IPL: Economics and Entertainment

From being the "Manoranjan Ka Baap" last summer to going live as "Ek Desh Ek Junoon" yesterday, Indian Premier League (IPL) saw big drama this year - the clash between Government & IPL organizing committee resulting in bumper prize for South Africa. Yes, we are going to greatly miss the usual shouts, roars, bellows and  the boos which we were used to in the last season. Nevertheless, let's hope the healthy clashes on the ground between the players would give us solid entertainment.

Just a minor personal digression: The first clash between Chennai & Mumbai teams was a good fun. Remember, IPL is no fun unless you support a team. I have been strongly supporting Chennai from the beginning. But this year, things have a changed a bit - Mumbai, a stranger city till last year, has become an integral part of my life - the city is like a wife to any Mumbai-kar (because you will have all reasons to love and hate it simultaneously). So, when there is a clash between your mother and wife, which side will you take? I think many men just try to escape; few 'fairness' fugitives, who try to be impartial and instill justice, just gain the hate of both; the third smart group acts as if he's supporting mom in public and privately confesses (or lies) to wife that he just acted up. Coming back to the point: I can't disown my motherly team after the arrival of a new lovely team. So, the pecking order is still Chennai and then Mumbai.

Last year, I being relatively free, managed to watch most of the matches. My father looking at people's craze for IPL, commented "If the entire country is watching cricket like this.. if everyone is sitting in front of the TV instead of work or study, what would happen?  God save our economy!" Yeah, he is a mathematician, not an economist. Nonetheless, a valid concern. To paraphrase, the key is question: Apart from entertainment, will IPL improve / hinder the overall economic activity?

Of course, it's a clean case for improved economic activity in South Africa. So, let's try to focus on the economic implications for India. For simplicity sake, let's assume higher economic activity means additional "end user" consumption.

Let's categorize the universe of population into 3:

1. Category X - Non-spectators: People like my Dad, who doesn't watch IPL at all. It doesn't change their world in any way - Let's assume their consumption is unaltered.
2. Category Y - Jobless Spectators: They watch the match at the cost of other "economically" non-value added activities (e.g. instead of IPL, watching Roadies in MTV, chatting with a friend, fighting with spouse etc) - Ok, I understand your concern - "How can you say that I don't add any value by watching Roadies? I am exposed to Ads, which in turn could induce consumption." Yes, it would, but  similar things happen with IPL as well. So, there could be change in consumption, but very less scope for "additional" consumption
3. Category Z - Obsessive Spectators: These people watch matches at the cost of other value added activities. E.g. You decide not to go out for dinner / shopping, you close down your shop earlier than usual, lower efficiency in job due to lack of attention to customer / software coding etc.

So, for category Z: If the additional consumption resulting from watching IPL outweighs the reduction in economical activity, we have the case for positive impact on economy from IPL. I read IPL II will rack at least  Rs. 800 Cr., with more than half of it coming from TV telecast. Last year's avg. TRPs (TV rating points) have been in the range of 2-3. Let's be conservative and assume TRP to be 2 and 50%-50% split between category Y and Z. This implies 1% of targeted population have been actively watching the match. If the major targeted audience of IPL is little less than 20% of India's population (200 million), TRP of 1 (1% of 200 mn) implies 2 million people.

• Estimation of additional consumption: Approx. Rs. 1,350 Cr:
  • Direct Rs. 300 Cr. from merchandise, players' salary, job opportunities for IPL / franchises etc
  • People traveling to South Africa from India: 50 matches with 20,000 audience per match => 1 million audience. Assume 1% of this audience is traveling from India =>10,000 people. Additionally, assume another 250 Indian players (30 players per team) and 250 people from IPL organizing team. Overall 10,500 people. Assume 50% use Indian carriers.  Assuming an expense of 50,000 per person, it would be additional Rs. 26 Cr (Seems not much!)
  • A marketing spend of Rs. 300 Cr. - Let's assume marketing people don't throw away money without getting value for every buck that they spend. So, the present value of the returns from the marketing spend has to be at least Rs. 300 Cr. Assuming average 15% profit margin, this would translate as additional Rs. 2,000 Cr. in companies' top line. Again with 50-50% split between Y & Z - 1,000 Cr is just shift in consumption while Rs. 1,000 Cr. is additional consumption
• Estimation of Z's reduction in job efficiency: Rs. 360 Cr
  • With India's per capita income of Rs.52,500 (US$ 1,050) - with 240 working days in a year, this would translate as Rs. 220/- per day per person. Yeah, probably the per capita of the target audience might be higher than the overall average, but again it could be compensated to some extent by people who don't earn (e.g. students and kids) - So, let's assume it to be just double - Rs. 450/- Let's assume a 10% reduction in efficiency for 40 days for these 2 million people => Rs 360 Cr

So, even if you think the so-many-assumptions in the above calculations are to be changed, the gap is way too much that it makes me believe that IPL brings in more economical activity to the country than otherwise.

Forget economics! Even if IPL doesn't bring in any additionally economic activity, the entertainment that it brings in,  is worth having IPL for! Simple nah! ;)

@Regular

With ongoing battle between movie producers and theatre owners, Mumbai is deprived of good movies. So, just resorting to IPL and books - One hundred years of solitude and The art of war.