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Every developing country has an epiphany in its history when it gets accepted as a member of the global elite. China’s moment came when it joined the World Trade Organization in 2001, while Brazil’s came when it was chosen to host both the summer Olympics and the football World Cup between now and 2016.
India’s moment of clarity was the result of three activities in which the South Asian nation excels – entrepreneurship, bureaucracy, and cricket. When the three combined in September 2007 to create the Indian Premier League, the cricketing world stood up and took notice.
From any angle, the IPL is a staggering success. In style and tempo, as well as its love of glitz, glamour and hard cash, the tournament emulates another triumph of sport branding, the English Premier League. Like Europe’s leading soccer league, the IPL has gorged itself on television revenues.
A retroactively revised, 10-year television rights deal, running until the 2017 season, is worth US$1.6bn, 20% of which goes straight into the coffers of the tournament’s regulatory overlord, the Board of Control for Cricket in India.
That guarantees the 10 IPL franchises US$130m each in hard cash over the course of a decade. Sponsorship money also floods in. Construction giant DLF Group shelled out US$50m to promote the tournament between 2008 and 2012, while second-string sponsors PepsiCo (US$12.5m) and beer-to-airlines group Kingfisher (US$26.5m) also paid to daub their logos around a host of gleaming stadiums.
To be sure, the money flows in both directions. Player salaries are, for a traditionally low-paying activity like cricket, astronomical. In the latest IPL auction in 2011, one of the franchises bought a player for US$2.4m. This makes playing in the IPL pro-rata the most lucrative-paying sport in the history of the world.
The question that pops to mind is: what next? In sporting terms, the IPL is already a global success story, viewed wherever one finds a sizable group of expatriate Indians, from Britain and Australia to the US and the Middle East.
Yet, in financial terms, the jury is still out. Most IPL franchises are widely believed to be suffering losses.
In some cases, this does not matter. Mukesh Ambani, who, according to Forbes, is the world’s sixth-richest man, can easily bankroll his team, the Mumbai Indians. So can billionaire Vijay Mallya, owner of the Kingfisher Group and the Royal Challengers team from Bangalore.
Financial fault-lines are more visible elsewhere. A mysterious group of Indian businessmen paid US$330m to buy the Kochi Tuskers, one of the two new teams auctioned in 2010. Yet, within 12 months, the owners, complaining of a lack of local support, were agitating to transfer the team north and west to Ahmedabad.
However, perhaps this was the point. In the US, sporting franchises are freely traded between cities. That free-wheeling ownership model may, in time, infect India, with teams traded as easily as cricket players. It will, at the very least, be a clear way for the business community to profit from their franchises.
For now, most owners profit from selling minority stakes in their franchises to equally cricket-crazy millionaires. In 2009, Bollywood actress Shilpa Shetty and her businessman husband Raj Kundra bought 12% of the Rajasthan Royals franchise for US$15.4m, effectively valuing the franchise at US$130m, almost double what its original owner, Mumbai media mogul Manoj Badale, paid the year before.
Many India-based investment bankers have been tasked with finding potential investors for IPL franchises.
Another exit route for original owners may be a simple initial public offering from a franchise. Indeed, this may come to be not just welcome, but financially necessary. The IPL may be, as the Bangalore-based cricket analyst Dileep Premachandran notes, “part-vanity project, part-business proposition” – again mirroring England’s EPL. However, it also needs a secure fiscal future.
As things stand, this is not going to happen. A salary cap sensibly imposed on each franchise (no more than US$9m can be spent on cricketers in any given season) was designed to level the playing field.
However, this has only worked to a point. Wealthy franchises have been widely accused of breaking salary caps in search of success, routing payments through offshore trusts. Over time, smaller franchises will, doubtless, need to raise fresh capital to compete with the likes of Ambani and Mallya, mostly likely through the raising of cash through stock listings in Mumbai.
“How can you compete with teams bankrolled by some of the world’s richest men,” asked Premachandran. “The only way to compete in the future will be to float the entity and raise money that way, or you sell your franchise to a much richer person, which most owners won’t want to do.”
The formation of the IPL has propelled India into a cricketing superpower. The next question is: Can anyone make money out of it? Only time will tell.
By Elliot Wilson, freelance reporter