This thought created one of the biggest sporting ironies of all time. Thus, it is Indians who took the concept of cricket from England and made it world famous, all thanks to Lalit Modi and the BCCI's brainchild, the IPL.
Mixing cricket, bollywood and huge sums of money, IPL made a league of its own.
Though the IPL is loved for its cricket, it thrives because of the business model.
The average expenditure of a franchise is somewhere around Rs 2000 crores and the winner trophy is worth Rs 20 crores. Doesn't add up right?
But owning a franchise is not just a game, it's a business. And a good business has many sources of income.
The rest of the money coming from the sources is basically divided between the IPL organisers and the franchises.
So, we'll directly get into the revenue streams for the franchises and mention the part that is allocated between BCCI and the franchises.
Let's start with the central revenue pool which has two streams feeding into it.
462 million viewers tuned into watch IPL in 2019. That's 924 million eyeballs!!
BCCI sells broadcasting rights to a company in order to be able to stream the two-month event on their channel. BCCI takes out its own share and then distributes the remaining revenue between teams. Earlier Sony Entertainment had the rights and thus, we used to watch the event on Sony Max channel.
Sony Entertainment purchased the rights paying Rs 8,200 crore for 10 seasons from 2008 – 2017 @ Rs 820 crore per season.
From 2018 – 2022, Star India is going to have the IPL broadcasting rights against Rs 16,347 crore which is Rs 3,269 crore per season.
Approximately 50% of this money is shared between the IPL franchises which comes out to be Rs 8,173.5 crores.
IPL has many spouses.
They get their name printed and spoken along with the name of the event itself 'IPL', like DLF IPL, Pepsi IPL, VIVO IPL and latest addition to the list is Dream11 IPL.
From 2008 to 2012, DLF, India's largest real estate developer was the title sponsor.It had secured the rights with a bid of ₹200 crores for five seasons. After the end of contract with DLF, PepsiCo bought the title sponsorship rights for ₹397 crores for the subsequent five seasons.
However, the deal was terminated in October 2015 two years before the expiry of the contract, reportedly due to the two-season suspension of Chennai and Rajasthan franchises from the league. The sponsorship rights were then transferred to Chinese smartphone manufacturer Vivo for ₹200 crores for the remaining two seasons.
In 2017, Vivo retained the rights for the next five seasons (2018–2022) with a winning bid of ₹2,199 crores, in a deal more expensive than Barclays' Premier League title sponsorship contract between 2013 and 2016. But in 2020 VIVO pulled out as the title sponsor of the Indian Premier League (IPL) for the 2020 edition, following rising Anti-China sentiments among the Indian public. It was also reported that the pullout was a result of VIVO's market losses due to the COVID-19 situation and it has returned as the title sponsors for the 2021 season and will continue for the remaining 3 contractual years. As a one season measure Dream11 replaced VIVO as the title sponsor for 2020 season.
TV and online streaming together make the IPL a dream come true.
20% of the revenue from ads and promotions in IPL matches goes to the franchises.
Rs 12.5 lakhs for a 10 second ad between matches. Wooof......
That's more than what Mr Mukesh Ambani makes per second!
Now imagine the revenue over a 45-day season. Mind blown right?
Let's talk about the local revenue.
They say local is the new global. For the franchise owners this pool has 3 major inflows.
On an average, Rs. 4 crores is earned per match, of which 80% belongs to the home team. Some of the revenue goes to the association which owns the stadium.
From the pitch, to the boundary, to the team jerseys - everywhere you can see brands. These sponsors invest their money in a team and in return get promotion through logo and name printed on the jersey and banners in stadiums.
This is the smallest part of the entire revenue system. Rs 20 crores is awarded to be the king of the heap. The runner-up receives approximately Rs 12 crore.
Launch of IPL
Lalit Modi, the that time Vice President of BCCI (Board of Control for Cricket in India) was inspired by the system of EPL (English Premiere League), the famous football tournament and wanted to start a similar league in India, but with cricket. Thus, IPL was born in 2008. Being a cricket enthusiast nation, IPL gained popularity very rapidly.
Though the IPL is loved for its cricket, it thrives because of the business model.
The average expenditure of a franchise is somewhere around Rs 2000 crores and the winner trophy is worth Rs 20 crores. Doesn't add up right?
But owning a franchise is not just a game, it's a business. And a good business has many sources of income.
How does BCCI and IPL earn money?
At the core of IPL's business model is the idea of inviting private firms to own franchises. When the franchise rights were sold at lofty prices, other firms saw value in investing in the tournament. This way BCCI ended up collecting Rs 5000 crores initially which they planned to allocate in the tournament for the next 10 years. Which means allocating @Rs 500 crores per year.
So, we'll directly get into the revenue streams for the franchises and mention the part that is allocated between BCCI and the franchises.
Streams of Revenue for franchises
(I) Central Revenue Pool
Let's start with the central revenue pool which has two streams feeding into it.
1. Broadcasting Rights
462 million viewers tuned into watch IPL in 2019. That's 924 million eyeballs!!
BCCI sells broadcasting rights to a company in order to be able to stream the two-month event on their channel. BCCI takes out its own share and then distributes the remaining revenue between teams. Earlier Sony Entertainment had the rights and thus, we used to watch the event on Sony Max channel.
Sony Entertainment purchased the rights paying Rs 8,200 crore for 10 seasons from 2008 – 2017 @ Rs 820 crore per season.
From 2018 – 2022, Star India is going to have the IPL broadcasting rights against Rs 16,347 crore which is Rs 3,269 crore per season.
Approximately 50% of this money is shared between the IPL franchises which comes out to be Rs 8,173.5 crores.
2. Title Sponsorship
They get their name printed and spoken along with the name of the event itself 'IPL', like DLF IPL, Pepsi IPL, VIVO IPL and latest addition to the list is Dream11 IPL.
From 2008 to 2012, DLF, India's largest real estate developer was the title sponsor.It had secured the rights with a bid of ₹200 crores for five seasons. After the end of contract with DLF, PepsiCo bought the title sponsorship rights for ₹397 crores for the subsequent five seasons.
However, the deal was terminated in October 2015 two years before the expiry of the contract, reportedly due to the two-season suspension of Chennai and Rajasthan franchises from the league. The sponsorship rights were then transferred to Chinese smartphone manufacturer Vivo for ₹200 crores for the remaining two seasons.
In 2017, Vivo retained the rights for the next five seasons (2018–2022) with a winning bid of ₹2,199 crores, in a deal more expensive than Barclays' Premier League title sponsorship contract between 2013 and 2016. But in 2020 VIVO pulled out as the title sponsor of the Indian Premier League (IPL) for the 2020 edition, following rising Anti-China sentiments among the Indian public. It was also reported that the pullout was a result of VIVO's market losses due to the COVID-19 situation and it has returned as the title sponsors for the 2021 season and will continue for the remaining 3 contractual years. As a one season measure Dream11 replaced VIVO as the title sponsor for 2020 season.
Similar to broadcasting rights, BCCI, the IPL governing body distributes revenue from title sponsorship among teams after raking in their share.
(II) Ad and Promotional Revenue Pool
TV and online streaming together make the IPL a dream come true.
20% of the revenue from ads and promotions in IPL matches goes to the franchises.
Rs 12.5 lakhs for a 10 second ad between matches. Wooof......
That's more than what Mr Mukesh Ambani makes per second!
Now imagine the revenue over a 45-day season. Mind blown right?
(III) Local Revenue Pool
Let's talk about the local revenue.
They say local is the new global. For the franchise owners this pool has 3 major inflows.
1. Ticket sales
On an average, Rs. 4 crores is earned per match, of which 80% belongs to the home team. Some of the revenue goes to the association which owns the stadium.
2. Team sponsors
From the pitch, to the boundary, to the team jerseys - everywhere you can see brands. These sponsors invest their money in a team and in return get promotion through logo and name printed on the jersey and banners in stadiums.
Example: Muthoot Group is currently the principal shirt sponsor of CSK. Telecom service provider Aircel was their previous shirt sponsor. The team also has sponsorship deals with India Cements, Gulf Oil, Equitas Small Finance Bank, HIL, Nippon Paint, Parle Agro, Frooti, and Atria Convergence. Current principal shirt sponsors of Delhi Capitals are JSW, EbixCash, Apollo Streel Tubes and Reliance Jio.
3. Winner's money
This is the smallest part of the entire revenue system. Rs 20 crores is awarded to be the king of the heap. The runner-up receives approximately Rs 12 crore.
Though the business model has not been very condusive for the franchises to earn profits and thus, most have been loss making for major part of the 13 year journey.
But since 2018 (when changes in the model were made after expiration of the initial 10-year deal), most teams have turned profitable. Add to that the untapped sources to rake in the dough, like merchandising and player trading, the future looks sustainable for this fan-favourite event.
But since 2018 (when changes in the model were made after expiration of the initial 10-year deal), most teams have turned profitable. Add to that the untapped sources to rake in the dough, like merchandising and player trading, the future looks sustainable for this fan-favourite event.
Conclusion
To be a successful IPL franchise, the most important thing is:
- To have an eye for fresh inexpensive talent
- To have the knack of building team loyalty
- Have a tight hold on the purse strings.
Stay Inquisitive 💡
Written by: Aastik Pasricha
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