EAMSA 2015 Competitive Paper

1. Introduction:

Elite sports, the way we know it, have had a large fan following for more than a 100 years. The

modern Olympics starting in 1896 was a turning point in organized elite sports across different types

of sporting events. As the Olympics have evolved they have taken in more sports under its umbrella.

Individual sports have had their own specialized events at regular intervals. These include the annual

Wimbledon tennis tournament that started in 1877 and the Football World Cup held every four years

that had its first edition in 1930.

Initially elite sports people were amateurs for whom sports was a past time and not a profession. Over

the years professionalization of sports took place as sports people converted what used to be a past

time into a full-fledged profession. This led to the formation of a large number of professional sports

leagues around the world and sports became a business with owners of sports teams on lines similar to

owners of companies. Sports as a business opened up different ways to monetize the purchasing power

of sports fans and led to the creation of a variety of different revenue models.

The advent of professional sports leagues happened in Europe and North America. Europe developed

professional sports leagues in football that included the English Premier League (EPL), La Liga in

Spain, Bundesliga in Germany and Serie A in Italy. In North America the professional sports leagues

revolved around the sports popular in that part of the world. These included Major League Baseball

(MLB), National Basketball Association (NBA), National Football League (NFL), and National

Hockey League (NHL).

Professional sports leagues in Asia are a much more recent phenomenon. One of the first successful

and popular professional sports leagues in Asia was the J. League for football that started in Japan in

1993. India, which has a huge elite sports following was a very late adopter of professional sports

leagues. The first league to be successful in India was the Indian Premier League (IPL) for cricket that

was started in 2008. This has been followed by other successful professional sports leagues that

include the Hockey India League (HIL) for hockey started in 2013, the Indian Super League (ISL) for

football started in 2014, and the Pro Kabaddi League (PKL) for Kabaddi started in 2014. All of these

subsequent sports leagues have been inspired by the success of IPL and their business models are very

similar to that of the IPL.

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This paper will analyze in detail the business model of IPL, by far the largest and most popular

professional sports league in India. The business model will be analyzed in terms of the different

revenue streams that capture directly or indirectly buying capacity of the fans. The business model of

IPL will be compared with that of EPL, a large open league from Europe, and NBA, a large closed

league from North America. This comparison will provide insights about the areas where the IPL can

develop to increase revenues and fuel growth of the league.

2. Background

The term league has many different meanings in different areas around the world

(https://en.wikipedia.org/wiki/Professional_sports_league_organization). Usually a league is a group

of sports teams that play each other during the season. It is also often used for the name of

the governing body that oversees the league, as in England's English Premier League or America's

National Basketball Association. Since most European football clubs participate in different

competitions during a season, regular-season home-and-away games are often referred to as league

games and the others as non-league games, even though the separate competitions may be organized

by the same governing body. Sports leagues are a very strong and popular business model in Europe

and North America but now it is also gaining in popularity in the emerging economies.

Professional sports leagues are organized in two broad categories. One category originated in Europe

and refers to open leagues characterized by a tiered structure using promotion and relegation to

determine participation in a hierarchy of leagues or divisions. The other category originated in North

America and refers to closed leagues characterized by its use of franchises and closed membership.

Both of these systems remain most common in their areas of origin, although both systems have now

propagated worldwide. Figure 1 shows the professional sports leagues basic ecosystem, common to

both open and closed leagues.

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Figure 1: Professional sports leagues ecosystem

2.1 Open leagues:

The league structure for football in England has been adopted for football in most other countries, as

well as for many other sports in Europe and across the world. A league has a number of clubs, where a

club fields a team. The features of the system are:

The existence of an elected governing body to which clubs at all levels of the sport belong

The promotion of well-performing teams to higher-level leagues or divisions and the relegation

of poorly performing teams to lower-level leagues or divisions

Matches played both inside and outside of leagues

European football clubs are members both of a league and of a governing body. In the case of

England, all competitive football clubs are members of The Football Association, while the top 20

teams also are members of the English Premier League, a separate organization. The 72 teams in the

three levels below the English Premier League are members of still another body, The Football

League. In conjunction with other countries' governing bodies, it also sets the playing rules and the

rules under which teams can sell players' contracts to other clubs. The rules or Laws of the Game are

determined by the International Football Association Board. The English Premier League negotiates

television contracts for its games. However, although the national league would be the dominating

competition in which a club might participate, there are many non-league fixtures a club might play in

a given year. In European football there are national cup competitions, which are single elimination

knock-out tournaments, are played every year and all the clubs in the league participate. In addition,

Leagues

Clubs/ Franchise

Players

Fans

Sponsors

Broadcaster

Advertiser

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the best performing clubs from the previous year may participate in pan-European tournaments such as

the UEFA Champions League, operated by the Union of European Football Associations. An English

Premier League team might play a league game one week, and an FA Cup game against a team from a

lower-level league the next, followed by a League Cup game against a Football League team, and then

a fourth game might be against a team from across Europe in the Champions League.

The promotion and relegation system is generally used to determine membership of leagues. The

league does not choose which cities are to have teams in the top division. Most commonly, a pre-

determined number of teams that finish the bottom of a league or division are automatically dropped

down, or relegated, to a lower level for the next season. They are replaced by teams who are promoted

from that lower tier either by finishing with the best records or by winning a playoff.

2.2 Closed Leagues:

Professional sports leagues in North America comprise a stipulated number of teams, known as

franchises, which field one team each. The franchises have territorial rights, usually exclusive

territories large enough to cover major metropolitan areas, so that they usually have no local rivals.

New teams may enter the competition only by a vote of current members, where typically a new place

is put up for bid by would-be owners. This system is often called a "franchise system." It was

introduced in baseball with the formation of the National League in 1876, now called Major League

Baseball (MLB), and later adopted by the other North American leagues such as National Basketball

Association (NBA), National Football League (NFL), National Hockey League (NHL), and more

recently Major League Soccer (MLS).

Although member teams are corporate entities separate from their leagues, they operate only under

league auspices. As a result of these restrictions, teams from North American closed leagues almost

never play competitive games against outside opponents. National Hockey League (NHL)

and National Basketball Association (NBA) teams have played against European hockey and

basketball teams in pre-season exhibitions. The North American leagues, rather than any sport

governing body, determines the playing rules and scoring rules of its game, and the rules under which

players join and change teams.

The teams are organized with a view to each major city having a team to support. Only the largest

cities such as New York, Chicago or Los Angeles have more than one team. These teams are referred

to as franchises. Even though they are not technically franchises in a business sense, the league is

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organized in a way that assures teams continued existence in the league from year to year, which

fosters an ongoing connection with the team's supporters. On occasion a league may decide to grow

the sport by admitting a new expansion team into the league. Most of the teams in the four major

North American pro sports leagues were created as part of a planned league expansion or through the

merger of a rival league. Only a handful of teams in the National Hockey League, for example, existed

before becoming part of the NHL. The rest of the teams were created as expansion teams or as charter

members of the World Hockey Association, which merged with the NHL in 1979.

The best teams in a given season reach a playoff tournament, and the winner of the playoffs is

crowned champion of the league, and, in some cases as world champions. American and Canadian

sports leagues typically have such "playoff" systems. These have their roots in long travel distances

common in US and Canadian sports; to cut down on travel, leagues are typically aligned in geographic

divisions and feature unbalanced schedules with teams playing more matches against opponents in the

same division. Due to the unbalanced schedule typical in US and Canadian leagues, not all teams face

the same opponents, and some teams may not meet during a regular season at all. This results in teams

with identical records that have faced different opponents differing numbers of times, making team

records alone an imperfect measure of league supremacy. The playoffs allow for head-to-head

elimination-style competition between teams to counter balance this.

3. Professional Sports Leagues in India

The oldest running and most popular professional sports league in India is the Indian Premier League

(IPL), a closed league for cricket. Based on the success of the IPL, other closed leagues have been

started for other sports modeled on very similar lines as the IPL. These include the Hockey India

League (HIL) for hockey, the Indian Super League (ISL) for football, and the Pro Kabaddi League

(PKL) for Kabaddi. This paper will focus on the IPL since it is representative of all professional sports

leagues in India.

The Indian Premier League (IPL) is a closed league founded in 2008 by the Board of Control for

Cricket in India (BCCI). It is a twenty-20 cricket league where 20 overs a side matches are played

between different teams. It is contested bother sports. These are the etween eight franchise teams

representing various Indian cities. The league runs in India between April and May. IPL is the most

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watched twenty-20 league in the world and in the year 2010 it became the first sporting event on

YouTube.

The IPL runs as a double round robin league where each team plays another team twice, on home

game and one away game. At the end of the double round robin league, the top four teams make it to

the playoffs. The playoffs are structured in a variant of knock-out matches. The first and second

ranked teams play a qualifier match against each other with the winner qualifying for the finals and the

loser getting another chance. The third and fourth ranked teams play an eliminator where the loser gets

eliminated and the winner plays a qualifier match against the loser of the first qualifier between the

first and second ranked teams. The winner of this match then becomes the second team to qualify for

the finals. The finals are played as a one match knock-out with the winner becoming the IPL

champions for that season.

3.1 IPL Ecosystem

Figure 2 shows the IPL ecosystem.

Figure 2: IPL’s Ecosystem

3.1.1 Franchise: (http://www.iplt20.com/ ):

Franchise pattern of a closed league is followed and it became a huge successful format for BCCI, the

founder of the league. Its franchises represent different cities from India. In the year 2008 when IPL

was launched, there was a bidding process for different franchises. The franchise bids were for rights

to field a team in the IPL for a period of 10 years after which a fresh bidding process would take place

IPL

Franchise

Players

Fans

Sponsors

Broadcaster

Advertiser

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for the ward of franchsies. The winning bidders for the eight franchises were announced on 24 January

2008. While the total base price for the auction was USD 400 million, the auction fetched USD 723.59

million. Chennai Super Kings, Delhi Daredevils, Kings XI Punjab, Kolkata Knight Riders, Mumbai

Indians, Rajasthan Royals, Royal Challengers Bangalore and Deccan Chargers were the founding

clubs of the new professional league. On 21 March 2010, the league was expanded to add teams

from Pune (Pune Warriors India) and Kochi (Kochi Tuskers). The base price was USD 225 million for

each of the new franchises. The Pune franchise was sold for USD 370 million and the Kochi

franchise for USD 333.3 million. The expansion franchise auction fetched total USD 703 million.

Subsequently the Kochi Tuskers franchise was cancelled due to irregularities discovered later in their

bid. The Pune Warriors and Deccan Chargers franchises were also cancelled due to the inability to pay

the franchise fees within the stipulated period of time. The Deccan Chargers franchise, which was

from Hyderabad, was replaced by the Hyderabad Sunrisers franchise that was awarded through a fresh

bidding process. As a result, the IPL that started with 8 franchises and then expanded to 10 franchises

is back at 8 franchises.

3.1.2 Players: (http://www.iplt20.com/ ):

IPL specifies a maximum purse that each franchise can spend on player acquisition. The amount of

money that can be spent on building a team is, therefore, regulated and even franchises with deep

pockets cannot exceed that amount. A franchise can acquire a player through the annual auction, by

signing domestic uncapped players, through trading, and by signing replacements. Players in an

auction have a reserve price that they demand and then teams bid for these players. A main auction is

held every three years where a large number of players are bid for. Players that are acquired in this

main auction get a three year contract and are released into a fresh auction process in the main auction

after three years. The franchises have the option to retain a limited number of players as per

regulations set by the IPL, in which case the retained players do not go into the main auction after

three years. The retained players instead get a fresh three year contract as per the terms agreed for

retention. Smaller annual auctions are held every year outside of this three year cycle of the main

auctions. In the smaller annual auctions players who are not with any of the franchises can make

themselves available for acquisition. These could be players who did not get acquired in a previous

auction or players who had earlier not participated in the auction. In addition, these smaller annual

auctions can also include players who have been released from their contract by the franchises who

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had earlier acquired them. Players acquired in the smaller annual auctions get a contract for a time

period till the next once in three years main auction. If a player is injured for the rest of season then the

franchise has the right to replace the player for that season and can acquire a player for the same

contract amount, from among players who were not sold in the auction. In the trading window, the

player can only be traded with his consent. The franchise will have to pay the difference between the

old contract price and the new contract price. If the new contract is worth more than the older one,

then the difference will be shared between the player and the franchise selling the player. Signing

domestic uncapped players refer to players who are not eligible to be in the auction on account of them

not having been selected for India and not having been part of any IPL franchise in the past. These

players can be signed by a franchise outside of the auction process through mutual agreement.

3.1.3 Sponsors: (http://sports.ndtv.com/indian-premier-league-2015/features/240555-sponsors-

bullish-in-indian-premier-league-2015 )

IPL garners about 250 million eyeballs every year on an average, which has been increasing every

season on an average of 5%-10%. The IPL has around 12-15 on-air or associate sponsors, most of

whom have fought tooth and nail for IPL space The presenting sponsorship for which the cost lies

between USD 10 million while the Associate sponsorship for a year is between USD 4.5 million to

USD 5.5 million. As e-commerce industry is booming in India for the last few years, we saw a lot of E

e-commerce companies have used the sponsorship route to showcase their brands. This is the event

which catches most of the Indian eyeballs. They will promote their brands either through sponsoring

the league, teams, prizes like man of the match, best catch of the match, best moment in the match etc.

The biggest sponsor is the title sponsor for the league. For the first five years the DLF, India’s largest

real estate company was the title sponsor and for the next five years it became Pepsi. The next biggest

sponsors are the team sponsors for the individual teams. Other sponsorships include those for the

umpires and match officials, prizes for special player achievements in each match and the entire

league, and the strategic time-out that happens twice in every match.

3.1.4 Broadcaster: (http://www.espncricinfo.com/ipl/content/story/330881.html )

Sony Entertainment Television signed a broadcast rights contract with BCCI for USD1.57 billion for

10 years. Sony then re-sold parts of the broadcasting rights geographically to other companies. It is

officially broadcasted on Set Max and on Times Internet and later it sold rights to “Hotstar” for live

streaming in India. IPL became the first sporting event which was shown live on YouTube too. Out of

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the total broadcast rights fees, IPL will keep 20% for itself, give out 8% as prize money for the

tournament and distribute the remaining 72% evenly between the 8 franchises

(http://timesofindia.indiatimes.com/home/sunday-times/deep-focus/Does-the-IPL-model-make-

sense/articleshow/2734443.cms .)

3.1.5 Fans:

Fans are the life blood in any league’s ecosystem. They are main source for generating money. The

objective is to make the league popular among the fans to bring them into the stadium and to make

them watch on television, because the TRP depends on the number of viewers and the advertiser’s

money also depends on that as well. As the league progresses the fan base increases so the league’s

revenue also increases. Fans contribute to the gate money, stall rental, they are the main viewer so that

the advertising rate is becoming very high now a days. Since fans are the central characters in the

leagues, the main thought behind the IPL was to make it a city based franchise model as cities would

give them large fan bases. It, therefore, focused on the main cities in India from different parts. As the

success of the IPL increases the committee started to arrange matches in different cities too to increase

the fan base. BCCI come up with an idea of building a fan park during the IPL in the major cities

where there are no matches (for example, Fan Park in Bhopal). Just to increase the revenue and have

the game reach out to all the corners of the country IPL has already taken few initiatives and lot more

to come in the future. In IPL we can see that as more viewer watch the last four league match the

advertising cost become higher for those matches and still the advertisers search for a place to promote

their brands. In the play offs and in the final also we can see different and higher rates; this leads to

more income for the broadcasters and for the IPL too.

3.1.5 Advertisers

Advertisers are one of the important players in the IPL ecosystem. This is the main source of income

for the broadcasters. . The advertisement rates have seen an increase every year and in the most recent

season it was between USD 0.07 million to USD 0.08 million for 10 seconds of TV commercials. The

high advertisement rates are not only good for the broadcasters but it also helps the franchises earn

more revenue. It is in the interest of the broadcasters to have the fan base increase as it allows them to

command higher advertisement rates.

3.2 IPL Revenue Model:

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The major source of revenue for IPL is neither sponsors nor stadium ticket sales but media rights.

Other sources of revenue for IPL are title sponsorship, the sale of franchises and licensed merchandise

and products. A part of the revenues so raised are retained by the BCCI, a part distributed as prize

money and the remaining is divided equally among the franchises based on a pre agreed model.

(http://www.quora.com/How-do-IPL-franchises-earn-money )

Figure 3: IPL’s revenue model

3.3 Franchise revenue model

(http://www.quora.com/How-exactly-do-IPL-team-owners-earn-money-and-revenue-Is-there-a-team-

that-has-been-making-profits-since-the-IPL-was-launched )

Figure 4: Franchise’s revenue model

Franchises get a share of the broadcast rights sold by the IPL. The franchises in turn give a share of

their gate money to the IPL. Their share of the franchise rights often constitutes 60% of the total

IPL Broadcaster

Franchise Sponsors

Gate Money

Franchise Broadcast

Rights

Sponsorships

Gate Money Merchandizing

Prize Money

In stadium Advertising/Stall rentals

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revenue base of the franchise. Franchises get sponsorships for brands that get displayed on their

Jerseys, helmets, kit bags, etc. The merchandizing revenue stream has not yet been developed by IPL

franchises as it contributes to be a very small portion of their revenue base. Trading of players is a

very insignificant activity and is not even a revenue source for IPL franchises worth considering.

3.4 IPL Ecosystem Cash Flows:

Figure 5 shows all cash flows occurring in the IPL ecosystem emanating from different revenue

streams.

Sponsors

Other Prize Sponsors

Title Sponsors

Team Sponsors

Broadcaster

s

Franchises IPL

Shares from

Revenue

Media Rights

Media Rights Advertiser

Prize Money

Merchandizing

Gate Money

In Stadium

Advertising/Stall

rentals

State Boards

Firm Agreement

Contract Fees

Basic Agreement Per Day Salary

Bonuses on the

basis of team’s

position

Players Personal Prize

Money

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Figure 5: IPL Ecosystem Cash Flows

4. Discussion:

The IPL completed its 8th season recently. It is a very young league compared to established and

mature leagues like the EPL and NBA. Table 1 shows a comparison of the IPL with the EPL and the

NBA across certain broad parameters.

IPL EPL NBA

League Type Closed League Open League Closed League

Number of

Clubs or

Franchises

8 Franchises 20 Clubs 30 Franchises

Broadcast

Revenues

Money is distributed

among the franchise

equally.

Money is distributed to the

clubs on the basis on their

finishing position in the

league.

No money is distributed

among the franchises.

Gate Revenues It is shared between

franchise, state board &

IPL in a particular ratio.

Most of the clubs own their

own stadium so they do not

have to share the revenue

generated from gate

money.

Franchises have to share

the amount with the

NBA.

Merchandising Not well developed Well developed by some

clubs

Very well developed at

franchise level as well

as league level

Sponsors Title sponsors, team

sponsors, Umpire

sponsors, Strategic time

out sponsors, man of the

match sponsors, man of

the series sponsors.

Title sponsors, Team

sponsors.

Title sponsors, team

sponsors

Player

Retention

Policy after

contract

expiration

Maximum 5 All Players All Players

Revenue

Sources

Broadcast fees and

sponsors main sources

of revenue. Gate money

not very significant

Merchandizing is

miniscule.

Broadcast fees,

sponsorships, and gate

money are sizeable sources

of revenue. Merchandizing

is a significant contributor.

Merchandizing is a very

large contributor.

Broadcast fees,

sponsors, and gate

money are all sizeable

contributors.

Internalization Fan base is very small

outside India

Fan base is large all over

the world

Fane base is large all

over the world

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Table 1: Comparison between IPL, EPL, and NBA

The growth of the IPL in the future will be driven by learning from what works for the more

established larger leagues like the EPL and NBA. The restrictions on the number of players who can

be retained by an IPL franchise at contract expiration may come in the way of franchises building their

teams over a period of time and delivering consistent performance. If the team performances are not

consistent, fan allegiance will be affected, which will in turn affect development of a significant

merchandizing revenue stream. Like in the NBA, the IPL should also promote merchandizing in

addition to the individual franchises. This will help grow the merchandizing revenue base, which

currently is miniscule. Internalization of the IPL may be a challenge as cricket is nowhere near as

popular worldwide as is football or even basketball. The number of cricket playing countries in the

world is, however, growing with the efforts being made by the International Cricket Council (ICC).

IPL should, therefore, actively target fans in all cricket playing countries, specially those that do not

have a professional league of their own. Over the next few years, the Board of Control for Cricket in

India (BCCI) plans to expand the IPL by adding more franchises. This will add to the total revenue

base of the IPL since sufficient demand seems to exist among fans for more cricket in India, where

cricket is by far the most popular sport.

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