IPL: The World’s Fastest Growing Sports League – Business Breakdowns, EP.100



Dom: (00:01:42)

This is Dom Cooke. And today, we are breaking down the world’s fastest-growing sports league, the Indian Premier League. The Indian Premier League often shortened to IPL is a cricket competition that takes place in India every year between the end of March and the end of May. There are 10 teams, 74 matches in total when the competition starts and ends within the space over 2 months. The bigger sports leagues tend to come with long history. So you can trace the NFL back to 1920, the NBA to 1946 and Formula 1 to 1950. In stark contrast, the IPL and its teams were founded in 2008.

This year’s tournament, which begins in a few weeks’ time, will be the 16th in its history. Despite its growth, the IPL is already a sporting giant. It’s revolutionized the game of cricket and it’s the second biggest sports league in the world if you measure it on a per game basis. To break down the storing business, I’m joined by Ed Cowan. Ed played professional cricket for Australia in the early 2010s and is now an investor at TDM Growth Partners. We structured the conversation in three parts.

We first talked about how the IPL came to be and its place in Indian society. We then walk through the business model both from the league and team perspectives. And we round out the discussion by looking at the competitive position of the league and what the future might hold. Please enjoy this breakdown of the Indian Premier League. 

Dom: (00:02:55)

So Ed, you’re a professional cricketer, you’ve played for Australia. You’ve played for Australia in India, you’re now an investor. I’m very excited to talk to you about the business of cricket and more specifically the Indian Premier League. Can you start by setting the scene for us? What is the Indian Premier League or IPL, as it’s sometimes known and can you maybe give us some headline figures and numbers to illustrate its size and scope in the world?

Ed: (00:03:16)

I can. Dom, thanks for having me. This is going to be an absolute treat for me, and I’m excited to bring the IPL to life. So the Indian Premier League is a 10 team, only a 74 game league that’s now in its 16th season. So it’s still very much in its infancy. And as the name suggests, all the teams are Indian-based city franchises. The league is only played over eight or nine weeks each year in a window between late March and late May. And I guess when we’re talking headline numbers, it’s important to understand that the IPL has a monopoly of eyeballs and very much the center of the cultural zeitgeist for this period every year in India.

And I guess the easy comparison from a sports point of view is baseball for many listeners. But in actual fact, I think a better comparison from a league and a business point of view is actually the NFL. And hopefully, I can bring this out right throughout this podcast. So we all know the headline number around India, the population, 1.4 billion people. It’s a huge country. What you probably don’t know, Dom, 93% of all sports hours watched in India are cricket. So the IPL is not just cricket in India because there’s a national team that obviously has a unifying force for fans and it’s still a very dominating force.

But the IPL itself, it’s only nine weeks long. There was estimated 400 million UNEG views last year of the IPL, 260 million streamed views of matches. And I guess the context for this 400 million, that’s about half the number of total TVs in India. It’s insane. So the largest audience for a game is about 20 million, it’s a big number, but it’s probably comparable to F1, and it’s about 1/5 of what people tune into a Super Bowl.

Dom: (00:05:07)

Wow, so in terms of eyeballs, this is right up there with the best leagues in the world. How does that demand translate into dollars and cents?

Ed: (00:05:13)

So there are two data points probably worth talking about around size and scale. One is franchise value. There are two franchises that were bought two years ago. One was bought for $950 million. This is before the new rights deal, and CVC U.K.-based private equity bought another one for USD 750 million. Forbes, which we all know in the world of sport kind of access a quasi-equity research and authority on franchise values. By estimates on average, that each franchise is worth about $100 billion. The Mumbai Indians is the most valuable franchise at $1.3 billion.

And this is after only 16 years when franchises were sold for $60 million. And so it’s basically a CAGR of 25% for the last 13 or 14 years. And so to compare in the same period, I guess, to the NFL valuations, obviously, a higher base, but they’ve increased about 10% over the same time period and the NBA team is about 16%. So in terms of growth assets, the IPL is where it’s at. The last data point that I really think we need to bring to life. And it’s probably the only way that you can measure sports leagues on a like-for-like basis. And that is media rights per game.

And obviously, there are leagues of different shapes and sizes and lengths and the IPL is only nine weeks. But on the like-for-like per game basis, it’s essentially the second biggest sports league in the world, and people’s ears will prick up and think, how is this possible? But it is.

So the new rights deal, $6.2 billion all in for 5 years. It’s about USD 15 million per game compared this to the EPL. It’s about $11 million; the MLB, $9.5 million; the NBA, obviously, lots of games, a $2 million a game. And then the top of the pile is, of course, the NFL at $36 million. So we’re talking a very big business. And just to reiterate, 16 years only. This is a baby of a league and yet here it sits at potentially by many measures, the second most valuable league in the world.

Dom: (00:07:24)

That is awesome context for the rest of this discussion, even for someone like me who enjoys watching the IPL come every March, April, May time. I was shocked by the scale of those numbers during the research for this. And I think it really speaks to where this sporting leagues sits in the world and India specifically. Can you give us some more context on how cricket fits within India and how India is so important to cricket? That relationship, I think, is super helpful context for the rest of this discussion in terms of how we’ve gotten to such big numbers so quickly.

Ed: (00:07:56)

This is the key callout because I’ve experienced this firsthand. Cricket isn’t really a sport in India. It’s verging on religion and I don’t say that lightly, the Indian cricket stars are versions of a demigods in many sense. And to understand the IPL, you really do need to understand India because in many ways, the IPL is mirroring the growth of India as a country. I want to direct people to the Colossus podcast here that is sensational. It’s a little bit of a cross plug, Dom, but Return on India is a great resource if people are trying to understand India and it really opened up a few of the thoughts that were swirling around in my head and solidified them.

As I’ve mentioned, 1.4 billion people, but it is a land of extreme poverty, and it’s a land of extreme wealth. 800 million Indians live in villages of less than 1,500 people and fewer than 200 million people live in cities or towns with the population greater than, I think, 100,000 people. There’s 170-or-so billionaires. So you’ve got this real divergence of extreme poverty, extreme wealth and for an emerging market, just the sheer volume of billionaires is amazing. But I guess the key call out the last two decades, there’s been an explosion in the middle class from 10% to 30% of the population now is deemed to be middle class.

Over the next two decades, the middle class is set to double. So two out of every three Indians. And why is this important in the context of the IPL? Well, the IPL has, as I’ve mentioned, a monopoly on eyeballs. It’s the biggest show and the biggest sport, it’s like the NFL playoffs every night of the week for eight weeks. And the thing to call out because of this is the fandom, it’s immense. When I think about fame in India, there are only really two types of fame. There’s cricketers and there’s Bollywood actors.

Unlike the West, where the center of gravity of fame really revolves around the movie stars, the popstars, the inverse is true in India and a fun little tidbit that you might find interesting. If I was to say who has more Instagram followers, Taylor Swift or Virat Kohli, who’s been a previous captain of the Indian cricket team, everyone is always going to say Taylor Swift.

But the answer is, in fact, Virat Kohli. 240 million followers, it’s 10x more than the biggest Bollywood actor who as a side also owns an IPL team, hopefully, getting a sense of these market dynamics are unique. There’s no bigger sense of entertainment in India than cricket. And when you’re talking about the central cast or the actors, the 10 biggest stars in India are all cricketers, when you put these together, you’ve got the ingredients stewing around in the pot for an insanely successful sports league, and that’s what the IPL has become.

Dom: (00:10:45)

On Return on India, the show talks a lot about how you can’t just classify India as one market, it’s 1.34 billion people, but ultimately, it’s a number of different markets because of the disparity in income between different places in the country, but cricket is really the unifying force as I understand it, for the whole country, and you can really think about India as one when it comes to cricket. I think the next place we need to go is cricket itself. There’s an interesting wrinkle to the sport in that it comes in many different shapes and sizes. Can you explain what T20 or Twenty20 is? Why the IPL is a T20 based competition? And maybe just kind of lead us into the history behind the competition, starting with the history of 2020.

Ed: (00:11:56)

Interestingly, for our U.S. viewers, the first international game of cricket was actually played in New York City between America and Canada. And it was deemed almost the national sport before baseball took over in the late 1900s. So as you rightly called out, cricket is an oddity in many respects because it’s the only professional sport that has multiple dynamics apply. And that’s not just an international or club dynamic. It’s also three formats of the game that are largely played by the same cohort of players around the world.

People might think well, that’s analogous to tennis, there’s singles, there’s doubles, there’s mixed doubles, but it doesn’t really hold because in that case, it’s the same game, same tournaments. When we talk cricket we’re actually talking about independent competitions and teams. Of the three formats, so I’ll move through this quickly, you’ve got Test cricket.

It’s the purest and most traditional form of the game. It takes 5 days. And this is the game, I guess, the outsiders mind drift to when they think of cricket, it’s boring, it’s slow, it’s hard to get into if you’re not really into the tactical nuances, but it’s still a massive part of the international cricket calendar. And historically, there have been 10 countries that have played this format of the game.

Unfortunately, the market dynamics, however, that it’s really only economically sustainable in three or four of those at the moment, and the rest really is a cost center. There was this huge revolution in cricket in the ’70s and more so in the ’80s, around 50-over cricket, which was trying to create a little bit more action and Kerry Packer was at the heart of that, a media mogul in Australia. And so that’s an 8-hour game. It’s done and dusted in one day bright clothes and played in a day-night fashion usually.

The thing to call out here is it’s important to know that international cricketers run essentially by government bodies, they’re funded by the government to grow the game in those countries, and they’re designated not for profits. So then the third format of the game is T20 cricket. So this is the new version of cricket, if you will. It’s done and dusted in three-or-so hours. It’s only 20 overs per team. So that’s 120 balls or 120 live instances for each team to score as many runs as they can. And it really is the new glitz and glam of cricket and the history of T20 cricket is interesting, but this is the format that they play at the IPL.

As I said, the history is relevant because it allowed the IPL to become what it is today. And you’re sitting in country, England was actually where T20 cricket was born, but it was born as a recreational pastime. So you’ve had these other versions of cricket, but some English village cricketers got together and said it’d be amazing if there was a format of the game where we could go and play in the twilight hours of the English summer and still make it to the pub for a pint and get home to make sure the kids were in bed. As you can imagine, though, it didn’t take long for cricket administrators to work out, wow, this new format of the game could be an unbelievable TV product.

It’s something that they’ve craved for. Cricket’s naturally a great TV product because at the end of every 6 balls, there’s an ad break. And so advertisers love it. As this divergence away from the longer is better to the more exciting is better. The ingredients are there. It is a great TV product, a huge global audience that always had loved and followed cricket, and they really got to condense five days down to three hours in this exciting version of the game, fast-paced with this view of attracting a younger audience, I guess, and ultimately trying to get younger participants to play. T20 cricket really broke the model, this perception of the game largely being boring and followed by aging males essentially.

Dom: (00:15:10)

And when was it that this format of the game breakthrough as a professional sport?

Ed: (00:15:16)

T20 cricket in its professional format, has only really been around since the early 2000s. Firstly, in the U.K. and then Australia and my playing career covered these early years of T20 cricket and maybe I can give a couple of anecdotes. It was a massive success straight off the bat from both the crowd and TV audience perspective. But interestingly, as it relates to the IPL, it was deemed to be and viewed a bit of hide and giggle. It wasn’t what it is today at all. It was a side show to the main course of these other cricket formats that I touched on. It was deemed not particularly important.

They didn’t want to cannibalize the golden goose that was international cricket. Despite T20 at the time, really taking hints from other sports with fireworks and cheerleaders, it didn’t take itself too seriously at all. So interestingly, at this point in time, it was still run under the archaic governance structures that are run by the same administrators that ran the other formats of the game. And as I’ve mentioned, their arrangement is not for profit, it’s to grow the game. And as we know with public enterprise, it’s sometimes not nimble enough or strategic enough to really capitalize on momentum.

I guess to bring this to life a little bit of quick anecdote, I’ve played in one of the first seasons in the Australian T20 competition and to show how illegitimate or unseriously they took it. In my professional team, we dragged in Australia’s biggest rugby star. So we’re playing a professional cricket game and Andrew Johns, who was one of the all-time grades of Rugby League played in our game as a PR stunt basically. So the equivalent would be LeBron James turning out for the Dallas Cowboys. It is absolutely ludicrous in hindsight, it was dangerous. But at the time, it was on brand. It’s what the administrators thought of the format. It was a bit of a mere frivolity, a bit of a carnival. Hopefully, that’s given you a sense of where the game was in the early 2000s.

Dom: (00:17:12)

So if I just read that back to you, it’s almost as though T20 was being driven from the commercial aspect, you could play it in prime time. You could take your kids to the event because it would only be a few hours, they wouldn’t get too bored and you’re attracting a different kind of audience. There was demand for this product, but maybe the traditional cricket diehards didn’t want it because it wasn’t the pure version of the game. It wasn’t five days. There wasn’t a draw at the end of it, which the diehards really enjoy that aspect of it where a lot of other people look at cricket and don’t understand. Is that right?

Ed: (00:17:38)

That’s absolutely spot on. And to move the time line along here, the first international T20 game was only played in 2005. And at that point, the international governing body the ICC, they thought, wow, there’s some momentum here. Let’s put on a World Cup. And they jam this World Cup in 2007, there had already been a 50-over World Cup that year. But they thought let’s jam it into the cricket calendar has a bit of an exhibition just to see if the world would respond. And this is where it gets interesting from an IPL perspective.

And it was so jammed into the calendar that India, the busiest cricketing nation from a center of power and gravity point of view, rested their best players. So Sachin Tendulkar, who for the American audience listening is like the Babe Ruth of cricket, arguably the greatest of all time. He was tired after a tour of England. So he didn’t go to this new World Cup format. A few of the other senior players got rested as well. But low and behold, India found themselves in the World Cup final. So this is mid-2007, India play Pakistan in a World Cup T20 final.

At that point in time, the thing blew up. That particular game was the 10th most watched TV event of the year globally, not sport, total TV audience. And so there’s this interesting dynamic all of a sudden where the T20 World Cup has been absolutely raging success, but there’s this natural friction with the other formats of the game. These have been the golden goose for all these international boards. Most of their TV rights deals have come from 50 over and Test match cricket and all of a sudden, there’s this new kid on the block that’s competing not just for airtime, but also slices of a really busy international calendar.

Dom: (00:19:30)

And I think as we’ll go through the story, that’s still part of the problem today. The world’s waking up to T20 and the opportunity that it might hold for cricket as a whole. How then are the seeds for the IPL sown? And when does that come to be?

Ed: (00:19:43)

They’re sown and watered very quickly, and there are green shoots almost immediately after this World Cup. That’s almost the moment in time where I think there have been some rumors and some thought bubbles around franchise-based league in India around T20, but this was the moment the opportunity. Interestingly, the IPL wasn’t the first franchise-based T20 League in India. So almost immediately after that World Cup, there was movement from Zee Entertainment, who had missed out on TV rights deals in India for a while and they thought, “Well, bugger, we’re going to start our own league.

And it was akin to Kerry Packer back in the 70s in Australia, a media group who wanted the content and were willing to fund it. And so they then recruited a whole heap of players from right around the world, and it was based in India, but had teams of Pakistan and Bangladesh. Interestingly, the Indian Board of controls of the BCCI banned all Indian players from potentially taking part in this league. It got deemed a rebel league as such. And so while it took off first, it really didn’t go very far because the biggest audience, their favorite players weren’t allowed to play. It was marred in corruption, it only lasts two years.

But at the same time, while this was launching there as a little bit of who can move first, but who could move with more power. And while they didn’t have first mover advantage, the BCCI had the corner resource of the Indian players. And at the same time that the ICL was launching, they actually kicked the IPL into gear. And while these thoughts have been going around for a league they thought we have to move now. And so it was, I think January 2008, so we’re only five months after the World Cup on a handshake media deal, they auctioned off the franchises essentially. And so the IPL was born.

Dom: (00:21:43)

So the auction off eight franchises or teams effectively to private investors, how did they structure the deal to incentivize investment from day one because we’re talking at this point before a ball has even been bowled?

Ed: (00:21:52)

I’d love to bring in some central protagonists into this story, and I use the word protagonist loosely because both become antagonist to the story in many ways. But the effervescent character of Lalit Modi — and this is a name that is probably the guy who is accredited with the founding story of the IPL, he is a deep entrepreneur.

He was deeply intertwined with the political setup of Rajasthan, which is a very large and traditional state in the Northern India. He was the President of their State Cricket Association governing body. He was also at the time of the Vice President of the BCCI and intertwined in the commercial emergence of Indian cricket.

He really needs to be credited with deeply understanding that for the IPL to succeed, it had to be this intersection of media and entertainment and have this aspirational element to it that it ooze celebrity and wealth. It needed to be, I guess, the epitome of what the modern India wanted to look like. The auction of the franchises is probably worth bringing the other protagonists in this story, which is N. Srinivasan or N. Srini as he’s known. He was the chairperson of the BCCI at the time. He is an industrialist or still is an industrialist as the Managing Director and the largest shareholder of Indian Cements.

And so 2008, Modi is the commissioner of the league, and he’s got these bold ambitions of combining much-watch television with the biggest stars at central casting, the glitz and glamour of Bollywood. And this initial franchise auction was like the Academy Awards, anyone who was — everyone was clamoring over themselves to get involved in the IPL and as it turned out, it was deal of the century for the winning bidders. Mukesh Ambani, who as we now know is the richest man in Asia. He bought the Mumbai Indians at the time for $110 million.

He has made his money through Reliance Industries, which was a family business and is one of India’s largest conglomerates. Other billionaires brought in. We had the Murdochs, we had Bollywood actresses. Remember, the BCCI is a tax-exempt administrative body whose remit is to grow and promote the game. But you’ve got these central figures in N. Srini and Modi, who are part of the BCCI, but they couldn’t help getting in on the action a little bit and wetting their beak, so to speak. So part of this auction process, N. Srini ends up — this is the chairperson of the BCCI, buying one of the franchises.

And in Modi’s case, it’s a merged sense through a cloak of secrecy that he had initial interest in up to three of the eight foundational franchises. So the question of conflicting interest will keep coming up time and time again. So I’m sure we’ll go into the business model, that’s what we’re here for, but there were some key foundational principles that are worth touching on at this point in time that really set the IPL up for success.

Dom: (00:24:45)

Let’s get into those. Because effectively, you’ve got a start-up league, which I guess, can take bits from every other league across the world. They’ve got a blank piece of paper. They have a large pool of demand in the Indian public and a sport that is clearly extremely popular. How do they start the league in terms of the business model?

Ed: (00:25:03)

That’s a key call out, Dom, is around this blank piece of paper. And when I think about the success of the IPL, that’s where my mind goes to, was their ability to cherry pick some key ingredients from other leagues to make sure that this league worked from day one. They had the benefit of that blank sheet of paper, and they used it. There was little things around these foundational moments. So the franchise fee was paid over 10 years. So in Ambani’s case, obviously, a very wealthy man, so it didn’t really cut too deeply, but $110 million — $10 million or $11 million a year for 10 years.

But at that point in time, with the media deal locked in, which that first media deal was $1 billion for 10 years, and it got rewritten a few times. But the BCCI needed this league to work. And so they did a pretty sweet deal for these franchise owners. At the time, they said you will get 80% of the total revenue pool. That’s since slipped back to 50%, and we’ll get into that. But at the time of the auction, you can imagine they had this free kick essentially, the BCCI knew that they had to make the league a success. And the best way to do that was to make these franchises profitable from day one to get these private investors an immediate return and they have done that.

While these foundational stones were put in place, the IPL was set up in a hurry. And so it didn’t have the benefit of years of finessing what best practice, particularly around governance look like and what was fit for purpose in India at the moment. And so in this keenness for big, bright lights and engaging Bollywood, at the time, as a cricketer the IPL had another acronym, and it was — the IPL stood for Indian Party League because after every match, there’s a mixing of all these characters and some were probably a little delirious than you might want to maintain a clean image of a new league that is trying to still attract sponsors and fans.

And unfortunately, match fixing and spot fixing in particular, came into focus over the next couple of years. Just to round this out, as you’ve probably guessed where this might be heading with what could be seen to be a bit loosey-goosey around the governance. It was, in fact, N Srini, he’s the Chair to BCCI, he owns the Chennai franchise by Indian Cements, which is a company he controls. His son in law who’s the team manager is deemed to be passing on information to bookmakers, which is a massive issue, as you can imagine, but particularly with his access to players.

Also, the Rajasthan Royals, which ties to Modi, had three players charged and found guilty of spot fixing. So both of these teams, teams that were foundational, but also with deep ties to these two founding members of the IPL, they’re actually expelled from the IPL for two years. So the two founding members find themselves in a huge amount of hot water, just to really wrap this up, N. Srini was forced to resign as his role of the Chair of the BCCI and actually found to be the Chair of the ICC, the international governing body by this stage.

Modi was self-exiled and imposed in London. He still lives there. He doesn’t go back to India. So there was a moment in time here that the IPL was at a real risk of disintegrating. They had shot themselves in the foot. There was a chance of them bleeding to death. And that probably takes us to 2015 when things got cleaned up and it’s probably worth working through a little bit of that as well.

Dom: (00:28:30)

As far as I can tell, we’ve got a bit of a contrast. We’ve begun the upside off with the IPL. This huge sport, it’s doing incredibly well from a growth perspective, from a profitability perspective. It’s got a lot of interest in it. But at this point six, seven, eight years into what we now know as the IPL seems as this murky world where no one quite knows what’s going on, seeing some inside deals happening and the business or the IPL itself seemed faltering. So at what point does this turn around and resemble the IPL that we know today and then we’ll get into the business model?

Ed: (00:29:02)

What I’ve talked to now was probably what I’d call the start-up phase. And like all startups, things move at a great pace, but probably don’t have the guardrails or transparency that are required for it to scale up and become the giant that it is. N. Srini, he’s been brought in a total scandal. And the government actually of India get involved by the Supreme Court. They totally rewired the BCCI and ultimately, the IPL because they own 50% of the IPL. This Supreme Court intervention was to restore confidence, not just from a fan point of view, but also to settle some nerves around the investors.

In many ways, the IPL was a bit of a bellwether for foreign investment at scale, and it was the government who realized that it was in their best interest to really provoke a vision that proper governance was really at the forefront of the new modern India. And it was important for people to be able to invest in India. And in many respects, under the current structure, we have RedBird or CVC, big institutional investors in the IPL. That wouldn’t have been possible without the new governance structures that were put in place circa 2015 in the IPL.

Dom: (00:30:12)

I think we’ve laid the foundations really well there. Talk us through the structure. We’ve got this really interesting public private partnership in the IPL. We’ve got eight teams at this point. If we fast forward to today, we’ve now got 10 teams, as I understand it. What are the main drivers of revenue? How does the business model look like to you as an investor today? And how is it structured?

Ed: (00:30:32)

There are four main drivers of revenue for the IPO, the media rights, sponsorship gate receipts and IPL merchandise is how you’d loosely describe them. Like most sports leagues, there are five key stakeholders. In the case of the IPL, you’ve got the governing body, which is the BCCI, the franchise owners, the players, of course, the media and the fans. I think from a business point of view, it’s easier to follow through two lenses, and that’s been where the economics reside and how they’re broken down rather than the value chain of creation of that value. Let’s dig into the overarching model. It’s actually hard to quantify.

There’s no official data sources on the IPL. The closest I could get to was where this resides is the BCCI treasurer. The best and easiest way to think about it is the franchises receive about a net of 40% of the total revenue generated by the IPL. And I say net because from a revenue distribution point of view, the central pool of income is actually split 50-50, so the BCCI, all the administrators and the privately held franchises.

But under the franchise agreement, 20% of the franchise revenue is actually paid back to the BCCI. So netted off on an absolute basis, it makes about a 60-40 split but of course, as the central pool grows because the media rights sits in the central pool. That’s growing far quicker than the franchise level revenue, and we’ll touch on this.

So the mix on a net basis will swing back to the franchises over time. This growth split has been a bit of a moving phase. And I alluded to this earlier, but for the first five years, it was actually 80% of the central pool was directed to the franchises. They had to make sure that these franchise work from a financial perspective. And so to compare and contrast the current 50-50 gross split, it’s more akin to the NBA than the NFL. So the NFL is more 40-60 to the league franchises, but they’ve obviously got 32 teams and the IPL only has 10.

Dom: (00:30:12)

And is that then split equally among each franchise? Or is there some difference between them?

Ed: (00:32:41)

It is split equally between each franchise. And I guess it’s worth touching on what this central pool looks like. So of course, the main revenue driver of the central pool is the media rights and we have to get into that at some stage. The central sponsorships or the tournament naming rights. So anything that is a whole of tournament resides in the central pool. The current naming rights rest with Tata, which is like most things in India are massive conglomerate. They pay about $60 million a year for this sponsorship. That’s 12x more than DLF paid in the first four installments of the league.

And there are some other modal of central sponsors that go in. So the $6.2 billion media deal, the $60 million a year central sponsorship and so the only other real call out here is of the 50% that is set aside for the franchises 5% is actually held back each year to be paid out as price money. And so it’s a nice way to make sure that those franchises are being incentivized to perform as well.

Dom: (00:33:45)

Let’s go through the big revenue channel, the media rights. Is there anything to note culturally in terms of India itself that might differentiate these media rights to say something we might see in Formula 1 or the NFL or any other sporting leagues?

Ed: (00:33:58)

Yes. It’s probably hard sitting in Sydney, Australia to comment culturally on the nuance of media deals in India, but there are a few call-outs that are probably worth making. The history of the media rights is fascinating. I don’t think now is the time to necessarily dig into this, but I alluded to, it was $1 billion over 10 years. That got unwound and rewritten a few times. The last media rights was about $2.3 billion over five years. They have just signed a new media rights deal for $6.2 billion, but let’s split this up. So historically, Star Sports or Star, which is essentially Disney, have dominated the TV cricketing landscape in India.

They owned both the digital and traditional TV rights in the last cycle. But I guess the IPL taking a bit of a leaf out of the NFL book, they’ve split the current rights deal into four buckets. So you’ve got Indian TV, Indian digital, international TV, international digital. Those international markets split up further, but there are four main buckets. And so Star who had previously bundled the digital rights and the traditional TV rights altogether, they actually only won in this new rights deal, the domestic TV rights. That’s interesting that we’ll touch on.

But the online streaming rights were actually bought by Viacom18. So that’s a joint venture between Paramount and billionaire Mukesh Ambani. Of course, that name might be familiar because I’ve mentioned him as one of the owners of the Mumbai Indians. And so this huge number, $6.2 billion is really a tip of the hat to Livesport as the last bastion of appointment TV interestingly, and this will probably play to the cultural nuance here.

The digital rights were actually more intensely bid on than the traditional TV rights. And so Disney did go pretty hard for the over-the-top rights as well, but they were outbid and the bidding actually got a little bit out of control. So for the first time, the digital rights actually went for more than the traditional TV rights. And this is interesting because TV still remains the most popular medium in India to watch the IPL, albeit flat.

And so the real growth engine or the better the Viacom18 are making is this insane growth of over-the-top streaming. And a few things pop out to me as we go through this. But Disney have traditionally struggled in India. From a subscriber base, it is large. It’s 1/3 of their global subscribers, but their ARPU is $0.75, it’s nothing, and they’ve really struggled to deliver this cheaply. They obviously don’t own any telco infrastructure.

They’ve had to go through third parties. And so while it’s a massive growth driver, it’s been really hard to monetize them given their subscription model over and above a pretty ad-light model. They went for the traditional TV rights. The demand for advertising on TV is still immense. I think it was $450 million for the IPL last year compared to $50 million for digital. And so for Viacom18 to really monetize what has been a massive cost, they’re going to have to think about how much can they lean into this advertising model. And that’s obviously going to have a much different look to it than what Disney presented with their subscription-based model.

But you can imagine all these new brands coming to Viacom wanting to advertise on their over-the-top platform for the upcoming IPL. As I’ve mentioned, 93% of sporting ad spend is spent on cricket and the IPL in India. And so what’s driving these digital rights? And one thing that really came to mind was the growth of smartphones in India. Like most developing nations they have missed the PC era, it went from nothing to smartphone. In the first cycle of the media rights, so we’re talking 2008, less than 2% of the population of India owned a phone. Obviously, smartphones hadn’t come into existence — well, only just sort of 2007 with the iPhone.

But there were no smartphones in India, 2% owned a phone, data prices were insane. So the story gets played out a little bit and Reliance, this huge conglomerate, yes, Mukesh Ambani, again, almost the hero having born in India. In 2016, he basically slashed the prices of data packages to virtually $0.

2018, 2 years later, it was $0.04 for a gigabyte, which is half that of the nearest local competitor. It’s about 100 of the price of a U.S. telco. So it’s super cheap data. And so you can imagine what’s happened. Smartphone penetration went from 10% of the population in 2016 to now it’s closer to 60%, which is obviously a huge number. It’s 800 million people or so in India now own a smartphone. So you can see why these digital rights have become so valuable and I guess why they’re more valuable to Reliance than anyone else.

So Reliance were in this JV. They’ve bid on the digital rights, but they have the infrastructure to deliver it cheaply. The central figure of Mukesh Ambani, he is very long on the future of India and all facets of his business. But in this case, the vertical integration of the value chain needs to be called out. He owns the biggest team. It co-earns digital rights and he owns the biggest and cheapest telco. So you can see this playbook that he’s running and how he’s going to think about monetizing his digital rights that as a headline number, you’d probably think were very expensive.

Dom: (00:39:51)

So fascinating. And we’ve had a number of guests on our Return on India series talk about India as just generally a low-trust society, but these primetime TV ads or ads in something like the IPL, which is a massive national event hugely increases the brand affinity and trust that consumers have with the brands that they see on TV, which therefore reduces their cost of acquisition for customers and can be really meaningfully helpful to them as a business in terms of growth.

Ed: (00:40:18)

That’s actually a really key point. And something that, that podcast alluded to mix, I haven’t really worked out why these conglomerates would own cricket teams, but it plays to this dynamic in India around trust and that it is very concentrated. And so it actually makes perfect sense that they not just own every other touch point in your life, they also own your favorite cricket team. And it allowed the IPL to be a high trust environment very quickly just because the same names that own your telcos also own your cricket teams.

One thing I did forget, Dom, that might be worth touching on is just the growth of ad spend is a tailwind to the IPL while we’re talking about media rights. So media rights are obviously based on how well these media companies can sell ads, but some headline numbers. The Indian ad market 2 years ago was $10 billion. And that for comparison is smaller than the Australian ad market. So Australia has 2% of the population of India and yet has a far greater ad market.

And so if you’re an incoming investor, if you’re a RedBird or a CVC, who did the deals before this new rights deal, the bet that they are making is that these rights deals still have massive legs to run the expansion of the Indian ad market over the next 10, 20, 30 years because these are long-duration assets, is going to be huge. And that’s the bet that these institutional investors are making in the IPL.

Dom: (00:41:48)

Now is probably a good time as well to talk about how — talk about that blank sheet of paper back in late 2000s, thinking about the IPL. When you look at the business model now, really everything has been built to maximize the media rights itself in terms of the structure of the competition. So can you talk to us about exactly how they’ve done that and why the business, if you like, the tournament looks the way it does in order to garner a 6-point-something billion investment for the media rights?

Ed: (00:42:14)

I think the key call out here is sport as a business is entertainment, no ifs, no buts. The greatest source of entertainment, as we all know, is uncertainty as to how stories end. And so as it relates to the IPL, the key ingredient to maximize these media rights has been to really engineer a league where any team can win it. And how they’ve done this, we’ll get into it, it’s fascinating that basically, aside from a salary cap, which is used in the NFL for much the same purposes, these are actually around the player auction and the dynamics that are in that auction are fascinating. But the NFL, as I alluded to, has been the greatest exponent of this truth really.

So on a game to game or year-to-year basis, anyone can be the vector. And so from, I think, 2004, 2005 would be the last time that a team has gone back to back in a super bowl. They’ve had 14 different teams win it in that time frame. And so I guess the comparison or the antithesis of this is the English Premier League, where you’ve got four or five teams that dominate between Man City have won four of the last five years.

You’ve seen the have and have nots on this huge bifurcation and the widening around the purchasing power of the owners. And in Spain, this plays out as well. There’s a duopoly essentially on the outcome, and there’s this perfect correlation between salary paid and performance. That is not the case in the IPL, and I can’t stress this enough.

They realized to maximize the media rights deal, they had to set up basically the most efficient market they can around players to make sure that these teams have an equal opportunity to win it. The IPL up until last year, 6 of 8 of the foundational clubs, so to speak, had won it since 2018, but the greatest exemplar of equity right throughout the league was last year, the Gujarat team, it was their first year in the league. They actually won it.

So the very first time a new franchise came into the IPL, they went home with the trophy above their heads. So this is what TV relies on. This is why people tune in at 8:00 every night without fail because if you can predict an outcome when it comes to live sport, people turn the TV off very, very quickly.

Dom: (00:44:42)

And I think I’m right in saying the very first IPL ever, the team that won it was the team that spent the least amount of money in the auction. And we’ll put a pin on the auction because we’re going to come back to that later and it’s a really fascinating aspect of this whole business. Is there anything else at the league level, whether it’s the sponsorship, licensing IP merchandise that you think is worth calling out or even on the cost side? Or are there any big costs that they incur?

Ed: (00:45:04)

At a league level, essentially, there’s no cost to incur. And that’s why it’s such a beautiful business model for the BCCI. And you’ve got to remember, this is their largest revenue item, but it’s not their only revenue item. They also have media rights and the execution of the national teams as well, male and female, and that’s a very big business.

That’s the other 42 weeks of the year. From a BCCI point of view, who own essentially 50% of the IP, this is an absolute money spinoff. I think the only other call out is how poorly IPL is monetized in cricket generally, but how hard it is to do that in the IPL with such a small window, only eight or nine weeks a year and it plays into the brand value, and we’ll touch on this later. At a franchise level, it’s important.

But player IP in the last decade has probably fallen behind other sports. You see FIFA really monetize through their gaming franchises. There are various other methods. RedBird were very successful with one team teaming up with players and associations with baseball and the NFL and really monetizing player IP. This hasn’t happened in cricket. And so it’s actually slowly being wired into the system at the moment with the players doing a deal with the players union to actually have an SPV that will monetize player IP, but that doesn’t kick into later this year.

So that’s just the one call out that really this particular league, at a league level really relies on these media rights. The compare and contrast to other leagues that you have these other revenue items doesn’t really exist with the IPL.

Dom: (00:46:42)

Interesting. I mean even on the IP side, it seems like Kohli’s got more Instagram followers than Taylor Swift. I’ve got a feel that there’s plenty of room there to do some interesting things.

Ed: (00:46:51)

Yes. There is. How they think about the IP actually of the player for the period of the IPL, so that non-league period sits with the franchise. And if you’ve ever seen an IPL game in India, they get their bang for the buck through the sponsors. The Virat Kohli, if there’s an ad break, he’s the 3 ads, spreading Pepsi or whatever, he’s having a cracker. That’s how they do it. It’s a little less nuanced than what happens in other leagues around the world.

Dom: (00:47:17)

Got it. And it’s a perfect segue to start in this business from a franchise perspective. You talked about 40% of the league level revenue flows to the franchises. We’ve talked about how that’s split. Can you talk firstly about who owns the franchises in broad terms and anything high level that you think is interesting?

Ed: (00:47:36)

I’ll start with that first question. Who owns these franchises? It is generally the same owners that purchase these franchises way back in 2008. So it’s a mix of industrialists and conglomerates in the case of Indian Cements or Reliance, other billionaires on other teams and then you have these media magnets, the Murdochs owned a little bit of the Rajasthan league. I talk to United Spirits, there are other media tycoons. I guess between that and Bollywood actors, rounds it out pretty quickly.

So Preity Zinta with the Punjab Kings, Kolkata Knight Riders have two Bollywood investors. I guess the big collab out now is the flow of institutional money, and I touched on this with CVC and RedBird, now owning wholly in CVC cases and a portion of RedBird’s case. And Gerry Cardinale is obviously a very true sports investor. They are making a bet that this league is still in its very early innings. So in terms of the franchise business model, when we talk about setting these franchises up for success, just imagine a business model that has very limited upfront costs.

So these franchise fees were paid over 10 years, has a guaranteed revenue stream in the media rights. It has the opportunity to invest in other additional revenue streams depending on your own execution. But interestingly, it’s the cost base that makes these the most beautiful businesses. It’s not just low, but it’s fixed. This hard salary cap is probably the key to the franchise level P&L looking as beautiful as they do. So do you want me to walk you through what a franchise P&L looks like on average?

Dom: (00:49:16)

Yes, please. So as I understand, we’ve got 10 franchises. They’re owned by a variety of private investors. Can you break down the different revenue and cost lines at these teams and their owners will incur as they play in the tournament? I have to think having looked at a few different sporting teams around the world that player wages is going to feature heavily as the deeper most of the sports teams around the world?

Ed: (00:49:34)

At the headline level, let’s start with the revenue lines. I’ve touched on the media rights. And of course, 50% of those media rights flow through to the franchises. That’s about $60 million a year. That’s up from $25 million in the last media rights deal and this is the first year. So you’ll see the operating leverage that’s kicking in, particularly in this particular cycle of the media rights. So the localized revenue, that’s team sponsorships on the shirts, it might be at the ground or other sponsors of the team specific.

Historically, that’s made up, let’s call it, about 20% of the total franchise revenue. That as a proportion has shrunk with the outsized media rights deal. It varies on market. But on average, it’s between $5 million and $15 million. And then on the cost side, general admin, anywhere between $2 million and $4 million depending on how much investment, but it’s really this cap player expense that really, as I’ve alluded to, makes these businesses so profitable.

So you probably won’t believe these numbers, but the salary cap, we’ve talked huge numbers for media rights deals, $16 million flowing through the franchise. The franchise is — their salary cap is USD 13 million. This is up from $12 million last IPL. So the players earning generally speaking, about 6% to 7% as a total pool of total IPL revenues. So if you were comparing this to some of the collective bargaining agreements that have been done, particularly in American sport, it is minute.

So to give some context here, I think Manu’s salary last year was $400 million. So we’re talking $13 million for the Mumbai and they only have to use up to 75% of that. They don’t have to use all of it. So you can see what this media rights deal and its big impact has on the operating income line of these franchises. The player’s salary cap has increased nowhere near in line with the revenue drivers. And so these businesses have just huge operating leverage. Last cycle, let’s snap this all off, the franchises, let’s call it, were making somewhere between $8 million and $15 million in this media cycle.

It’s going to be closer to $40 million in most cases. If you think about this from first principles, this has always been what was intended by the BCCI. They needed this franchise to be successful. So even when the media rights were $1 billion, they were just giving more share to the franchise at that point in time to make sure that the very least they’re washing their faces. So I guess the burning question is how the hell do they get away with such a low and fixed salary base for the players?

And it is the key question because it is crippling European sport in many respects, is wage inflation and it’s getting to the point of reckoning for many of the leagues. This is not a risk faced by the IPL. So why? It’s crazy to think that there’s no active players union as it relates to the IPL or has it, in fact, relates to Indian cricket. So as part of the Supreme Court ruling in 2015, they had to start a players’ union. But the only members of that players’ union in typical BCCI fashion are past players. And so none of the current players are represented by this players’ union. There’s no strike outs.

This is pure capitalism at play. This is a master-servant relationship between the franchises and the players. And I guess you’re probably sitting there thinking all why the players put up with this. For the players, this is the greatest thing since sliced bread. Their income has exponentially increased through the IPL. And while professionalization of cricket has probably only taken place in the last 20 years and the best players in the world have been well paid, the money that is now being offered for only a 10-week window. And so they have other income streams, they play in other leagues, they play for the country is big money. If you’re earning $2 million or $3 million for 10 weeks work, you’re a pretty happy player.

Dom: (00:53:37)

It’s really interesting because all the press I read around this and the auction comes up and all the headlines are x player is receiving x millions. And it’s always very positive and these players are receiving so much money for such a short period of time, but you listened to you talking through the income statement and who’s winning from this. Very much the players are not winning from this. So do you expect that dynamic to change over time as players wake up to say, “Hey, we’re not receiving our fair share of this because without us, you don’t have a competition?”

Ed: (00:54:04)

I’ve thought about this risk to the IPL a little bit. And my gut feeling is no, we’re talking about players from around the world that in many cases, this is 10 or 20 or 30 times the earning capacity that they receive from their home nations. So cricket internationally has 3 or 4 very large countries, but it’s played over 10 or 15 real countries that could probably potentially put players into the IPL draft. So if you’re playing for the West Indies and a great international player, you might only be earning USD 200,000 or USD 300,000 annually.

And so the opportunity to earn $3 million for 6 weeks just really doesn’t play into the fact that you’ll ever not take that up. It’s good money, for many, it’s life-changing money. It’s not the money that these NFL players or big soccer players earn. At the same time, you can now play in three, four or five T20 leagues around the world. So it’s only an exclusive arrangement for that 8-week period. If the other 42 weeks, you can earn money in different variations in different leagues or playing international cricket.

Dom: (00:55:13)

So it seems like a win-win-win for the BCCI, the franchise owners and the players, which is a pretty good position to be in. From the franchisee’s perspective, do they own any significant infrastructure, generally, they pay in stadiums, who owns the stadiums, what other costs might they incur?

Ed: (00:55:29)

This is a super asset-light model only being a short league. It’s a really interesting point that you’ve raised. So the infrastructure, unlike other leagues, particularly the soccer leagues or the big NFL teams, where the infrastructure sits with the owner, these are all government-owned stadiums. They just wouldn’t have the utilization for a 9-week competition to go and build their own.

So not just is it asset-light and really takes a lot of cost out of these businesses that flows through the bottom line, it does minimize when you look at other revenue drivers, what these franchises can do. And we’ll talk to how they’re thinking about it because there’s a tension between the BCCI and these franchises to how they can maybe grow their revenue. If you look at the Dallas Cowboys, they’ve created this mini-Disney experience around a lot of their infrastructure.

Sure, there’s a large cost attached to that, but it’s a tangible asset that sits on their balance sheet, but they can also derive another source of revenue. That doesn’t exist in the IPL at all. And so it’s really these media rights and sponsorship deals that are driving the revenue lines. We keep coming back to it. If you were to rewrite a sports league to maximize the bottom line, this is how you do it.

Dom: (00:56:37)

It was rushed, but they seem to have rushed it pretty well when they first started it up. Is there a case study, you said the Mumbai Indians are probably the most valuable franchise. Is that a function of them just being in Mumbai? Or are there any teams that are doing particularly well in terms of increasing their sponsorship income or even their share of gate income, doing anything particularly innovative at those levels?

Ed: (00:56:56)

It’s interesting because that fan experience pace and owning the fan experience really drives a lot of engagement and revenue for a lot of modern sports teams at a franchise level. That doesn’t exist. They don’t own the infrastructure. They can’t really provide that incredible in-stadium experience. Going to an IPL game is incredible just because of the pure fandom that’s involved in that experience.

It’s intense and it’s vibrant and it’s what the IPL lives and breathes, but it’s very hard to monetize. In the Mumbai Indians’ case, their success is obviously the biggest market. They have the richest owner. The political and business ties have meant that it’s been easier to monetize. But I would say most of these franchise, their P&L looks pretty similar. The quality of this, not just from a playing point of view, but also a bottom line point of view that has allowed the lead to be as successful as it has. And you don’t really have the disparity that you have in other leagues.

Dom: (00:57:55)

Okay. And then I guess you’ve laid out that is a pretty compelling case to be an investor in one of these franchises. Is there any market to buy a franchise? Clearly, two came up recently? Are there plans to either expand the league into more franchises? Or is there any resale market here for franchises? I imagine if you’ve got one, you probably don’t want to sell one?

Ed: (00:58:12)

It’s an interesting question in that, we know the scarcity value is important when it comes to sport, but how many teams in a certain window can the IPL support? It probably feels 10 is about the right number. It might be 12 in the coming years. The IPL does have grand visions to keep growing and the natural thing to do is add franchises. How they do it is actually via an auction again. These two recent franchises were bought at auction, and they were the two highest bidders, which is a fascinating way of doing it.

There is a secondary market. So as I said, RedBird have only just recently invested in the Rajasthan Royals. The initial investors in these franchises are made about 10x their money. So they will hunt for some liquidity. And I’m sure there are some more institutional investors that would certainly mop that up over the coming years as these media deals get bigger and bigger.

Dom: (00:59:03)

Okay. Let’s go to the player auction because I think that’s a very, very critical piece in this whole business. I think when we exchanged notes beforehand, you said this is probably the competitive source of the IPL, which is an interesting phrase in itself. So talk us through what the auction is, when it happens and exactly how it happens?

Ed: (00:59:19)

For many years as a player, the auction seemed to be just part of the glitz and glamor of the IPL. And I underappreciated the dynamic it actually creates. As I’ve laid out, as a bit of the secret source as to the league’s success because it’s not necessarily the salary cap itself that has made the IPL a success, but it’s how it’s delivered and it’s delivered by this open auction that is essentially held every year.

It also means that the salary cap can’t be gamed. There are many examples of leagues around the world with third-party payments accelerated cap, and that’s not to say that, that doesn’t happen in the IPL. And I’ve heard examples of players maybe being offered shares in the franchise or shares in the corporate ownership entity as an example. But given the intense focus on team of quality as the key driver of the entertainment product, that is the IPL, it’s certainly less than what you’d imagine.

And the auction itself is a really elegant solution. I can’t stress this enough. It’s about the heart of executing on this thesis that what makes sports leagues great is equality. Every 3 years, just to go into some auction dynamics because this is going to be new to most listeners, I’d say, even if you are familiar with cricket, it’s unique. It’s worth going through. So every 3 years, there’s a super auction. So essentially, teams can only retain four players from their roster and the rest go into a mega pool to which other teams can bid on.

These players that are retained are included in the salary cap, but they have their own mini-tiered salary pricing cap. But these four players ensure that there’s some continuity for fans. We know that that’s important as well to build some brand equity in some key players. So you can imagine, if I’m a franchise, I maintain my four biggest stars or best performing stars. So the other 16 players in my playing squad get put into the auction process and the bidding begins essentially.

And so everyone stopped for grabs and open auction determines the price of a player, but also the location of a player. And so there are, in this mix, a whole heap of international players and each team is only allowed eight international players and the rest have to be localized. There’s this interesting dynamic of each franchise has a right to match card. And that means if you play for my franchise, Dom, and someone else bids on you, then I can match that winning bid, but only get one of them in the entire auction. And so usually, yes, there are four retained players.

They are usually five that create the core of these franchise playing list. As you can imagine, the ordering of these hundreds of players really matters. It adds strategy and intrigue. Most franchise will now actually run simulations to see how their bidding strategies will play out. And of course, as all things early days in the IPL, there are suggestions that the ordering of players was a little suspicious to ensure that certain players found their way to certain teams. But that’s no longer the case.

And so the auction, the framework I would probably think about it is like a game of monopoly crossed with the game of poker and the outcome of the auction is almost a function of circumstance because if I need a certain player, I might overpay for that player, but also the dynamics of bidding up another franchise to reduce their spending power later in the auction for players that I might want. So there’s some game theory at play as well.

And like all things IPL, the powers with franchises in every respect, even though these mega auctions happen every 3 years, a player’s contract can be terminated after one and you’re sent back to the auction. So you might pay top dollar for me, Don. I have a really poor year, and my franchise owner says, we don’t want to add any more. You’re back in the auction, and you’re at the will of the free market then to really determine what my contract price bid is.

And so in these off years or outside the mega auction every year, there are a mixture of release players, new players that might put their name in the draft from overseas and local and these mini auctions take place as well. It really has become what has allowed these teams to have some kind of equality that has this great start that I think half of IPL games end in the last over. So in the last six balls of a game, the game is still live. And so it really has added to this TV product. There’s no doubt about it.

Dom: (01:03:55)

Is it conducted in a similar way to the draft where everything is very public, it’s open, it’s become a TV event in itself, so you can go and watch the draft take place?

Ed: (01:04:04)

Absolutely. It’s probably the only off-cycle moment the IPL has been able to capture. The joy of the NFL as a business model is, yes, it’s only a very short season, but they have mindshare for 12 months. The IPL doesn’t. And this is a moment in the lead-up to the IPL that really signals in early January that the IPL is coming and people need to start thinking about it for sure.

Dom: (01:04:29)

Correct me if I’m wrong, but does that mean basically if you bought in one of the super auctions, it’s effectively a 4-year contract that they can terminate after 1 year. So does your price stay the same? Or are there some bumpers in the contract? Or how does that look from a player’s perspective?

Ed: (01:04:42)

Yes, the 3-year contracts. So on 3-year cycle is mega auctions. That’s a flat annual fee that the player is paid. What can happen if you’re retained at the end of the 3-year cycle, that price is then negotiable between you and the franchise directly. But as I said, there’s a mini salary cap on the site to avoid people paying a huge amount of money for their biggest stars.

Dom: (01:05:07)

And I think it’s worth just illuminating some of the oddities here because you often see some mega stars in the cricket game go either for very small money or they don’t go at all in the auction. And this goes back to what you were saying earlier. And the fact that you only get eight international players, you’d say that means your squad made up of 12 Indian players and Indian players tend to be richer in terms of the game and certain facets of the game, so they may be better batting more broadly. So you’re actually in the market more for international bowlers or I know all-rounders tend to go for people who can bat and ball high level, they tend to be probably the most valuable players. Can you just talk us through some of those things? It’s always really interesting to me as a bystander.

Ed: (01:05:47)

It’s fascinating to me as a player as well because we would sit and watch these auctions and see teammates that might be deemed to be internally as maybe the fourth or fifth most valuable player in your team go for huge money and potentially be the highest paid player in the IPL. So there are some very crazy dynamics at play, and you’ve called a few of them out. I think the other thing before I get into this is the IPL has provided a deep data pool that previously didn’t exist.

And so how that data is used to choose players that previously had probably thought that their impact on the game was a little bit hit and miss or bits and pieces players like an all-rounder that you alluded to, someone who bats and balls or in fact, now the most valuable players often in the IPL, they’re also the players that do sometimes the least. They might only face 10 balls with the bat and innings and they might only bowl one or two overs. So you have people doing the bulk of the work in many cases, who aren’t paid big money through these auctions. And it is a question of supply and demand, but it’s also a question of, as I’ve alluded to, what each team needs to fill out their playing roster.

But you’re right, there have been some incredible outliers, I’d say. But generally speaking, if you’re a batter, the more balls you face, the higher paid you are, but they don’t tend to go after big money. And same with the ballers, the more balls that you ball generally speaking, in a game, your auction prices reflect that. But these big money players, as you say, are actually the people who had been traditionally very undervalued.

And so there’s a sense of money ball at play for sure, deeper pools of data that people are now tapping into to actually work out what is the best utilization of my next dollar, but also what impact are these players having on games that previously had not been mainstream thinking.

Dom: (01:07:43)

Yes, I imagine a lot of the alpha is disappearing quickly from the auction for these teams. One piece of information I saw in your research leading into this conversation, which jumped out to me is the percentage of women that watch the IPL, which speaks to the fan base and generally what that looks like. I think T20 in general, when you talked about this at the outset of the conversation, it’s really captured a new audience for cricket generally in growing the pie for the sport broadly, what does the IPL’s audience look like, both within India and outside of India? And this can play back to some of the discussions we’ve had about the media rights and various other aspects of the game.

Ed: (01:08:18)

This is fascinating to me in that cricket, which has traditionally been all male and pretty stale as an audience, this is a game that was invented by the English and has been very antipodean and it’s only really in the last few generations become so popular in the subcontinent. But interestingly, from day 1, Lalit Modi knew if the IPL was to succeed, he had to win the hearts and minds of the female fans. And the reason is pretty simple because in India, culturally, it’s actually the female of the house, or the matriarch of the house who controls the remote.

They had to make sure that this was family-friendly, female-friendly. And over the years, this has worked. And it plays into the Bollywood element of the IPL and the entertainment factor. But the last research I saw was actually a 50-50 split between male and female supporters. It’s obviously skewing younger, the IPL than traditional cricket. And essentially, every kid now, the only format of cricket they watch is T20 cricket and that holds true all around the world. And so it’s younger, it’s more female and the growth of female cricket has really spiked so much so that the IPL basically is running a female version and starts in a couple of weeks’ time.

Dom: (01:09:42)

Yes. It’s really interesting. And then it leads me to another question around this is a really young league. Most professional sporting leagues are old. And with that oldness, you have the sense that you’re a fan of a certain team probably because your parents were a fan of that team or maybe your grandfather or grandmother. There can’t be too much of that with the IPL at this point in time. So do fans within India have an affinity with their local team? Or is it more with the stars of certain teams? How should we think about that?

Ed: (01:10:08)

It’s a little bit of both. There’s no doubt people hold it in high regard if you get to feel and touch those sporting teams on a regular basis, not just through the TV, but you might be lucky enough to go to a game. It’s a lot easier to have an affinity with that team. But generally speaking, because of this national paradigm where you support the Indian team first and foremost, and your biggest stars and your biggest heroes are Indian national players.

And they then split up in amongst the franchises as we’ve already discussed. So people not only need to follow the franchises, but as much as regular and other modern leagues, it’s actually the big stars that people follow. So what you do know with the IPL is at 8 o’clock every night, there’s going to be a game on the TV. And one of your favorite cricketers is going to be playing. And so the fandom is much more for cricket and the personalities as it is for specifically for the teams themselves.

And this plays into the brand equity that these franchises are trying to build and struggled perhaps in certain elements, but really thrived in others. But this plays into that. It’s very hard for people to really be attached to one team. If your favorite player plays for that team and then the next year, they’re back in the auction, they’re playing for another team. And so it’s a little bit of a pro and con of the auction really is these big players do move around a lot.

Dom: (01:11:29)

Yes, that makes a lot of sense.

Ed: (01:11:43)

So we’ve touched on people struggle supporting a team, but they support these players to a degree that maybe you could view as unhealthy at times. I’ve seen people cry in the streets when Virat Kohli’s been given out unfairly in an international game, but to bring it to life around this fandom, a quick anecdote personally. Traveling with the Australian cricket team through India, they would shut down the roads to and from the ground, not just for the game, but for training, and that might be 10,000 or 15,000.

When you’re traveling on tour bus, people will be queued for miles to catch a glimpse of people and waving, and they were just thrilled to catch a glimpse of the biggest stars of cricket. So it blows my mind actually how intense the fandom is in India. As I said at the top, it’s more than just sport. It’s this mix of entertainment and religion. It is weird if you’re not Indian to understand how deeply ingrained it is in their culture.

Dom: (01:12:31)

I can’t even imagine what that might feel like, but a huge demand pull and one that’s as loyal as that seems like a pretty good place to monetize. And so let’s start looking forward, something that is really noticeable to me having done a few sporting breakdowns is the scarcity value of sports, the NFL as the prime example, short season, which they’re able to monetize for all year long, basically, and they’ve managed 10 cost centers into profit centers in a way that most other sports haven’t been able to do.

With this takes scarcity to an extreme, it’s 2 months effectively, I have to imagine as an investor thinking about this business an easy way to think about maybe growing the IPL from a revenue standpoint is just the length in the competition. If there’s so much fervor around it for 2 months, why don’t we make it 3 months or 4 months? Is there any talk about that? How does the business think about the length and duration of the tournament itself?

Ed: (01:13:21)

There’s this natural tension here between the base ACI. So that, as I’ve said, the 50% owners of the league, but their main remit is to grow the game in India and also administer the national team. And so for the other 42 weeks of the year, the national team takes priority, and there’s this international window. And this tension is with the franchises who are trying to maximize brand value and obviously, more is better for them. The more cricketers play, the bigger media rights, the larger their franchise value.

Just to zoom out momentarily, there’s this natural friction in that if international cricket dies. And so you could see a world where the IPL takes over, and it says it’s 3 months or 4 months or 5 months, but international cricket dies because of that. Unfortunately, at the moment, the IPL franchises don’t have the infrastructural know-how to really grow the game and provide the players that it requires to make it the product that it does, that goes back to the state associations or these international cricket boards that don’t share in the financials or the upside of a growing IPL.

There is a natural friction here of the BCCI realizing they have a defined window. Yes, it might creep, but if it was to totally rewire how international cricket was run, it would really cause some problems, I think, in the medium and long term of the IPL. And so realize that as a stand-alone business, it is this scarcity value that will drive the media rights and ultimately, the bottom line. As I said, the franchises think the exact opposite. The more cricket, the better with the Mumbai Indian logo floating around, the more sponsors, et cetera.

So they’ve thought about it a different way and I’ve said it right. If we’re not going to expand the window, we’re going to go start mopping up either other leagues or other teams around the world. And so if you look at the South African T20 League, for instance, all the teams in the South African League are owned by IPL teams. There’s investment in the Caribbean league. There’s investment in a forthcoming Major League Cricket in the U.S., in the UAE League. Essentially, it’s only really England, Pakistan and Australia that don’t have some kind of tentacles of IPL teams within them. And so this is how the franchises have thought about growing their brand equity. But this is at odds with what the BCCI want.

They want the IPL teams to stand out from everything else, the heart, the quality. It’s the only time the best players play with each other. And so they don’t want any dilution of this. And so by the IPL franchise is actually going out and trying to invest other leagues, it is causing a little bit of friction. But interestingly, you can see from a player point of view, there are situations where the IPL team say, right, we’re actually going to sign a particular player up on an annual contract, not just a short-term contract, and we’re going to move them around the world, whether they can play in these different leagues or if the Mumbai Indians are on four different teams. They’re not contracted to their international team, they might be contracted to the Mumbai Indians and we’re just going to utilize their IP on a longer-term basis, but also their playing ability.

Dom: (01:16:28)

Yes, that will make a lot of sense. So at the moment, you could have a situation where you have a player that plays for the Mumbai Indians in the IPL, but then the South African cricket league. If the Mumbai Indians own a team there, they might not have the same player. That player might be playing for the Paarl Royals or the Rajasthan Royals equivalent in South Africa. Is that right?

Ed: (01:16:43)

That is correct. But you see pockets of where you’re starting to see the Mumbai Indians actually say to these players, it’s well and truly in your best interest if you’re a Mumbai Indians player only. And I guess there is a case study here. There’s a young South African cricketer who’s brilliant, with the Mumbai Indians called Dewald Brevis, who they actually spotted at the Under-19 World Cup. He hadn’t played for South Africa. He hadn’t actually made his professional debut in South Africa, and they plucked him from obscurity to play for the Mumbai Indians, and he killed it, absolutely brained it, he was brilliant. And so they then shipped them into the Cape Town franchise that they own in the South African league, and he’s been this test case for, can the modern day cricketer actually just be attached to one franchise.

Dom: (01:17:26)

Interesting. It brings up another question where in the early days of the IPL or even not in the early days, the middle days of the IPL, you would have in England, for example, there was the ECB, which is the governing body of Cricket for England, were very reluctant to release players into the IPL because there was an eight week window where they weren’t able to play for England or they’ll be tied up, not able to train, et cetera. That thinking seems to have reversed completely, and now the IPL seems to own this window in a very busy cricketing calendar. A, how they have done that? How have they managed to change the perception of the league itself? Was it a branding exercise? Or is it simply the strength of the competition has meant that players have been adamant that they need to go and play in the IPL to further their careers?

Ed: (01:18:07)

It’s a little bit of both. That key moment in 2015 when the IPL actually moved out of the start-up phase. Many countries were a little ambivalent to sending players the IPL because they didn’t really know what it was going to become. But such was the force of nature and the size and scale of the IPL, they couldn’t afford not to because they run the risk that the players would actually turn their back on playing for the national team and solely play in the IPL and the other T20 leagues around the world and become a bit of a T20 mercenary.

The other thing I think they realized was the strength of sending players to the IPL where the best of the best were, actually worked as a bit of a breeding ground in reverse in many respects and you know the story of Jofra Archer, who hadn’t played for England and made his name in the IPL before he played for England and one of World Cup basically for England recently. That ability to have the best players play with each other and be a breeding ground, as I said, he’s actually really powerful for these national boards that takes the owners of their competition as well. So it’s a little bit of give and take. They can’t afford not to send players because of the player dynamic, but they also now start to enjoy the fruits of that as well.

Dom: (01:19:19)

I’ve heard it being called that University of Cricket. It’s a very unique situation in sport where you have the best players from around the world coming together. And obviously, normally, they’re playing against each other for 8 weeks. They might be playing with each other, sharing notes and improving. So it’s a particularly interesting dynamic. Just in terms of the competitive position, we’ve touched on a number of different leagues around the world. The BBL in Australia, the Big Bash League, is probably the second biggest as far as I understand it in terms of these T20 leagues around the world, how should we think about whether that’s a competitive threat to the IPL or actually it’s pie-growing exercise. I’m interested in your views on that.

Ed: (01:19:51)

It’s partly a competitive threat, but in many cases, it isn’t really because the success of the IPL, aside from all the other things that we’ve spoken about at length is we’ve actually had a corner resource on the Indian players. So those Indian players are not allowed to play in T20 leagues at all apart from the IPL. And it’s the only league really that has this corner resource of the biggest stars. So if you talk about the other leagues in the world, it’s essentially a lot of the other cohorts of players from international teams that move in and around those other leagues, but there are no Indian players.

Given that, that is the biggest market and often the best players are Indian, the Big Bash in Australia is a very successful league. It’s the biggest sporting league in Australia by every measure, and it’s only a short league, much like the IPL. But what it struggled to do is really attract the very best players from around the world. The IPL is only the very best players from around the world. And it’s the only league that has managed to do this mainly because of the inclusion of those Indian players, mainly because of the money involved that these private franchises are willing to pay and the media rights driven by that.

And so it’s very hard for these other leagues to compete just on a per-game basis, what they can pay their players. And so you see the center of gravity really drifting to the IPL. And these other leagues are very successful leagues in their own right, but they’re nowhere near the size and scale and success that we’ve seen in the IPL.

Dom: (01:21:22)

There’s another aspect of that, they’ve cornered the shoulder season between two different summers. So you have the summer in the Northern Hemisphere and you have the summer in the Southern Hemisphere and generally, the test cricket, international cricket is played in those summers. And then you have the shoulder seasons of the spring and autumns I guess, where there’s less going on.

The Big Bash League takes place in your summer and our winter, where there are other international games being played. So there’s more competition for those best players? Is that another aspect where the IPLs managed to lock in this window that’s really valuable to them. And there seems to be no one wants to mess with that window anymore, which seems like a huge advantage.

Ed: (01:21:55)

Yes. Again, back to Lalit Modi for all his misgivings, he was no idiot. He worked out pretty quickly what the best timing was not just from a weather point of view because you can play cricket in India all year around. But actually, when was the best window to get the best players. And so that is now a lockdown window. As you alluded to, all of the other leagues, fight over these other best players. So when the Big Bash play, there are 3 other leagues going on. You’ve got the South African League, you got the UAE League, you’ve got the Pakistan Super League and so there’s competition for these players.

The IPL doesn’t suffer from that. The only real country that there is some crossover that it’s very early season in the U.K. But even the ECB, as you have alluded to, have shifted their season a little bit later. So even their best players can go and play in the IPL. It really is not just the corner resource on the best players, but it is also the time to which they’re available. And it’s been an absolute magic to us to make sure that the IPL’s the success that has now become.

Dom: (01:22:54)

So often around these sports businesses, there’s room for other businesses to grow within the ecosystem, I think about Fantasy Football, around English Premier League, sports betting in the many markets, which has become a focus in the U.S. Is there anything similar happening here with the IPL?

Ed: (01:23:08)

Gambling is illegal in India. But the volumes that are bet on cricket games are astronomical. And largely, this traditionally has been done through the black market, and cricket has had its issues with match fixing and spot fixing, which we touched on. So it is a tricky situation. The black market, an illegal betting in India where people are calling up bookmakers by phone who are running a general ledger like market cleared every month and cash is huge. We’re talking hundreds of millions of dollars bet each and every game on every game of cricket around the world.

And so these numbers stack up quickly, and it’s hard to quantify really one data point that I use around betting in cricket more generally is with the Big Bash equivalent league in Australia, about $6 billion is bet through the Big Bash period. There is one business that stands out that is monetizing cricket in India. That is part of the ecosystem a little bit of a spoke to the hub, so to speak, and that is Dream11, which is a version of fantasy cricket that has over, I think, 100 million users.

So much like drafting in the states, you play to win money. And interestingly, in India, this is deemed a game of skill and not a game of chance. So it is legal. There is a lot of talk about legalized betting in India, but it doesn’t exist at the moment. Dream11 is a massive business. Interestingly, RedBird, who keep popping up here who own 15% of Rajasthan Royals, they are a big investor of Dream11. And so you can see their potential playbook is finding ways to monetize the player IP a bit more deliberately through fantasy cricket.

But Dream11 is a massive business. Gambling is a massive illegal business when it comes to cricket and has a bit of a checkered history, but certainly worth calling out as to whether the IPL in the future can leverage legal gambling but through sponsorship specifically, it would be a big revenue driver or maybe clipping the ticket in some capacity in a way to control and contain it.

Dom: (01:25:19)

I think when you talk about some risks. I think we’ve laid out a very compelling case for why the IPL should be only getting bigger and being able to monetize its property to a larger extent in the future. If we got to flip that around and said, if we did this again in 10 years’ time when we said, actually, the IPL didn’t grow by as much as we thought it did. What would be some of the reasons will premortem be or the impediments to growth at this stage that might result in a lack of growth?

Ed: (01:25:42)

As an investor, I love a premortem. One is that the cost base gets disrupted or we’ve talked about how little the players get paid. But is there a situation, the LIV Golf situation where someone with an endless pool of money actually tries to attract the best players. And I guess the counterargument to that is it would require such an exorbitant amount of money because you are giving up the right to play for your country, much like the golfers have given up the right to play in the Ryder Cup. But the Ryder Cup only happens once every 2 years. International cricket is for 44 weeks of the year. And so I’d put that in the low probability bucket.

There’s this other disruption that could happen to the cost base around the employee-employer relationship more generally. At the moment, it’s very old world. And it’s probably a story as old as time that when there’s these huge imbalances between employer-employee, enough friction eventually causes a fire. But there’s so much buffer in the system as I work through that. I think even if they increase the salary cap by 5%, 10% every year for the next 10 years, it’s still going to be a very successful league.

I guess there’s this other thing in my mind around how collaborative the franchises are and the NFL, they have been very successful as being highly collaborative franchise owners. They act in the best interest, but that doesn’t really exist in the IPL. These franchise owners, as I think about it, have only met once or twice in the last 16 years. So they are very independent entities. And there’s this friction between the BCCI and the franchises around what growth looks like. I can’t really see any other existential risk apart from greed. And that is they try and get too big, they’re trying to expand the window.

There’s a full pushback by international cricket boards then the whole world of international cricket gets blown up. And that would really affect the league long term, as I have mentioned, in terms of how players are developed, which currently falls back into grassroots cricket, if that doesn’t exist and you don’t have a funnel of players then the IPL over the long term wouldn’t exist either. And so there’s this almost natural equilibrium, but if that was to blow up essentially through greed, maybe that would cause the IPL over the long term to also decline, but I just can’t put together a better thesis here.

And maybe the only other thing that comes to mind is integrity and if games seem to be rigged, or we’ve been through that moment and even got through that. But I’d love to hear if you have anything on your mind as to whether anything could blow up the IPL. It seems a juggernaut that’s on train tracks.

Dom: (01:28:22)

The only thing that comes to my mind is whether this is the castle built on sand. In terms of the longer-term prospects for cricket more broadly, you talked about test cricket, the conversation with test cricket, which is the oldest form and the most prestigious form of this game is often under question as to whether it’s a dying sport, but it feels like the IPL needs a foundation of that longer-form cricket game to sustain it and whether we’ve talked a bit about India, England, Australia, are three powerhouses in cricket, and they have all of the money.

A lot of the other nations around the world that play cricket are really struggling financially to support the ecosystem of clubs in their country, whether there’s a risk that a cricket just in general as a sport can’t sustain itself. And then on the IPL, which rests on top of this as the shining jewel, suffers as a consequence.

Ed: (01:29:09)

The callout there is it has the hearts and minds of the kids. And as long as it has the hearts and minds of the kids and the kids want to be playing cricket and really emulate the stars that they see in Australia or in India, it is going to be very hard to disrupt the natural funnel of player talent and there’s an incentive now to be great at T20 Cricket because you can earn big money. Every kid around the world that has a cricket bat in their hand, they want to outline the IPL just as much as they want to play for their national team.

As a cricket fan, maybe I’m old, but someone who played the traditional game, that doesn’t sit that well with me, but it’s also this balance of what is the future growth of the game. So the game to thrive and grow and maybe be an Olympic sport one day because only 10 test playing nations exist, and you get 150 countries play T20 Cricket. And so we’ve already seen this format of the game really allow the game to have global tentacles where previously, it was almost a close shop. And so part of me loves the growth of the game, but part of me also knows that the continued growth of the IPL, it does risk the game of cricket as we know. And it’s this balance that I personally are trying to reconcile the whole time and it’s hard to do.

Dom: (01:30:21)

Between the pale and stales and the new era, it will be interesting to watch. I have a final one for you for my closing question. You were playing, the IPL was in its embryonic stage, the start-up phase, as you call it. How was it perceived at that time as a player? And how do you reflect on it now in your playing capacity?

Ed: (01:30:39)

It was interesting because there was both ends of the spectrum. And I was a player at the peak of my career when the IPL came into existence. And it was this full emotional spectrum, you’re excited. From a playing point of view, it’s a step change, an opportunity, as we’ve alluded to, being part of something new and exciting. Obviously, the money was great. I was terrible at T20 Cricket so I never made it to the IPL.

But there was also this other emotion that you couldn’t quite reconcile whether it devalued the cricket that you were playing in. And the example I would give is I was playing a test match during the IPL auction. And so you’re playing with the best cricketers in the national team in front of 90,000 people at the MCG. It’s a huge national event, and there’s an IPL auction going on, and you’d come off at the end of a day’s play, and some of your teammates were instant millionaires.

And all the talk wouldn’t be about the game that you’re playing in, it would be about the IPL and the money that these guys were making. It changed the dynamic and the player dynamic, the change room dynamic, not of haves and have nots, but it did create a different talking point. But I think generally, from a playing point of view, it’s totally, it’s a net benefit situation, but it’s been a journey, I think.

Dom: (01:31:50)

Fascinating. Well, Ed, this has been awesome. Thank you so much for sharing your insights on the IPL and what is just a fascinating business. That’s still very much in its early stages. With your business hat on, what are your lessons having studied the IPL in detail both for investors and then operators?

Ed: (01:32:05)

It is a unique business model in many senses. When I think of this, I’ll go to where my gut takes me from an investing point of view, particularly private market investors. I think it’s a great case study that governance matters. I think often in a lot of start-ups and scale-ups, governance is underappreciated, and particularly in the world of found of friendly first, really. And so this is a case study when the importance of getting it right.

Governance structures and some guardrails actually allowed the IPL to mature like it did. And I actually think there was a chance that without them, it would have gone off the rails. And it reminds me of many start-ups in many respects, where governance is pushed aside for growth and not that governance should impede growth, but governance the right way to allow growth the right way is so important, particularly in private market investing.

Another investing lesson that I think of here is the power of a true cornered resource. And if you’re applying Hamilton Helmer’s 7 powers, corner resources are sometimes confused. But really, that preferential access at attractive terms to recover at asset, that is the IPL to a tee in this advantage as we see last year either charge a higher price or have a reduced cost base, and that is certainly the case here. From an operating point of view, this recurring theme of blank sheet of paper and being deliberate.

But to take that one step further, when I look at how the IPL was set up, they set up for success from day 1. I think we’ve lived in an era recently where a lot of businesses have found product market fit and then worked on a business model. This was a very deliberate business model from day 1. It’s a classic case of it. It was set up to not just maximize the long-term operating income, but it was also done not at the expense of a fully functioning model in the short term. And so for operators, I think while those trade-offs always exist, this is a really good case study of understanding essentially the unit economics of your business from day 1 and making sure that they work.

Dom: (01:34:10)

Fantastic closing thought. As the IPL 2023 gets underway in a few days and weeks’ time, we’ll be watching with a very different lens this time. So thank you so much for breaking down the IPL with us.

Ed: (01:34:21)

 It’s been an absolute treat. Thank you for having me.

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