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                              “IPL”
            INDIAN PREMIER LEAGUE’S
                  ECONOMICS




                  ICFAI BUSINESS SCHOOL, HYDERABAD

IBS, Hyderabad                                       2009 
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                               Submitted By:

                      KINJAL PATEL – 09BSHYD0381

                  KHUSHWINDER SINGH – 09BSHYD0376

                      SUNIL KUMAR – 09BSHYD0883

                    MUKESH SHARMA – 09BSHYD0472

                     SHWETA SINGH – 09BSHYD0808

                    SAURABH GAOEL – 09BSHYD0751




                        Guidance: Dr. T. Koti Reddy


                  MANAGERIAL ECONOMICS, Section C: 2009-11


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                               ACKNOWLEDMENT



This project has been a great learning tool that has taught us a tremendous amount

about the different economics concepts that surround us in our day to day life that we

don’t otherwise think of.

Our sincere thanks go out to Dr. T. Koti. Reddy, our Managerial Economics professor at

IBS, Hyderabad. Without his guidance, teachings, encouragement, motivation and

passion for economics, we would not have been able to endeavor such a project.




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                                            TABLE OF CONTENTS
 

 

ABSTRACT .................................................................................................................... 5
INTRODUCTION ............................................................................................................. 6

OBJECTIVES ............................................................................................................... 12

METHODOLOGY AND REVIEW OF LITERATURE .................................................... 13

LIMITATIONS ............................................................................................................... 26

SIGNIFICANCE ............................................................................................................ 27

ECONOMICS OF IPL.................................................................................................... 28
    DEMAND ANALYSIS ................................................................................................. 28
    ELASTICITY .............................................................................................................. 32

    CONSUMER BEHAVIOR........................................................................................... 35

    CONSUMER SURPLUS ............................................................................................ 39

    COSTS AND REVENUES ......................................................................................... 41

    MARKET STRUCTURE ............................................................................................. 51

    GAME THEORY ........................................................................................................ 54

    EFFECT OF IPL SEASON 2 ON INDIAN ECONOMY ............................................... 56

CONCLUSION .............................................................................................................. 58

REFERENCES .............................................................................................................. 59 




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                                       ABSTRACT



The Indian Premier League (IPL) is a blend of substantial economic concepts. In a

diversified country like India, Cricket plays a very important role as it unifies people of

different regions, generations, and backgrounds while entertaining and creating a

sensational and thrilling atmosphere. Cricket is watched as well as played in almost

every part of the country.

The IPL has been a huge success because the Board of Control for Cricket in India

(BCCI) studied the consumer behavior and implemented the right strategies that made

IPL a profitable venture. The board differentiated IPL from its competitor, Indian Cricket

League (ICL) in many ways so that the market share could be captured. In doing so,

there were many explicit and implicit costs involved such as stadium fees, player’s fees,

administrative costs, advertising cost, etc.

Consumers prefer IPL over other entertainment offered to them. There is a huge

demand for IPL among the domestic as well as overseas viewers. There is consumer

surplus which accrue to the consumer because lot of extra benefits were attached to

IPL such as Bollywood stars which added to the glam quotient.

The market structure is that of a duopoly with only two players –IPL and ICL. There is a

great amount of interdependency between the two players as well as a cut throat

competition between the two.




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                                   INTRODUCTION



Cricket has been a vibrant part of people’s lives for as longs as history can take one

back to its origin. It has been well adopted since its introduction to India and over the

years there have been several changes that have been brought to the format of it. The

most recent “big thing” in cricket is the IPL. The introduction will talk about the concept

of the format that IPL is based on, the history of IPL and how it came into existence, as

well as some other important background notes about the topic. The key features of IPL

and ICL will also be discussed.



“SHORT CRICKET” (THE CONCEPT OF THE IPL FORMAT)



Initially, Cricket has been a game that could have gone on for more than a day. As time

moved on, the format of Cricket evolved and got shorter and shorter. The 60 over

format was used in the first three World Cups. Than the 55 over side version has been

played by the counties in England as well as the Sunday League which was 40 over per

team. There have also been experiments in Australia with the two innings one day

game, with each side getting 25 overs in each innings. Other versions such as the

Super Max with 8 players, or the Sixes which, as the name suggests, has six players

per team with 5 over being bowled have also been played.

ODI and TEST, are the only two types of cricket that have been prevalent in India.

These formats continued for a long time, and thus, the total utility derived from any

match increased but the marginal utility was diminishing. There was room for a new



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product, in this case, a new format of cricket. This is when; ICL came up with a 20 over

match concept. The concept of short cricket i.e. 20 over match came in the market and

was easily accepted by the viewers because there was preference for live entertainment

and this concept had a mass appeal. Another factor for the preference and acceptance

of this format what the time consumers had to invest in one match. In the fast pace of

life today, shorter events seem to prevail.



IPL’S ENTERANCE AND BACKGROUD NOTES



Formed in 1929, registered under the Tamil Nadu Societies Registration Act, the Board

of Control for Cricket in India (BCCI) is the governing body for cricket in India. The BCCI

often uses government-owned stadiums across the country at a nominal annual rent. It

is a private club consortium.

In May 2007, ICL was announced by ZEE and Subhash Chandra. This acted as a threat

to the monopoly of BCCI that existed for years. To counter this move and to retain the

monopoly the board came out with the great entertainment package IPL. In September

2007, BCCI announced it has its own plans to conduct Twenty20 tournaments Indian

Premier League in lines of rival Indian Cricket League.

There has been two seasons of the IPL matches. The first was played in India and the

second was played in South Africa. Both have been successful seasons in their own

ways.




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ABOUT THE IPL



The Indian Premier League or IPL is a 20-20 format cricket tournament. This

league was formed by the Board of Cricket Control of India (BCCI) and sanctioned by

the International Cricket Committee (ICC). IPL has been conceived on the lines of the

English premier league, where local football teams with a defined fan base (supporters)

play against each other. The idea behind IPL is to sell cricket as a high involvement

reality show that would appeal to all audiences. IPL has eight teams sold to franchises

for perpetuity. These franchises can run the league in their individual styles and can

raise resources from the primary market. The teams have been capped at 10 - with one

at the end of every three years. SONY-WSG has bagged broadcasting rights for 10

years for US$918mn, excluding marketing for US$108mn. The franchise amount

collected is US$724mn, with each of the clubs being sold for US$67-112mn, depending

on the city. Besides acquiring teams, each of these franchises has spent US$6-7mn on

acquiring players for their teams. A total of 59 matches, including finals and semi-finals

will be played in this season (56 league matches plus two semi finals and one final).

Seven matches are to be played on the home ground. Its final leg will be called

'Champions Twenty20 League' and all the finalists from across the world will play in it.

The champion team will get US$5mn - the highest ever price money in a cricket event.

The second season followed a similar format with an international budget, but the above

information is enough to demonstrate some key features of IPL.




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ABOUT THE ICL (THE COMPETETOR)



Launched by Subhash Chandra in May 2007, ICL is a unique concept in cricket after

Zee was not able to secure rights of the World Cup 2011. ICL initially had six teams

which have now increased to eight (over 200 players). All these teams were owned by

Subhash Chandra unlike the eight teams in IPL owned by different franchises. The

investments in ICL are in excess of Rs1bn. ICL is scheduled to have four tournaments

in a year, of which three televised events are while IPL has only one season. ICL has

evolved despite several constraints like unavailability of venues and professionals

associated with ICC. The first season was telecast on Zee Sports and was held in one

venue. The second season was more successful as ICL was able to secure three

venues for 24 matches. ICL was able to telecast matches on Zee Sports and Ten

Sports. Other telecasters include Geo Super in Pakistan, Astro & Telkom Malaysia, Star

hub in Singapore, Showtime Arabia in Middle-East, Zee Sports in USA & Canada and

Zee Cinema in United Kingdom & Europe. Global rights have been sold for US$10mn.

Besides, the second tournament was able to garner good sponsors. Edelweiss was the

title sponsor with Rs150mn (for ten years) while JVC, Aircel, Vodafone and Intel were

associate sponsors. Stakes in teams like Kolkata and Lahore have been sold to Mithun

Chakraborthy and Moammar Rana, respectively. It had a TVR of 1.2. Their revenue till

date has been Rs750mn and is expected to break even in FY09E.




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IPL SEASON 2



In 2009, one of the major issues that IPL faced was the clash of timings of IPL and the

Elections in India. As both the events were of great magnitude, it was virtually

impossible to provide security to both the events simultaneously. Due to which our

Honorable Home Minister Mr. P. Chidambaram asked Mr. Lalit Modi to change the

timings for the IPL 2009. However that was not possible also due to other problems,

therefore after much discussion and thought, it was decided that IPL 2009 would be

shifted to some other country.

After deciding to shift the IPL to some other country all the committee members were in

search of other countries which could host IPL. The front runners were England and

South Africa. First it seemed like England was going to host the IPL but later due to

weather conditions it has been decided that IPL will go on in South Africa. Due to

weather and money England was ruled out as IPL venue. Soon after England was ruled

out South Africa came forward to host the IPL. IPL chairman and Commissioner Lalit

Modi and South Africa board’s president were close friends so it was easy to go on with

the tournament in South Africa.




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The above was a brief introduction to IPL and related concepts. The following part of the

project will define the objectives, present the methodology used, review information

found in other relevant literature, explore the limitations, and explain the significance of

this project.

Thereafter, in the main part of the project, the economics of the IPL’s season 1 will be

discussed with detailed explanations of the important Economic Concepts such as

Demand Analysis, Elasticity, Consumer Behavior, Consumer Surplus, Cost and

Revenues, Market Structure, and Game Theory. The discussions on the above

concepts will be illustrated by graphs, curves, charts, etc, wherever applicable. Finally,

the effect of IPL’s season 2 being held outside India will be discussed.




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                                     OBJECTIVES



The main objective of this project is to produce an evaluated analysis of the

Economics of the Indian Premier League (IPL).



To ensure thoroughness of the project, the above objective is further broken down into

three objectives. These are:


    •   To study the IPL and its various features, along with its competition, and the

        growth of its revenue.

    •   To examine related literature and secondary data related to the Economics of

        IPL.

    •   To discuss the important Economic Concepts pertaining to the IPL.




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                                   METHODOLOGY


                                            AND


                             REVIEW OF LITERATURE




This project was done by researching through a series of value adding sources such as

scholarly journals, online journals and other information, news articles, other related

literature and studies, as well as magazine articles. The data used fall under the

secondary data category, therefore it is data collected from valid sources, and studies

previously conducted. All the data used is credited in the reference section of the

project. In this section of the project, there is analysis of economic concepts pertaining

to the IPL and related topics in forms of statistical techniques use, graphs, curves,

charts, etc. Also, a discussion on various pieces of literature is also evident in this

section.




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    NDARY DA
SECON      ATA ANALYSIS




Accord                   y          ected and s
     ding to the secondary data colle                     was
                                              studied, it w found out that 67% prefer

     er       The      ng       hows the details:
20 ove match. T followin chart sh




                              11%



                                                                            0
                                                                         T‐20
                          %
                        22%
                                        67%                                 Over
                                                                         50 O
                                                                            t Match
                                                                         Test




      he      chart it is e
From th above c           evident tha there was enough s
                                    at        s                    o         t
                                                       statistics to support the new

     pt                uct       over match and this c
concep and the new produ i.e. 20 o        h                   dded with the right
                                                     concept ad

      gies of BCC (Board o Control f Cricket in India m
strateg         CI       of        for                                    mier
                                                      made IPL (Indian Prem

     e)       success.
League a huge s




       derabad 
IBS, Hyd                                                                                 9 
                                                                                      2009
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     hart    from secon
The ch below f        ndary data from a stu on consumer preference sh
                               a          udy    n        e         hows that

      majority pre
a big m                     o
                 efers IPL to ICL.




                                       4%
                                       4




                                     24%                        IPL

                                            72%                 ICL

                                                                      say
                                                                Can't s




       derabad 
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                     Exhibit 1: Did You Follow IPL Matches on TV



                                                        17%




                            83%



                                        No       Yes




                  Exhibit 2: Matches on TV Frequency


                                  12%             6%




                         38%                                  44%




    M atches highlights only                      All the matches (daily)
    M atches of favorite teams only               only on holidays/Sundays/Weekends

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                  Exhibit 3: Sus taine d Le ve l of Inte re s t
                               Throughout



                                              8%
                    34%



                                                        58%



                           To an extent       Yes       No




                          Exhibit 4: Attraction Factors


                 70                           63
                 60
                 50
       Percentag 40
                                                               29
           e     30
                 20
                 10                5                    3
                  0
                             Bollyw ood        Entertainment
                               stars               value
                                              Factors




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                   Exhibit 5: Preferred Time Slot on TV

                        70%                        62%
                        60%
                        50%
             Percentage 40%
                        30%
                        20%                                12% 12%
                        10%        5%       9%
                         0%
                                7.00 to          8.00 to        No
                               9.00 am           11.00       specific
                                                   pm          time
                                                 Tim e




                  Exhibit 6: Missed Out on Favorite Program


                             24%




                                                  76%




                                    Yes     No




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                           Exhibit 7: Change in TV Habit



                                                         11%
                     29%




                                                                 60%



                               To an extent        Yes      No




                               Exhibit 8: Effect of IPL on TRP



     Family Soaps                                                  28%


                                                                               38%
    Reality Shows


                                                                         30%
           News

                    4%
          Others




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                      Exhibit 9: Is IPL Better than ICL



                              14%          8%




                                          78%


                          To an extent     Yes    No




                         Exhibit 10: IPL for m e


                                6%               26%
                   31%


                                            37%


        Day 45 masala of pourri            Only aggressive marketing
        Futuristic strategy                Threat to TV and Cinema


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The above Exhibits (1-10) have been derived from secondary data collected and after

reviewing related literature and studies. From the above exhibits, it can be concluded

that:


    •   IPL is a winning formula, its marketing and crisp timing being it’s USP.


    •   It also has the potential to beat the prime time TV shows as is evident from the

        views of people.


    •   According to Hemant Vasu Vidarbha, IPL needs to keep up to its expectation.


    •   IPL needs to create loyalties not just for the states the teams represent, but for

        the playing teams as well.




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REVIEW OF LITERATURE




Why IPL 2 was not held in INDIA? (Problems and suggestions)


IPL SOMEHERE was BETTER than NO IPL.


After deciding to shift the IPL to some other country all the committee members was in

search of other countries which could host IPL. The front runners were England and

South Africa. First it seemed like England was going to host the IPL but later due to

weather conditions it has been decided that IPL will go on in South Africa. Due to

weather and money England was ruled out as IPL venue. Soon after England was ruled

out South Africa came forward to host the IPL. IPL chairman and Commissioner Lalit

Modi and South Africa board’s president are close friends so it is easy to go on with the

tournament in South Africa, After all this Lalit Modi has decided to shift the tournament

from India to South Africa.


CAPE TOWN - What it took for the Indian Premier League (IPL) to shift its base from

India to South Africa in just three weeks:


    •   More than 700 people have been working in South Africa round the clock.

    •   Television and digital media crew comprising over 200 workers

    •   Central IPL and IMG event management team comprising 60 workers

    •   The eight teams have nearly 400 people including players and coaching staffs.

    •   More than 22,000 hotel rooms have been booked for the 43-day carnival.

    •   10,000 domestic flight bookings made for the tournament.



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EFFECT ON SOUTH AFRICAN ECONOMY


South African President Jacob Zuma Sunday thanked the Indian Premier League (IPL)

for reviving the country’s economy ahead of the 2010 FIFA World Cup.


The month-long IPL had revived the country’s economy. It had boosted the South

African economy by 1 billion rand with the number of hotel rooms booked and the

number of flights that were added. It has given a fillip to South African tourism.


“The IPL was a great advertisement for next month’s Confederations Cup and the 2010

FIFA World Cup,” Zuma said in his speech at the IPL’s closing ceremony.


“We will be happy to organize it again if the need arises in the future.”


Zuma, the leader of the African National Congress, said the IPL has become quite

popular in the rainbow country during the 37-day tournament.


“The tournament has become a household name in a very short time. People are aware

of all eight teams that participated. It is a favorite here now. It brought cities to a halt

during the matches,” Zuma said.




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EFFECT OF SHIFITNG ON THE RELATION BETWEEN THE TWO COUNTRIES


The growing trade and the ongoing Indian Premier League will give a boost to the

bilateral relations between India and South Africa, Indian High Commissioner Rajiv

Bhatia has said.


“Our trade today stands at about 6.5 billion dollars and it will grow further and we

believe that it will strengthen bilateral relations between the two countries,” Bhatia said,

addressing a press meet during Vice President Mohammad Hamid Ansari’s three day

visit to South Africa.


“In the last two years we have witnessed about 30-35 big delegations coming into South

Africa and collaborating in spheres like IT, pharmaceuticals, automotive, power, railway,

electricity,” he added.


Bhatia also said the ongoing Indian Premier League would also boost the ties between

the two countries.


“Tourism resources of both the countries are increasing. Tourists from both the

countries are visiting each other and now with the ongoing cricket IPL (Indian Premier

League), the image of modern India gets portrayed,” he said.




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Should BCCI join hands with ICL?


All hell broke loose in the cricketing stratosphere ever since Essel Group chairman

Subhash Chandra announced the formation of a breakaway cricket unit, the Indian

Cricket League (ICL). The Board of Control for Cricket in India (BCCI), having enjoyed a

monopoly over the game in India for a long time, naturally got defensive and decided

that it was time to protect what has so far been its own turf. While Chandra said that the

ICL was not in conflict with the BCCI and would be complementary to it, the Indian

cricket board is not willing to let their players play for the group which it considers as a

‘rebel’ outfit. More money and the promise of an international platform have resulted in

more players opting for the ICL. On Monday, more than 50 Indian and foreign players

joined the ICL, while the BCCI thinks of ways and means to fight this war. Is the BCCI’s

reaction to the formation of ICL justified? Isn’t it high time that the BCCI stops being

over-protective about its own turf and starts thinking about the game at large instead?

Should it not be better for the sport in India that both ICL and BCCI work together?




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                                     LIMITATIONS




IPL being a fairy recent phenomenon in the history of cricket in India, there is only a

limited amount of information and knowledge available regarding the topic to make a

100 percent analysis about the economic concepts. The project presents the best

analysis, given the information and evolution of IPL in this short time.


Time truly seems to be the limiting and constraining factor for this project as, this project

was completed in time constraint. Given a longer period that could have been dedicated

to a more extensive research, the project could have explored some more economic

concepts in more depth.




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                                     SIGNIFICANCE




In a diversified country like India, Cricket plays a very important role as it unifies people

of different regions, generations, and backgrounds while entertaining and creating a

sensational and thrilling atmosphere. Cricket is watched as well as played in almost

every part of the country. Cricket is not only one of the most popular sports watched

and played in India, but it is embedded in the Indian culture to some degree. It is only

fair to say that this project has a high degree of significance as it could and hopefully will

benefit a wide array of readers and researchers alike. This topic is of big value and

interest to several and most readers will be engaged to learn the finding and concepts in

this project.

Most Indians know where cricket comes from and what how the sport has evolved over

time, but this project goes a step beyond by shedding light on what the future of cricket

might hold and possible will be.




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                              ECONOMICS OF IPL




DEMAND ANALYSIS




Demand is the relationship between the price and the quantity demanded, other things

remaining constant.


Law of Demand: The amount of good that a consumer is willing to buy decrease as the

price of those particular good increases and vice versa. The demand curve is shown

below:




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WITH RESPECT TO IPL:


In India, two things sell most – Cricket and Movies. Indian Premier League (IPL) is a

combination of both. On one hand, it has all the top cricketers (both national and

international) and on the other hand, it has the entire glam quotient in the form of movie

stars acting as franchisees of the teams and cheering the teams all through the

tournament. A synonym for IPL can be cricketainment as it combines both cricket and

entertainment, so we cannot explicitly say that this law holds or not because there were

other factors that influence the viewers rather the cricket lovers and not just the price as

a increase in the price of tickets by Rs 100 may not effect the total demand for the IPL.

People may be ready to pay the extra amount to get the live entertainment and the

satisfaction that the IPL give them even at a little higher cost.


Also, in other countries, there are such concepts in sports like English Premier League

(EPL) and National Football League (NBA) which provide live entertainment of short

duration. Approximately 400,000 attend Premiership football every weekend in England

generating nearly $5 billion in match day revenues (tickets, premium seating, ground

concessions etc).


In recent years international music acts such as the Rolling Stones, Shakira and Black

Eyed Peas have played to packed stadiums in India. The Indian public was starved of

high quality entertainment opportunities. A star studded Twenty20 cricket tournament

helped to satisfy this increasing demand.




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FACTORS INFLUENCING DEMAND OTHER THAN PRICE:


    •   NO CLOSE SUBSTITUE: The Indian premier league has no major substitutes. It

        has only one substitute in the form of Indian cricket league (ICL) which was a

        similar move to exploit the opportunity of growing demand for short duration

        entertainment. Both of them came with a new but fast version of cricket that is

        20-20 over match.ICL was over with an average show but IPL started with a big

        bang and it was a big hit. It had all that what a spectator can ask for. Unlike ICL,

        there is franchisee system in IPL which provides the entire glam quotient to it.

        Also IPL was launched on an altogether larger scale than ICL. So there was no

        close substitute to IPL.

    •   INCOME OF THE COMSUMER: As Indian economy is the second fastest

        growing nation and with its young population, per capita income is also rising

        and that makes the huge surge in average disposable income. Now this young

        generation wants live entertainment of smaller duration and if that comes through

        their favorite game cricket then nothing can stop popularity of this game further.

    •   CHANGES IN THE TASTE AND PREFERENCES OF THE CONSUMER: IPL

        brought about a change in the consumer’s tastes & preferences. One of the

        biggest surprises had been observed during the earlier IPL matches was the

        strong presence of women and children who normally remain away from the

        matches. This clearly indicates that IPL is not only offering plain cricket but

        ultimate pleasure and live entertainment which no age group is refraining. Also,

        late afternoon/evening scheduling is ideal for television audiences, and for

        attracting the post-work crowd and families to the stadiums. This 3 hour game in



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          late evening could be compared to an evening movie show which is not that

          appealing. Going to a Twenty20 match is about more than cricket, with music,

          dancing and other entertainment. People wanted a change and that has been

          availed by T 20-20.

      •   SPECIAL INFLUENCES (STATE TEAMS): IPL has been conceived on the lines

          of the English premier league, where local football teams with a defined fan base

          (supporters) play against each other. IPL also had city based teams namely

          Kolkata Knight Riders, Chennai Super Kings, Mumbai Indians, Hyderabad

          Deccan Chargers, Rajasthan Royals, Royal Challengers Bangalore, Delhi

          Daredevils, and Kings XI Punjab. This in turn increased its demand as the Indian

          people had a sense of belonging and ownership over their passion from a

          domestic perspective, “My City, My Team”.




The graph below show that the demand for cricket (the viewers of cricket) increased

during the launch of IPL.




    PRICE 




                  DEMAND FOR CRIKCET


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ELASTICITY




Elasticity of Demand can be seen from 2 perspectives:


1. Elasticity of demand for Indian Premier League


2. Elasticity of demand for cricketers




ELASTICITY OF DEMAND IN RESPECT TO IPL:


    •   INCOME ELASTICITY OF DEMAND: It can be defined as the rate of change in

        the quantity demanded of a good due to change in the income of the consumer.

        India is a growing economy and with its per capita income rising, consumers

        have high disposable incomes. According to AT Kearney, the well known

        management consultancy, the total disposable income spent by households on

        entertainment has increased to 28.9% in the past two years. This in turn

        increased the demand for IPL. This in turn increased the demand for IPL.


        In this there is a direct relationship between the demand and the income of the

        consumer. If the income of the consumer increases then he will use that

        increased income in buying the ticket or getting the cable connection (buying set

        top box or Tata sky, etc) so that he can assess to the product i.e. IPL.




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                  INCOME                                       Income
                                                               elastic




                               DEMAND FOR CRICKET




    •   PROMOTIONAL ELASTICITY OF DEMAND: It is defined as the responsiveness

        of demand due to change in the expenditure on advertising and other sales

        promotion activities. BCCI spent huge sums on advertising & other promotional

        activities. It spent around 100 Crores for promoting the tournament and 200

        Crores for promoting the 8 city based teams. Also the franchisees spent around

        12 Crores each for promoting their respective teams. Other promotional activities

        included merchandize of different teams in the form of t-shirts and accessories.

        This additional expenditure on advertising & promotional activities created hype

        for the tournament and in turn increased its demand.




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ELASTICITY OF DEMAND IN RESPECT TO CRICKETERS:


It can be defined as the responsiveness in demand for the cricketers due to:


•      PAST AND PRESENT PERFORMANCE OF THE CRICKETER


•      GOODWILL OF THE CRICKETER


•      POPULARITY OF THE CRICKETER


As seen in IPL, there were huge sums of money paid for the cricketers by the

franchisees. The captain of Indian Cricket team M.S. Dhoni had a base price of

$400000 but he was auctioned for a giant sum of $150000 due to his good present

performance and his popularity. Similarly, Sri Lanka’s Muthai Muralitharan who was not

performing well in the recent tournaments was auctioned for $600000 as against his

base price of $250000 due to his goodwill as of a match winner.




                  PRICE
                  OF A
                  PLAYER




                                    PERFORMANCE




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CONSUMER BEHAVIOR




According to surveys conducted, given a choice between IPL and ICL, 72% of people

would prefer watching IPL and only 24% would watch ICL. The rest 4% couldn’t choose

between the two. The percentage of viewers watching IPL is greater because of the glitz

and glamour associated with the game. They said that for them the IPL was a great

combination of the movie stars and the cricket players they loved.


For the viewers, the IPL T20 came out to be the best entertainer with a 47% viewership.

The people also preferred watching a three hour movie but their percentage was lower

than IPL, to 32%. There was a section of viewers who rated the half an hour soaps on

the general entertainment channels higher than IPL. Their percentage was 21%. These

people said that IPL was very temporary but their serials will continue for a long time.

Some viewers had to see the continuing episodes of their serials so they didn’t prefer

watching IPL matches.




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SUBSTITUTION EFFECT:


In this effect one product is substituted with another. In IPL’s case the consumers

specially the women substituted the serials and movies with the IPL series.




                  MOVIES 
                                   E1 
                  AND 
                  SERIALS                               Ic 1 



                                                         E2
                                                                Ic2 



                                             IPL 


ASSUMPTIONS:


    •   The budget for the consumer is given.

    •   There are two products for entertainment: movies /serials and IPL.

    •   The consumer spends his entire budget in above two products.


Here ic1 and ic2 are the two indifference curve. An indifference curve shows all

combinations of goods that provide the consumer with the same satisfaction, or the

same utility.


The above graph shows that earlier i.e. before IPL the consumers were at equilibrium

E1 having less of cricket and more of movies but when the IPL was introduced their


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preferences changed and they substituted IPL for the movies and serials and reached a

new equilibrium E2. At E2 we can see from the graph that the consumers are having

more of IPL in comparison to movies and serials.


As for the timeslots of the IPL matches, 65% of the viewers were comfortable with the

timeslots in which IPL matches were telecasted. These consisted mostly of men who

said that they could watch cricket given any time. The rest 35% said that the IPL

matches were telecasted during daytime when they were off to work. Moreover the

matches used to finish by the time they came back from work.


Most of the women did not favor the timeslot of the IPL matches. According to them the

matches were telecasted during prime time when they watched their favorite serials.

With the beginning of IPL they couldn’t watch them any longer.


Utility: It can be defined as the satisfaction derived from the consumption of a good.


Marginal Utility: It can be defined as the additional utility or satisfaction derived from

the consumption of an additional unit of a good.


Law of diminishing marginal utility: The law of diminishing marginal utility states that

as a consumer consumes more and more units of a good, the marginal utility derived

from each additional unit goes on diminishing.




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The Indian Premier League follows the concept of increasing marginal utility. Increasing

marginal utility states that as the consumer consumes more and more units of a good,

the marginal or additional utility derived from each additional unit goes on increasing. In

context of a tournament, as the tournament progresses from one round to the other, the

excitement increases. The excitement which the first match generates is less than the

excitement generated by the semifinal match and consecutively the final match. The

same is the case with IPL. As there were 59 matches, so as the tournament progressed

from one level to another, the excitement went on increasing.




          Utility 




                            Progress of tournament
                            Progress of tournament




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CONSUMER SURPLUS




Consumer Surplus is the amount that the consumer benefit by being able to purchase

a product for a price that is less than they would be willing to pay.


    •   Consumer surplus = total willingness to pay for a good - the total amount

        consumers actually do pay.

    •   Consumer enjoys consumer surplus if he pays the same amount of money for

        each unit of good he buys.

    •   It is a measure of the net benefits received by the consumer.

    •   CS occurs when people are able to buy a good for less than they would be willing

        to pay. They enjoy more utility than they had to pay for.




                     A               Consumer Surplus 




                  P1 




                                                    Quantity 


(A: price that the consumer is willing to pay, P1: price that is charged by the seller)



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The above graph explains Consumer Surplus. Here we have A>P1 hence consumers

are willing to pay more than what they are asked for so there is a surplus that accrues to

the consumer.


In an IPL match, the consumer gets to watch a cricket match which have world class

cricketers from around the globe. There is chilled beer being served. The box next door

is high on the glamour quotient. Top Bollywood stars and friends of Shahrukh Khan are

cheering his team. To give them a tough competition there’s business tycoon Vijay

Mallaya along with the top Bollywood actress Katrina Kaif to support their team.


Nonetheless, watching Sachin Tendulkar running between the wickets with Sri Lanka's

Sanath Jayasuriya at the other end of the crease in a high-powered game is a dream to

watch. Of course, that's if one manages to take their eyes off the cheering squad that

does a gig every now and then.


The ticket price for IPL matches were ranging from Rs.100 to Rs.5000 and in a cricket

crazy nation like ours where people are getting to watch all this in such a price range is

a surplus for them.


According to a website Indiapolls.com, out of 200 people surveyed:


•      83% people thought that ticket prices were reasonable


•      14% people thought that ticket prices were high


•      3% people were indifferent.




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COSTS AND REVENUES




EXPENSES


The following are the expenses/costs incurred by the board for in respect of IPL.


1.     TEAM FRANCHISING COST: A franchisee has to pay 10% of total franchisee

costs every year to IPL. Assuming that a team is bought by a franchise at US$100mn -

it would have to pay US$10mn per year to IPL.


2.     PLAYER COST: Franchisees have acquired players at a total cost of US $4-

6mn per year. This includes cost of managers     and    coaches.   Each    franchise

has   18-22 players who are tradable after a year. The players have a three year

contract with the franchise.


3.      MARKETING COST: Each franchise is expected to incur a marketing cost of

US$3-4mn for promoting its team.


4.     STADIUM EXPENSES: The franchises have to contract stadiums for seven

matches at BCCI agreed rates. On an average, the expense is Rs2.5mn per match.


5.     Other expenses like administration and event management.


The different types of costs and there relevance in the context of IPL is explained below




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EXPLICIT AND IMPLICIT COST




Explicit Cost refers to the out of the pocket cost i.e. the cost which is actually incurred

and cash is paid out in respect of these costs. The explicit costs involved here are:


    •   Advertising cost: cost incurred for the promotional activities.

    •   Stadium cost: the amount paid to book the stadium.

    •   Player cost: the amount paid out to the players.

    •   Amount paid out to cheer-leaders and other staff members, commentators,

        umpires, etc.

    •   The set up cost paid i.e. to set the stage for the inaugural ceremony, etc.




Implicit Cost is the opportunity cost i.e. the benefit forgone in the next best alternative

use. The implicit costs here are the:


    •   Earnings that the players could have earned from other tournaments

    •   BCCI could have retained that cost involved and earned something else.

    •   Stadium owners could have earned from lending the stadium for some other

        purpose.

    •   The team owners i.e. franchisee could have invested their money in their

        respective business activity and earned a different amount.




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DIRECT AND INDIRECT COST




Direct Cost is that cost which is directly attributable to the product or service, such as

cost of raw materials, wages, etc. In the context of the IPL the Direct Costs are:


    •   Stadium cost

    •   Player cost

    •   Amount paid to commentators, umpires and other members

    •   Advertising cost




Indirect Cost is one where it is difficult to relate the cost to the product or service, such

as administrative expenses. In the context of the IPL, Indirect Costs are the:


    •   Salary paid to BCCI official

    •   Administrative costs




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RELEVANT AND IRRELEVANT COST




Relevant Costs for the decision making purpose are those which are incurred as a

result of the decision under consideration. The relevant costs are also referred to as

incremental costs. In the context of IPL the relevant costs are:


    •   Stadium cost: BCCI had to book stadium for the matches.

    •   Player cost: Players need to be paid salary.

    •   Advertising cost increased.

    •   Administrative cost increased.




Irrelevant Cost is such that is not affected by the new decision that is taken.eg. if

company decide to produce 50 extra units then it do not have to buy a new machine so

fixed cost here is irrelevant whereas if the company were to expand by 200 units then

he have to increase his plant capacity and hence now buying a new plant becomes a

relevant cost and is no more a irrelevant cost.




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FIXED AND VARIABLE COST




Fixed Costs are those costs that remain fixed over a range of output i.e. there is no

change in the amount of costs even though there is a change in the number of output.

The costs involved in IPL are:


    •   The amount paid by the sponsors to acquire the rights for next 10 years.

    •   Administrative cost

    •   Advertising cost: As this cost remained same for all number of matches.




Variable Costs are those that change with the output i.e. there is direct relationship

between variable cost and the output. In respect of the IPL the variable costs are:


    •   Stadium cost: this cost is directly related to the number of matches.




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THE COST SIDE


    •   Franchise fee: $6.7-11.2 million

    •   Cost of players: $1.1-1.7 million

    •   Other costs: $2-5 million

    • Total average annual cost per franchise: $10-18 million




The above graph shows that the average cost for a firm first decreases and reaches a

minimum then starts to increase. The increasing part is the inefficient part and firms

should not operate in such part. The most efficient point that a firm should try to achieve

is the minimum point of the average cost.




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In the graph above AC is the average cost, which is the total cost divided by number of

units produced. In the case of IPL this is the cost per match.


MC is the marginal cost, which refers the cost that is incurred in the production of an

extra unit. In the context of IPL this refers to the cost that will be incurred if an extra

match is too played.


The cost curve above AC is the AC plus the advertising cost. The cost incurred for the

advertising shifts the average cost curve.


The above graph is relevant in the case of IPL because there was huge investment in

the advertising cost this led to the upward shift in the average cost curve. This huge

advertising cost was essential so as to maximize the revenue and to attract huge

viewership.




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REVENUE


The revenue for the IPL was generated from the following:


World over, any league has three main sources of income namely media receipts, gate

receipts and sponsorships. Under IPL, these three streams are categorized under

central and local. Central revenues are through IPL.


CENTRAL


    •   Media rights - To be shared equally amongst franchises after removing IPL's

        share.

    •   Sponsorship rights (IPL sponsors) - 60% of the amount collected to be

        distributed equally amongst the franchises.


LOCAL


    •   Sponsorships - Team sponsorship revenues are the most variable and are

        dependent on the marketing skills. For example, teams like India Cements

        have marketed their teams based on the format of IPL - where

        sponsorships are sold on categories. ICL’s main sponsor is Aircel. In contrast,

        the other team of Deccan Chronicle will have team partners. These partners

        will have ownership of the team. For example, in case of an    entertainment

        partner, anything to do with entertainment from cheerleaders to fours and

        sixes will be seen by that party.

    •   Gate receipts - Are anticipated to be a major source of revenues. 20% of

        tickets are to be allocated to IPL.



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THE REVENUE SIDE


    •   Share of central pool: $7 million per year

    •   Prize money: $5 million on offer

    •   ($3 million for winner; $2 million divided among others)

    •   Local pool revenues: $0.75-2.5 million




Break-Even Point is defined as that point where the total revenue and the total cost of

the firm are equal. It is this point where the firm makes no profit and incurs no loss. It is

after this point that the firm starts making profit and below this point the firm incurs

losses.




In the graph above the point A and B are the BREAK EVEN POINT.


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The graph on the previous page shows:


    •   TC – Total cost curve. This is the addition of the fixed cost and the variable cost.

    •   TR – Total Revenue curve. This curve the product of the price and the quantity.

        This curve shows the revenue generated.

    • At A and B there is no profit and no loss. The IPL operates between these
      two points (i.e. A and B) because it is making profit of Rs 350 crores.




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MARKET STRUCTURE

The market structure for the 20 over tournament which existed in India is that of

DUOPOLY with only two players operating in the market. These two players are: IPL

and ICL. Out of the two players, BCCI is the dominant player and IPL has a better

market than ICL.


Oligopoly is the most prevalent form of the market structure in this case.




    CHARATERISTICS OF OLIGOPOLISTIC MARKET:


      •    FEW DOMINANT PLAYERS: Oligopolies are often large firms, in this

           context BCCI and ICL both are large firms.

      •    MUTUAL INTER DEPENDENCE: Since the market is dominated by a few

           firms, the price and output decisions of one firm affects the profitability of the

           remaining firms in the market. In this case the introduction of IPL gave ICL a

           run for money as IPL was a huge success and profitable.

      •    BARRIERS TO ENTRY: Barriers to entry limits the threat of competition and

           facilities the ability of firms to earn long run economic profits.

      •    HOMOGENOUS OR DIFFERENTIATED PRODUCTS: The output of an

           oligopolistic market may be either homogeneous of differentiated products. In

           this case the IPL was differentiated from its counter-part ICL in several ways,

           such as: the auction of players, choosing of teams, introduction of franchisee,

           etc.




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THE REASONS WHY THIS MARKET STRUCTURE IS OLIGOPOLITIC:


    •   HUGE INVESTMENT: In this market i.e. the cricket market, a huge investment of

        Rs 100 crores is involved. This acts as a barrier to the new entrants into the field

        with the result that only a few giant concerns continue to operate in this field.

    •   ABSOLUTE COST ADVANTAGE TO THE EXISTING FIRMS: BCCI was an

        established board and had monopoly. This acted as an advantage, due to which

        IPL earned Rs 350 crores; compared to the ICL which was recently launched.

        ICL was unable to generate such earnings because it did not have the cost

        advantage as enjoyed by the IPL.

    •   PRODUCT DIFFERENTIATION: Though ICL had the first mover advantage, the

        differentiation created by the BCCI in the IPL such as: different pricing strategy,

        advertising strategy, involvement of star players, concept of franchisee, etc,

        benefited IPL in a bigger way.




INTERDEPENDENCY BETWEEN BCCI’S ONE DAY FORMAT AND IPL:


In an oligopoly, since there are only a few rival firms, the economic well-being and

behavior of the firms is mutually interdependent. This interdependency is a result of

fewness, since there are few sellers in the market, and the action of one influences the

action of the other. In this context, the act of introducing the ICL by the ZEE made it

necessary for the BCCI to come with a new tournament of the same type, which, it did

by introducing IPL with little differentiation in the event. Thus it can be concluded that an




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act of the rival makes it necessary for the other firm to take an action. As a result of this,

the firms may collude with each other.




IPL AND ICL: NON COLLUSIVE OLIGOPOLY:


    Non Collusive Oligopoly implies absence of explicit or implicit understanding or

agreement among the firms regarding price fixation, market sharing, and leadership. In

this market there is no collusion of the two players, IPL and ICL. This means that there

is no agreement between these two boards. There is a tough competition given by IPL

to the ICL.




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GAME THEORY

Game Theory is the study of the ways in which strategic interactions among rational

players produce outcomes with respect to the preferences (or utilities) of those players,

none of which might have been intended by any of them. IPL and ICL fall under the Non

Collusive Market Structure, due to which they part, take in Game theory.


One particular game, which closely resembles the situations faced by many oligopolistic

firms, is known as Prisoner’s Dilemma. The Prisoner’s Dilemma model by the game

theory provides good perspective on strategic behavior in an oligopolistic industry. The

interdependence of the firms in an oligopoly is similar to the problem faced by two

individual involved in a prisoner’s dilemma game. Oligopolistic firms also select

strategies in the face of uncertainty about how their rivals will respond to their actions.


The BCCI came up with IPL because there was uncertainty whether it will remain in the

market as monopoly or not. This action of BCCI can be related to strategy followed in

respect of its competitors.


There is a cut throat competition between IPL and ICL and this is evident in when Kapil

Dev said, “It's unfortunate that such things are happening. But we will fight them, even if

it means a longer battle than the one our country fought to win Independence”.


In this market the strategies of one board depends on the strategies of the other. The

decisions are dependent. Joint probability can be materially improved through collusion

or co-operation. The attitude of firms towards collusion would be colored by past

experience of price wars and degree of uncertainty which they face.




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EFFECT OF IPL SEASON 2 ON INDIAN ECONOMY

The Indian economy lost out on the revenues that could have been generated if IPL

would have been organized in India itself as the revenues from IPL consisted of local

revenues (ground fee, tickets, tax) which now went to South Africa.


As the tournament was shifted, the Indian spectators had to pay a social cost as the

entertainment which they could have watched here was now there in South Africa.


As IPL involves players from around the world, spectators from around the world come

and watch the matches; here also Indian economy lost out on the foreign exchange

which could have been generated if IPL was organized here.




                                                                                   




                                                                                   



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                                     CONCLUSION




After the extensive research and the meticulous studying of the various aspects of this

project, there have been some interesting concepts have been derived. As years go by,

it seems that IPL’s popularity will flourish, as demonstrated in the exhibits provided in

the project. The consumer behavior seems to be the driving factor behind this immense

popularity of this format of cricket. As the Indian population grows busier, this short

cricket trend will get bigger and more preferred.


The economic concepts derived and examined in this project are substantial and

include details to support their effects on the cricket market. If the market trends

continue as they are, it might be soon, that ICL might collapse or suffer bigger and

bigger losses. What can be suggested here is that, IPL and ICL, if come together could

form a Duopoly and capture the entire market. Each will benefit from the other and the

duopolistic trend will enable each to generate more revenue.


IPL’s revenue growth seems to be going in a positive direction for upcoming years, it the

trends continue as they have in the past two seasons. Having the next seasons held in

India will not only benefit the owners of the IPL teams, but it will also prove to be of

social welfare of the country and the population of India. It will not only enable more

revenue generation for the parties directly involved, but will in return provide several

benefits for national welfare such as increased jobs, increased tourism, increased

revenue in several other sectors and markets related to cricket and IPL.




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                                              57 
 

                               REFERENCES


WEBSITES:
www.ipl.org

www.indianpremierleague.in

www.ticketpro.in

www.livemint.com

www.rediff.com

www.maxtelevision.com

www.cricketnext.com

www.foxsports.com

www.cricketweb.com

www.skysports.com

www.thehindubusinessline.com

www.financialexpress.com

www.hindustantimes.com

www.economictimes.indiatimes.com

www.plato.stanford.edu



MAGAZINES:
Outlook

Business Standard

Frontline

Business Today




IBS, Hyderabad                              2009 

				
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