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 hard...it’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 Sulekha.com. He can be reached at satyaprabhakar@gmail.com

A blast from the past

My last post was an article I had written way back in 1994, in a university student magazine. That very same magazine had another, altogether more remarkable article -- a piece of fiction that, in hindsight, is remarkably close to today's reality! It talks about a city-based cricket league, and the business around it -- thus anticipating the IPL about 12-13 years before it started! It was written by Satya Prabhakar, who is now the CEO (and founder) of the popular Indian portal sulekha.com, and was then with Honeywell in Minneapolis. I'm reproducing the article below, with his permission. It's written in the form of a feature article for the New York Times, although it is of course fiction. While reading this, pinch yourself once in a while, and recall that it was written in 1994!

-----------------------------------------------------------------

"Hyderabad beats Sydney in nail-biting World Cup Cricket Finals"
How India cultivated a mega corporation -- The Authority

Satya Prabhakar (Eden Gardens, Calcutta, 23 October 1998)
Special to the New York Times
-----------------------------------------------------------------

As a record audience all over the world sat transfixed to their TV sets, Khaleel Ahmed of Hyderabad stylishly flicked a pacer on the leg side soaring over the boundaries of the lovely Eden Gardens. Had he failed to connect, he would have been declared out since he failed to score any runs on the previous three balls, and Sydney would have emerged the winner by 5 runs. And with that shot he crowned Hyderabad the winner of the highly prestigious and bitterly fought championship, organized by the Sports Authority Worldwide, a Bombay-based company. The two teams will split a total prize money of Rs. 883 million (equivalent of $3,258 million).

A BRILLIANT VISION FULFILLED

A record 680 million people from all over the world watched the final event and it is estimated that a totel of over 1.92 billion people watched various matches of this championship, which is a culmination of a 6-month-long playing season. A total of 12 teams from 10 countries participated in the event that stretched slightly over 4 weeks. (The US teams, along with 32 others, were disqualified in the qualifying rounds). The championship was held concurrently in 6 metropolitan cities of India, the permanent host of this magnificently successful annual event.

So successful that it eclipsed the World Cup Soccer, Summer Olympics and Wimbledon as the premier sporting event for the entire world. Television rights for the 1998 championship were sold for an estimated Rs. 12.1 billion. Janaranjan Network of India led a consortium of 20 networks worldwide to beat a BBC-led consortium, to telecast live and then to supply digital recordings of the match to worldwide audience over WorldNet. Merchandise sales exceeded Rs. 1.2 billion worldwide. Ticket sales for different matches totaled Rs. 5.6 billion. Calcutta paid Rs. 2.1 billion to host the championship this year. So on. The kind of turnout and cash inflow that dwarf Olympics, not to speak of events such as the American Super Bowl.

But for the Sports Authority Worldwide (known popularly as The Authority), the primary beneficiary of this championship, this is just another step in its spectacular evolution. Formed in 1994 by a group of Indian investors to fan the interest of cricket fans by organizing a championship of cricket-playing countries worldwide, the Authority showed remarkable initiative and marketing genius in turning this event into this wildly popular gala. Ms. Divya Prabhakar (not related to the reporter of this article), the self-effecting Chairman CEO of the Authority, and perhaps the most powerful woman in the world today, took the helm of the Authority in 1994 when she was 29. Since then Prabhakar has been displaying prodigious ability to visualize opportunities, convince scores of influential people and manage far-flung resources effectively. Pushed further, she gets closer to the truth: "Most people don't think, they just try to be logical. We were lucky in being able to visualize an opportunity and take risks. The best thing about this is that governments are not involved, meddling and fuddling things".

That is ironic, though, given that the Authority owes its existence to the brilliant vision of Prime Minister P.V. Narasimha Rao who, following tradition, opened the finals yesterday in Eden Gardens. Consistent with the trail of visionary economic reforms he blazed in the early 1990s, Rao, without any discussion or debate, stunned the country one breezy morning in New Delhi by scrapping the BCCI and various state cricket boards and declared Cricket a very important national treasure that must be freed from the clutches of government bureaucracy. Following that announcement, the private industry displayed remarkable alacrity in forming the Authority within four months of the announcement. The rest is recorded in history as one of the superlative corporate achievements of this decade. The stock of the Authority is now traded on over 25 exchanges worldwide and is owned by about 50 million people from Mexico to Malaysia, giving investors an average return of over 163% per year. Thanks to the Authority's phenomenal worldwide advertising and marketing campaign, cricket has now become the most popular and exciting sport in the world today from Boston to Baghdad to Berlin to Bombay. Soccer is a very distant second.

CHANGING THE MECHANICS OF CRICKET

However, it was not always like that. Cricket has traditionally been an intensely soporific game, complete with the trappings of English tea, tradition and tedium. A typical Test match stretched on for 5 days, most often to end in a pathetic and irritating draw. The form of one-day cricket evolved from that, but still demanded day-long attention; this proved too onerous to most Indians who suddenly got very busy as the Indian economy took off perpendicular in 1994. When the Authority assumed control of the game, it cut down the play time to an average of 3 hours with a slight rule change: If you cannot score a run in 4 consecutive balls, you are out! That single rule change had a profound and electrifying effect on the game, its mechanics and its strategy. Further, it captured the consciousness of audience worldwide and held them in its thrall as it now combined the unparalleled elegance, skill, variation and finesse of cricket with rat-a-tat-tat shoot-from-the-hip action. The combination was potent and intoxicating.

Capitalizing on the raging trend towards privatization in India, the Authority in 1995 sold participation franchises to wealthy individuals who bought domains of control all over the world. For example, Dr. Alan Merchant shelled out Rs. 390 million to the Authority to purchase the province of Sydney. Expensive!, you say? Look at this: the franchisees and the Authority together reaped a phenomenal return of 135% per year on their investment over the last 3 years. Ms. Prabhakar, who is reputed to run the Authority with strong philosophical underpinnings of equity and fairness, adds, "When you care deeply for all of your constituents, you are bound to do well. If you have any questions, read Sam Walton's autobiography. Often, the most astounding successes are based on the simplest of truths".

Philosophy and profound quotes aside, the stakes are huge and the chips are stacked really high on the Authority's side of the blackjack table. And the Authority, like a many-sectioned rocket that keeps boosting itself up and up, has now turned its sights on soccer and has organized 35 teams from Boston to Bangkok. After the stunning success of this Cricket endeavour, organizing soccer teams was an easy affair. 2000 is slated to be the first year of the Soccer Championship to be held in, you guessed it, India, the acknowledged Mecca of sport in the world today.

However, there will come a time -- tick-tock, tick-tock -- when the Authority can no longer squeeze any more out of the world population for sports. It then will have to figure out what to do next. Says Prabhakar, "That day is still far away. But come that day, we will be prepared". Based on the phenomenal success of this young lady, it may be foolish to dismiss that claim casually.

-- Satya Prabhakar is a Principal at the Honeywell Technology Center. His main interests are digital multimedia management, distributed database access and investment strategy. Quite often, Satya and his 2-year-old daughter have fun playing hide-and-seek at home. Oh, BTW, his daughter goes by the name Divya Prabhakar.

---------------------------------------------------------------------