Today I want to talk about IPL (Indian Premier League). In a country like India, where cricket is worshipped and practised every day, the sport coming to a standstill for over 3-4 months is a significant revenue loss. But for a die-hard cricket fan, the good news came last month that this year we will have IPL in UAE. There are obviously many changes brought about this year starting from Title sponsor, IPL moving out of India again, logistics, SOPs, no or partial crowds etc. But today I want to answer the following questions which many of us might have wondered for a very long time.
- How much money do IPL and franchisee earn and spends?
- How much money do the players get?
- How much money the title sponsors- VIVO spent?
- Why many IPL teams were in losses and how they have become profitable now?
- How business strategies have changed over the last 11 years?
The IPL business model
IPL is owned and governed by BCCI. It started with the auction of teams. Everyone was asked to place a bid to purchase a team, respectively. So, all the big names, entrepreneurs and others came up together (like Shah Rukh Khan, Preity Zinta, Mukesh Ambani) and formed their own group and purchased a team. The BCCI collected an estimate of 5000 crores from this bidding. This money was meant for 10 years, i.e. 500 crores /year starting in 2008 and ended in 2018. All the franchisees in these 10 years were in losses except for one or two, which were a little profitable. Like Shah Rukh Khan’s franchise – Kolkata Knight Riders were profitable.
Let’s talk about the current scenario first. Firstly, BCCI distributes 40% commission of the money earned through the media rights and sponsorships among the franchisee. Media rights are the rights by TV channels to broadcast a particular programme. Star has bought the media rights of IPL earlier reserved by Sony. And 40% of the profit money earned through title is also distributed among the franchise owners. Franchise owners also get cash from jersey Sponsorships and Team partnerships. Let’s assume approximate figures of 25 crores for these sponsorship logos on their jersey for one season. The teams also earn some revenue from each of their matches. Let’s take the example of Kolkata Knight Riders- if it’s a home game at their home venue, i.e. Eden Gardens, 80% of the revenue earned through the match (ticket sales, Sponsors, Hospitality partners etc. ) is kept by the franchise owner. Rest 20% goes to BCCI. Talking about Kolkata Knight Riders, they have one of the biggest grounds in India (in terms of sitting capacity). So, the revenue collection here will be much more than the other stadiums. This is one of the reasons why Shah Rukh Khan and KKR were slightly profitable in these last 10 years.
Revenue from ticket sales and boundary Ads
Taking an estimate, each team earns around `1 crore from the sale of match tickets in one match (after giving a percentage to local cricket association), an average figure for all teams. Teams also earn from advertisements on boundary boards as well as from different stands in the stadiums. So, assuming they receive approximately `1 crore/match from stadium advertisements. About 7 games are played on home turfs. This adds up to `14 crores from ticket sales and ground sponsors. So if we add total revenue adds up to approximately `240 crores—20% of this taken by BCCI.
Expenses on Players and support staff
During players’ auction, `80 crores are allotted to every team to be spent on players every year. Franchise owners have to look after the well being and performance of the team. Let’s talk about the support staff now. It consists of the coach, the management etc. Let’s assume `15 crores is spent on support staff. The franchisee also has to look after players and support staff hospitality, travelling, food etc. I am assuming it to be around `60 crores. IPL generally goes on for about 60 days, so according to this, the owners spend 1 crore rupees daily for the team’s well- being. Now for practising sessions, hiring local grounds, nets and handy equipment, I have assumed `10 crores. What we are left now with is advertisements, let’s assume approximately `25 crores. Now, why do they spend on ads? Think logically! To create hype, awareness, branding of players, fan following etc. so that people come to watch matches in stadiums.
Along with it, they will get more sponsors and ground advertisers. Adding all this, the cost sums up to approximately `232 crores. If we talk about profit now, then it comes to mere `4-5 crore per team.
Important question- Are IPL teams running under losses?
You might be thinking till now that there must be some calculation mistake or wrong assumptions. But, my research and understanding validated the fact that it is very near to the actual figures. Now the question comes why will the franchisee owner work for `5 crore profit only. If we talked about 5-6 years ago, franchise owners used to operate under losses. There is definitely a catch here. The owners have a small strategic advantage. For example, let’s talk about Mukesh Ambani. Mukesh Ambani’s Reliance bought Mumbai Indians, and with this, he has reserved all its rights (marketing rights). So, now he can sell his own product through them as well. He can take the players to do his product advertisements.
If I talk about media rights in the starting years, it was about `700 crores/ year. But after Star came into the picture, it has increased drastically. For this, the profits substantially increased a lot. Initially, they made an 80-20 rule, where 80% of the money received through media rights will be distributed among the franchisee and 20% to BCCI. In the 3rd and 4th year, BCCI became hungry and changed the rule to 70-30. 5th year onwards it has been to 60-40 sharing. Due to this, the profits earned by the franchisees decreased with the costs unchanged, BCCI became richer. But currently, the scenario has changed and teams are getting a good amount of money because we got more media rights after Star came into the picture. The revenue from title rights now is `520 crores which are distributed among teams/ year (earlier `50-60 crores). Earlier, 60% of the money received through title rights was given to franchisees which are 50% now, and the rest is kept by BCCI. But now, overall franchise owners are getting more money due to bigger sponsorship deals.
Valuation of IPL
To explain about valuation, let’s show you a graph. It shows how and when the valuation went up. When IPL was launched in the beginning, it was a blockbuster. After that, it went downwards. Then it went international, so that was a little successful, but equity kept on decreasing. But if I talk about recent years, we can see the equity going up. Why? Because the franchise owners are also earning a good amount of profit.
One more thing that should be talked about definitely is the winning prize money. The winning team gets `20 crores, runner ups get `12 crores. This winning amount doesn’t go to the franchise owners as they must give 50% of this money to the players or more.
The players receive many additional benefits as well throughout the IPL. They get a lot of exposure, and we get to see a lot of international players from the IPL circuit itself. They receive money as well, and it helps to solve their household financial problems. Uncapped players also get a good amount of money and exposure. Also, if you win the man of the match, orange cap, purple cap etc. player gets additional money. Because of IPL, many companies have done sponsorship deals with players.
I hope you understood the calculations. It does involve many assumptions, but the idea was to give a picture of a business model which 1.3 billion Indian fans go gaga about every year. There has always been speculation over IPL being the betting/black money hub. Well, there are no reasons to deny that but obviously no numbers to imagine as well that who actually makes money. But let’s keep our thoughts clean for the time being till betting becomes legal in India. Let me know in the comments which is your favourite IPL team and why? And do you think it can reach the level of international football leagues in future?