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Bucking the trend

Since its inception last year, the Indian Premier League (IPL) has managed the difficult task of matching the financial hype that surrounded its launch. This year it has done one better: despite forecasts of the global economic slowdown hurting corporate spending, the recent auction in Goa saw England’s Andrew Flintoff and Kevin Pietersen become the league’s costliest players at $1.55 million apiece, surpassing M.S. Dhoni’s mark of $1.5 million last year. IPL commissioner Lalit Modi’s declaration that his league is ‘recession-proof’ may sound cocky but does carry the ring of truth. After all, if the world economy is in turmoil, the economics of sport — which depends, directly and indirectly, on sponsorship and adspend — cannot escape the depressing effects. All of last year, the downturn hovered like a dark cloud over world sport. Honda Racing withdrew from Formula One, citing a cash crunch. English club football was not exempt either. Submerged under a multi-billion dollar debt, the Premiership functioned in a dangerous climate where even the top clubs struggled to stay afloat. Tennis players recently made a point of thanking the sponsors of the Australian Open for their continued support of the tournament in difficult times. But the in-your-face 25 per cent budgetary increase that Modi announced indicates that the IPL has bucked the trend.

Although the perception of the second auction is that India’s cricket economy is insulated from the downturn, the reality is that it isn’t completely untouched. The franchisees complained after the first auction that the spending cap of $5 million per team could have been higher, but they left 44 per cent of the $13.59 million pool unspent in the second auction. But what is clear is that despite the costs involved, the IPL business model has the entrepreneurs sold. The franchisees have committed significant investments for the simple reason that they have multiple revenue streams. Along with gate collections, team sponsorship, and in-stadia advertising, a major chunk of revenue is sourced through global television rights, the returns on which are shared between the Board and each of the franchisees. The point of interest is how the networks — the ones whose payments account for the bulk of the league’s profits — plan to recover their investment. Can they expect inflated advertisement rates at a time when several corporate houses are cutting costs and looking at bailouts? The inaugural edition of the IPL saw an unprecedented television ratings surge. The heady mix of Bollywood and cricket celebrities, the swiftly established loyalty along city lines, prime time slotting — each contributed to making the IPL a money-spinner unlike any other event in the history of Indian television. Advertisers go after numbers and the lure of reaching a diverse, massive, captive audience, including millions of young people and a growing number of women, steers them to the IPL.

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