Economics of Ipl

IPL's business credentials: Where the economics stand for 4 key stakeholders after season five

Beyond the brawls and the bustups, there was cricket. And business, which became steadier and better. As millions continued to watch the cricket, IPL-V strengthened the league's business credentials.

Franchises

Their costs are mostly fixed and they are squeezing more out of each revenue stream

In the humdrum of IPL-III, the operative word was 'valuation'. The then-IPL chief Lalit Modi proudly announced two new franchises, Kochi at $333 million and Pune at $370 million.

In other words, Pune's owner, the Sahara group, was paying 3.3 times the priciest original franchise (Mumbai, $112 million), setting a new benchmark for valuing a team.

More insanity followed: Modi was dismissed by a tweet, Kochi imploded, and Sahara had second thoughts about its $370 million investment. Sanity returned in season five. "Initially, it was more about valuations, not viability," says Venky Mysore, CEO of the Kolkata team. More than any other season, IPL-V has been about viability.

Not of the surviving kind, but of the thriving kind. "For the first time, most of the franchises will be financially better off," says IPL commissioner Rajeev Shukla.

"Many have become profitable after IPL-V." Like Kolkata. "We reduced our combined losses by about 50% in IPL-IV," says Mysore. "This year was equally good or better than last year...we should wipe out the remaining losses." Chennai and Delhi say they have been profitable since season three, and that this year was better.

The economics for a franchise are simple. Every franchise incurs two kinds of costs, and both are essentially of a fixed nature: the licence fee and player costs.

For a metro franchise, the licence fee is around Rs 35 crore a year, while the player cost is Rs 55 crore. Add sundry expenses, and a franchise is looking at total costs of Rs 100-120 crore. On the revenue side, there are essentially three revenue...