The Economics of T20 Cricket

It’s showtime again as the 2014 Caribbean Premier League (CPL) T20 tournament kicks off in Grenada for millions of cricket-crazy fans around the region and the world.

The hype, the media promotion, the excitement generated by this popular sports extravaganza is massive. For a moment in time the Spice Island will bask in the global spotlight, the epicenter of activity, and the exposure will be great for the economy.

Hosting a Twenty20 tournament is a planning and logistics challenge for any country, whatever the size. Critical success factors would be mass mobilisation that fills the stadium to capacity and overflowing and event management efficiencies that showcase a facility with world class capabilities.

Future international patronage, the potential for greater things to come in sports tourism, depends on how high we score on these two imperatives.

In the old glory days when West Indies reigned supreme in the cricket world money had virtually nothing to do with it. It was the sheer adrenalin, passion, and patriotic drive of legends like Vivian Richards and Clive Lloyd to beat our historical nemesis at their own game and exalt the black race to eminence. The result was decades of joy, jubilation, and pride for generations of Caribbean people.

Today money has everything to do with it. No longer played just for fun and glory, cricket is big business, and team players are gladiators in the cut-throat market arena of a multi-billion dollar industry. Overtime, the game has evolved new permutations and configurations but in the scheme of things the T20 format has taken the world by storm.

In the 70s Kerry Packer shocked the world “bribing” a breakaway band of international cricket rebels with millions to play in apartheid South Africa. In 2003 England launched the T20 tournament pandering to the instant gratification propensity of the young and restless and the tournament quickly spread to Australia, South Africa, Sri Lanka, Pakistan, and Bangladesh.

Overtime, the Indian Premier League (IPL) became the epitome of cricket’s mass commercialisation. In 2013 West Indies “jumped on the band wagon” with the Caribbean Premier League to capitalise on the lucrative business.

Twenty20 premier leagues are owned by a multinational cartel of sports syndicates regulated by the International Cricket Council (ICC). The tournament is a high-volume, high-intensity business model heavily financed by corporate sponsorships, franchises, and equity ownerships.

Like oligopolies fierce competition exists among leagues through brand loyalty, product differentiation, and high price elasticity of demand for scarce asset resources. And women are clamouring to enter this male-exclusive club.

The industry output is an entertainment product sold live to a customer base comprising spectators at national stadiums and the millions worldwide watching via satellite television broadcasts and the internet.

Production costs include contracting the rights of players, technical experts, technology-based equipment, and financing salary streams. Revenue flows accrue from gate receipts, bidding proceeds, exclusive broadcast rights, and investment royalties.

T20 tournaments employ a heterogeneous, noncompeting group of professionals possessing specialised work skills, talents, and abilities. Within the group wage differentials are determined by market forces and demand for these specialists far exceeds their supply. Scarcity drives up wages and the higher the risk tolerance level of a player, the higher his returns. Since wage is sensitivity-intensive, with a small increase in marginal productivity a player’s income skyrockets.

For example, an insurance agent that sells 10% more policies receives 10% increased earnings but the batsman that reacts 10% quicker to a vicious bouncer trying to decapitate him gets 100% increase. In the Indian Premier League the iconic MS Dhoni of the Chennai Super Kings (CSK) has received earnings of $26.5 million from a basic salary, personal sponsorships, and endorsements and Chris Gayle’s net worth is $15 million. Given their star-studded celebrity status all T20 players become millionaires.

The tournament has an immediate positive impact on the micro-economy of the host nation and a long term spillover effect on the macro-economy.

The transportation industry of taxis, minibuses, and ferry boats would be buzzing with new business, hotels and guest house accommodations experience increased bookings, and vendors sell their wares.

The increased economic activity creates income generation and revenue for all stakeholders. In 2013 T20 games injected an immediate 7.3% boost to the St Lucia economy.

The $4.5 million current consumption and social welfare that Grenada sacrifices to host the tournament is the opportunity cost of future dynamic capital gains. Good externality spillovers are sustained in the long run benefiting the hospitality industry, tourism as a whole, and the country profile is enhanced as an attractive destination for inflows of foreign direct investment (FDI).

Importantly, with players like Chris Gayle, Dwayne Bravo, and Darren Sammy performing live, the games provide our young cricket “wannabes” the unique opportunity to see their heroes close up and in person and be motivated to aspire to new heights. It is a win-win situation for all and Grenadians should patronise the tournament en masse.

Jay Bruno

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