide broadcasting and digital rights with Star India. Star India competed with other bidders like Facebook for the IPL broadcasting rights. Since the IPL lasts only 60 matches across six weeks in April and May, it means that each game has a cost of $8.5 million. However, the large viewership makes up the costs for Star India and gains through the advertisement contracts. A reason for the large viewership is due to the shortest version of cricket matches. These matches last typically three hours and people are quite comfortable watching these types of matches as it jams in a lot of action very quickly unlike the other versions of the game such as test and one-day matches.

Furthermore, a large chunk of the viewers fall in the category of the middle class with high disposable income, and of the legal drinking age which is of great significance as many sponsors stay connected with breweries. There is a heavy load of beer advertisements broadcasted during the IPL. The IPL teams earn revenue through their sponsors and through the sale of merchandise of their kits and garbs. They also earn revenue from stalls set up in stadiums, and through the revenue shares that are paid to the teams by the BCCI. Of course, the biggest revenue a team can earn is the prize money, but that is just for the winning teams.

Since the IPL earns so much through the sponsorship, there is greater income available to purchase cricketers. The cricketers earn their revenues based on how much they are bought for during the auctions. The money a player can earn here can even at times be greater than what the player could earn playing for the national teams. As a result, there have been many contractual arguments between cricket clubs and countries. One such example is of Andrew Flintoff who chose to play the entire season of IPL 2009, instead of playing for England’s national team as he earned so much more from the IPL than from his 12-month central contract. Similarly, players from West Indies earn a lot more money in these cricket leagues than from the national side. For Instance, Chris Gayle who is a very prominent T20 cricketer plays for many T20 cricket leagues around the world for different clubs but has not played for his national team for a very long time, and the reason remains the same. Cricketers face expenses in terms of where they choose to play and where they forego, as not every cricket event happens in isolation. There exists a possibility of clashes with cricket league matches and national team matches.

The Roadmap Ahead

Now, the IPL has become one of the BCCI’s most successful ventures which accounts for nearly 95% of the board surplus as compared to the rest of the board operations. This means that the BCCI makes its most profit during the IPL than the rest of the year. Since international players also earn a fair amount during the IPL, over the years there have been little to no international cricket tournaments taking place during IPL season so that all players are available. This means that the bargaining strength and influence of the BCCI has increased in tandem with other cricket boards among the cricketing world.

With the surplus from the IPL, the BCCI has been able to increase cricket activities at the National Cricket Academy (NCA) by allocating Rs.50 crores in 2018 as compared to the Rs. 26 crores it allocated in 2017. There has also been an increase in domestic cricket matches along with a strengthening in women and junior cricket, all of which owe credit to the success of the IPL. Thus, the IPL has allowed for greater cricket development which can result in better cricket players and even improve India’s performance in cricket.

Picture Credits : sportskeeda

You may also like or comment within the IndianFolk Network!   You must login here to like or comment.
V K Muthu

Can India afford to waste such a huge money in cricket when millions go hungry every day. Societies’ priorities show its character and the level of conscience in the society. Treating cricketers as entertainers and paying huge money is difficult to digest and shows that the society is full of trigger happy individuals and it is not alive to the reality that prevails in the country.

1 year ago

Most Popular

To Top