Thursday, May 27, 2010

The Business of IPL

Another guest post by Satya Prabhakar, the author of that last one I'd posted, dating back to 1994. This one's much more contemporary though, talking about the IPL business model and Lalit Modi.

Here's Satya:


The success of a business depends on the following, in the order of decreasing importance: opportunity, competition, business model, resources and execution. First, there must exist a ready opportunity to exploit and a customer base willing to buy what you seek to sell. It helps – and, frankly, it is lot more fun – to have little or no competition so you may charge monopoly rents and frequently go on nice, long vacations. Then there must be a proven business model to maximize revenue and profits without having to suffer travails, trials and errors in arriving at the optimum model. The enterprise must then be adequately resourced to build the business. Finally, success demands focused, determined execution, a judicious mix of short-term performance and long-term planning.

If the first four work out to the advantage of the company, it affords a wide margin of error in matters of execution. If you enjoy a huge opportunity, no competition, proven business model and adequate resources, it doesn’t really take a genius to manufacture success. One still needs to be smart and work’s just that one doesn’t need to be extraordinarily gifted or lucky to triumph.

While IPL sure is a raging success, far too much credit is given to Lalit Modi for its success than he deserves. Even a Dimpy or Rahul Mahajan could not have messed it up too badly. Let us think this through a bit.

India has a voracious, insatiable appetite for cricket. We Indians are so stupid we will watch a 5-day test match, complete with tea and tedium, only to find it has ended in a draw…an activity that is only slightly more exciting than watching grass grow or paint dry or an RGV movie. In the small school playground opposite my house, there are about six different cricket matches going on simultaneously among local kids and adults. Such is our love for the game that finding Tendulkar among the pantheon of Gods in the puja room of a friend or relative doesn’t evoke much surprise. So the market opportunity for a more exciting, more localized, shorter game of cricket was a given. It was there on the table, nicely wrapped with glitter foil and red ribbon, waiting to be picked up.

IPL, from the start, enjoyed double firewall monopoly. Not only did it enjoy the monopoly cricket has as a sport in India, it also enjoyed the monopoly BCCI has over cricket in India. Indians care only about cricket and can’t tell the difference between Sania and Saina. In the US, for example, there is wide and comparable following for professional football, professional basketball, professional baseball, college basketball and college football…each sport has to compete with others for a share of the audience. Further, in India BCCI rules cricket with an iron fist, snuffing out any competition, however nascent, by withholding grounds and spots on the national team from players who cross the line (see Chandra, Subhash). Ask any businessman what causes the most grief and plummeting margins…it is persistent, pestering competition that drives down prices and eat into his market share: it is competition. IPL, thanks to the iron grip of BCCI on the sport and the monopoly cricket enjoys in the mind of the Indian had zero competition.

Crediting Lalit Modi with the innovation of local franchise-driven league business model is like crediting Tatas with innovating the automobile. The concept of local sporting franchises owned by businesspeople is more than 100 years old, devised and honed to perfection by the Major League Baseball (MLB), National Football League (NFL), National Basketball Association (NBA), and English Premier League (EPL). The business model with its various nuances such as revenue sharing, national/local sponsorships, TV rights, player auctions, salary caps, free agent trading, controlled expansion (to create artificial scarcity, driving up prices bid for new franchises) has been tweaked to maximize revenues at different levels and ensure a competitive, exciting league. Nothing that was done with respect to IPL is either new or ground-breaking.

When it comes to resources, the super-rich BCCI was the sugar daddy of IPL, willing to fund and bankroll it with whatever money is needed, eliminating the need for Modi to go and pitch to hundred different skeptical VCs to raise funding for this greenfield venture.

And that leaves execution for which Lalit Modi was extolled by many to high heavens. But recent revelations indicate even when the deck was heavily loaded in IPL’s favor, Modi couldn’t do a good job of executing. Allegations of missing documents, corrupted bidding process, secret kickbacks, sweetheart deals, sleaze, wealth and flash incommensurate with known sources of income and poor governance…all point to a person who is not fit to build an enduring enterprise with systems, processes, transparency and professionalism.

Modi is neither a founder nor an entrepreneur as many erroneously paint him to be. An entrepreneur takes risks and struggles to found a company against steep odds, and suffers endless syncopated rhythm of tribulations and triumphs. Modi was a political appointee assigned to the post and bankrolled by people in power whose favor he curried. He supervised a new business unit of the mega-corp BCCI which enjoyed unimaginably favorable odds. It shouldn’t, therefore, come as a surprise that he is fired from the same job to which he was appointed when he falls out of favor with the same dons that perched him there.

With or without Modi, IPL is set to continue its roaring success.

Satya Prabhakar is the Founder and CEO of He can be reached at

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