Sprite encoding/decoding is one of the new tools proposed in the MPEG-4 standard. Sprite encoding operates at the Video Object Plane level. Since the size of a Video Object Plane might change with time, it presents challenges for hardware implementation. This is unlike the other video object coding tools that operate at a fixed-size block level that can be directly mapped to processor structures. Hence there is a need for an analysis that allows a priori estimation of the computational complexity in order to facilitate the following: (1) Assess resources required to implement Sprite Encoding in software. (2) Design of hardware for various modules of Sprite Encoding. (3) Understand the static and dynamic nature of Sprite Encoding operations. This paper presents a detailed complexity analysis of the Sprite Encoding process in terms of basic operations. The computational complexity has been estimated. A modified Sprite encoding algorithm has been proposed. The proposed algorithm provides a similar result in terms of sprite generation but is more amenable to a hardware efficient implementation.