ESSAY

Cricket booms in India

A big hit

The Indian Premier League is raking in money but its teams are not

Mar 25th 2010 | DELHI | From The Economist print edition

703m for two

FOR cricket connoisseurs, the Indian Premier League, a six-week contest involving a shortened version of the game known as Twenty20, is horribly crass. With the onus on fast scoring, the world’s best batsmen are encouraged to swipe at every ball, inducing a monotonous sort of thrill, not unlike what the IPL’s European cheerleaders achieve with sparkly miniskirts and pompoms. Cricket punters, needless to say, love it, and the IPL, which recently began its third six-week season, is booming. On March 21st two new IPL teams were sold at auction for a total of $703m (32 billion rupees), only slightly less than all eight existing teams sold for two years ago, when the IPL was launched.

For Lalit Modi, the IPL’s boss, this showed it was “recession-proof”. No kidding. Mr Modi has brought previously unimagined riches to a sport that was until recently managed amateurishly in India and elsewhere. Having sold the main broadcasting rights to the contest for 82 billion rupees, he has hawked it widely—striking recent deals with, among others, Google, to broadcast IPL matches on YouTube, and Britain’s ITV. According to Brand Finance, a consultancy, the IPL is worth over $4 billion, double its valuation of a year ago.

ITV must be pleased. In Britain, the birthplace of cricket, nearly half a million people watched the IPL’s opening game on March 12th—easily more than peak viewership for an ongoing Test-match series between the English and Bangladeshi national teams, which admittedly is only being broadcast on a pay-TV channel.

Yet this is small beer by comparison with Indian audiences. According to TAM, India’s television-ratings agency, 42m Indians watched the league’s opening game, in which the Kolkata Knight Riders, a team part-owned by Shah Rukh Khan, a Bollywood star, biffed the Deccan Chargers. In its inaugural season, the IPL took four games to accumulate 50m viewers; this year it took only two.

For advertisers, the IPL’s fans in India are an especially enticing crowd, with around 45% of them free-spending 15-35 year-olds. An early breakdown for the current season also shows a significant hike in the number of women watching, to around 38% of the total audience. These figures indicate an unparalleled opportunity to get into the heads of India’s vast and growing middle class. By contrast, the opening match of the hockey world cup, the premier tournament for what is arguably India’s second-favourite sport, drew only 8m viewers last month—though it was held in Delhi and pitted India’s team against its Pakistani archrival.

Hence the hot bidding for the two new IPL teams, or “franchises”. Sahara, a conglomerate that is also a leading sponsor of India’s national cricket team, will pay $370m for a team it will set up in the western city of Pune; Rendez Vous Sports, a consortium, will pay $333m for a team in southern Kochi.

Even Mr Modi said he was surprised by these sums. But he pointed to an impressive business model. Franchise owners pay the IPL for their teams in ten annual instalments. In return they receive a big slice of its broadcast and sponsorship revenues. According to Mr Modi, the second of these payments already exceeds the first, two years ahead of schedule. That leaves players’ salaries, capped at around $7.5m a year, as the owners’ main expense, which they may try to recoup through ticket sales and team sponsorship. According to Mr Modi, “They should all be making money.”

Most are not, however. To be profitable, according to Ness Wadia, co-owner of the lossmaking Kings XI Punjab team, it is “critical” to build a loyal fan-base. This was always an uncertain undertaking, given negligible interest in India’s pre-existing state-based cricket contest. And it was made more difficult last year, when the tournament was abruptly shifted to South Africa for security reasons. To fill its ground in Mohali, Mr Wadia’s team currently gives away around a quarter of the tickets. “I’m very gung-ho about the IPL,” he says. “But we need to ensure the fundamentals are better inculcated.”

The profitable Knight Riders, tirelessly promoted by Mr Khan, show that this can be done. For several big industrialists who own teams, meanwhile, the value of associating their firms with the IPL may compensate for their teams’ losses. Most notably, Vijay Mallya’s UB Group, India’s biggest brewer, is forbidden by law to advertise its alcoholic beverages. But it has named its team, Royal Challengers Bangalore, after one of its brands of whisky.