The second season of the Indian Premier League (IPL) is hurtling towards an exciting finish marked by the parity that the league has managed to achieve, with many teams still in the mix for a semi-final spot. Ironically, the biggest story of the IPL revolves around the Kolkata Knight Riders, a team that initially promised much, but failed to deliver. But a true indication of how quickly the IPL concept has evolved can be gauged from the fact that the Kolkata franchise is possibly up for sale. Such possible ownership change proves that the IPL is an icon in its own right, a symbol of corporate and mainstream India happily blending into a 45-day jamboree.
The proposed ownership change is the single biggest story in the history of this young League. The sale and purchase of teams automatically inject value and collateral revenue streams into any sports league and the fact some corporate houses have been mentioned as potential purchasers shows the substance that the league has to offer.
By becoming a viable corporate entity in itself, each team automatically requires revenue streams that move away from the usual sponsorship and broadcasting rights, the two things that dominated revenue for the league last year. Now, the focus will shift to gate revenues, merchandising, cross-branding of sports and products, and the creation of recognisable brands that can collaterally generate revenue and recognition for their respective owners. Future growth estimates for the IPL are speculative at best, due to the dependence on viewership (both at stadiums as well as on TV) and sponsorship, but with the creation of value through licensing and infrastructure, as well as intellectual property rights (branding), the IPL becomes a serious player with parallel yet distinct revenue streams.
To be a global phenomenon, the IPL must diversify into different markets and needs to free itself from the shackles of being a one-country event. The foray into the South African market and the ongoing talks between the BCCI and it’s US counterpart are good starts.
Internationally, teams are purchased after a certain level of sophistication or when they are available at a price much below the actual value of the team. The IPL is slightly different due to some reasons. First, there is a barrier to entry and very limited opportunity to own a team. If more teams are created over the next couple of years, the number will still be capped at close to 10-11 teams over the next five years. The publicity and exposure that surrounds teams in the league also leads to unquantifiable marketing and advertisement and this adds to the valuation of any team. Additionally, the inbuilt revenue streams such as broadcasting rights and sponsorship ensure that the total variable costs are looked after and growth is unfettered. This eases the constraints and allows each team to exploit their collateral revenue streams.
This evolution is not without complications and concerns, however. The worry surrounding the need to generate large revenue in a very small seasonal window is a tough ask. Other concerns include the accumulation of too much debt by teams to finance the leveraging of their brands, and impending competition by other leagues/sports, domestically or abroad. Time will tell.
Conservative estimates of the cost of a team in the IPL indicate a price that is double or triple the value each owner invested in purchasing a team. Exponential increases in value in one year, as the entity grows and dynamically expands, is possibly the best investment one can find, and there can be no better calling card for the IPL. It’s lean, recession-proof and solid. The idea of cricket as a global sport was laughable less than two years ago but its transformation has been remarkable, thanks to the IPL.
Desh Gaurav Chopra Sekhri is a Delhi-based lawyer