Cricket in India is a festival. It is a celebration of sorts.
Have you ever been forced to sit in one place or stand in a certain spot, because the team you’re supporting scored well with you in that position? Superstition prevails when it comes to player and team loyalty.
Lalit Modi capitalised on the craziness around cricket in India, seized the opportunity and launched the most commercially viable league – the Indian Premier League in September 2007. The game is played in a T20 format that lasts about 3 hours.
He created an amalgamation of Cricket, Entertainment and Corporate India. The hype and craze is so phenomenal that movie release dates are postponed, corporates are seen packing up early in order to reach home on time, housewives finish cooking their meals earlier in the day and yes kids are very punctual with their homework. All of this to watch the game.
In 2019, 18.6 million viewers were recorded streaming the IPL live on the OTT platform HOTSTAR. All the IPL teams combined recorded over 50 million likes on Facebook and had a follower base of more than 80 million on Twitter.
So, what is this IPL?
The IPL is a decentralised cricket league run by the Board of Control for Cricket in India (BCCI) where the teams are independently owned and operated.
A franchisee is the owner of a team, which represents a city and is owned by corporate houses and/or celebrities. Owners were allotted teams through a bidding process and, once the teams were allotted, cricketers from India and other countries were put to auction. There was a cap on the maximum amount to make the bidding process fair. That meant teams would ‘buy’ cricketers within the equal budget cap fixed for them.
Cricketers from around the world play in this tournament.
Large bids are made at the IPL auction.
Teams travel across the length and breadth of India to play matches.
The best coaches train the teams to victory.
Each team even has their own theme song.
Ever wondered where the money to pay for all of this comes from?
The Indian Premier League is much more than meets the eye.
It’s almost like a start-up business, trying to offer an excellent product, while putting in all its sweat and hard work to make excellent profits.
The business plan of the IPL is to invite private companies to buy cricket franchisees. When franchisees are bought for large sums of money, corporates will be attracted to invest in the brand that is the IPL. This is where the money comes from.
Remember when JSW Group bought a 50% stake in the Delhi Capitals (formerly known as Delhi Daredevils) franchise for a hefty sum of ₹ 550 crores ($77 million) from GMR?
So, do the team owners actually make money? Considering that franchise owners are corporate houses, business and profit must run in their blood.
Let’s delve into the economics of the league from the franchise owners’ point of view.
The major sources of revenue can be broken down into the following buckets:
- Central Revenue Pool – represents 60-70% of the total earnings. This pool is guaranteed earnings of sorts (unless of course something like the Covid- 19 pandemic strikes). The following form a part of this stream of income.
- Broadcasting Rights – This is the sum of money paid by the Media House that wins the bid to telecast the matches. This bucket is the one responsible for making the teams profitable since 2018 when the earnings spiked 4x. Star India offered a whooping ₹16,347 cr for a 5year contract vs the 2008-17 contract where Sony Entertainment purchased media rights for ₹8,200 cr for 10 years. The team owners receive 45% of this amount from the BCCI.
- Title & Main Sponsorship – Ever wondered what the fee would be like for DLF, Pepsi, VIVO or, for the ongoing 2020 edition, Dream11 to be headlining the league? Dream11 has paid ₹220 crore for 2020 while VIVO paid ₹440 crore per year for a 5 year contract. Apart from the title sponsor, there are many supporting sponsors for the IPL. PayTM signed on as the Official Umpire Partner until 2022. CEAT Tyres is the official Strategic Timeout partner for another 5 years. Disney+ Hotstar is the official digital streaming partner. Other names associated with the IPL include Unacademy, CRED and Tata Altroz.
The revenue earned from this bucket is shared 50-50 between the BCCI and the team owners.
- TV/Social Media Ads – I don’t think that I need to reiterate the popularity of the game. Wonder how much money the brands have to shell out to feature in the advertisements during the matches? Star India charges a whopping 12.5 lakhs for a 10- second video. Yes, you read that right. Now does the math add up on why Star would be willing to pay so much for the broadcasting rights?
Due to the immense popularity of the game and its high viewership, every brand wants to bag an advertising spot.
In 2009, BCCI introduced the “Strategic Time Out” which is basically an additional Ad revenue generator.
- Marketing Benefits – This pool mainly focuses on using the teams as marketing properties and featuring them in brand advertisements. 100% of this revenue goes to the franchisee owners and players are bound by their contracts to participate. Based on the popularity of the owners (SRK, Preity Zinta) and those of the players (Virat Kohli, MS Dhoni) different franchisees generate different levels of revenue from this source.
SRK has over 20 sponsorships, which lures brands to engage with his team the Kolkata Knight Riders. IPL franchises also make money by broadcasting special shows such as KKR’s Knight Club.
This is why KKR has been profitable from the start.
- Local Revenue – This is the revenue earned locally by individual teams.
How do they do that?
- Local Sponsorships–Ever wondered why a player is a walking brand endorsement, with multiple logos from his cap to his pants. There are over 12-15 ad spots on the IPL team kits. Other than that, there is in-stadium advertising such as around the boundary lines, seats, dugouts, etc. Every IPL team has its own set of sponsors. Dedicated sponsorships play a huge role in generating revenue for team owners. Without these sponsorship deals, most franchises would be “on ventilator”. Team sponsorships are not too different from start-up companies attracting Venture Capitalists.
Sponsorship revenues have segregated IPL teams into two halves. Leading franchises earn between ₹50 and ₹60 cr through direct sponsorships, while the rest make ₹30 to ₹35 cr. This impacts the teams’ profits directly.
- Ticket Sales– This forms a substantial chunk of the local revenue. The ticket revenue is divided among the home team and the BCCI in an 80:20 ratio.
The size of the stadium along with the local fan base of the home team has a major impact on this revenue. KKR has an added advantage of having the largest stadium seating capacity, thus generating higher revenue from ticket sales.
- Prize Money – This is probably the smallest contributor to the revenue. In 2019, the prize money for the winner was ₹20 cr while the runner up was rewarded with ₹12.5 cr. This sum has been reduced to half for the 2020 season.
- Player Trading – Off-season and mid-season trading of players takes place between teams, which generates revenue as they can sell players at a price higher than what they spent on buying them. This is not that common as no team wants to lose a good player to their direct rival unless they can get a player who fits their plans better, in return.
- Merchandise Sales – This is an area which is largely untapped in India (Market Size of $30 million). This includes sales of merchandise such as T-shirts, caps, bats, wristwatches, and many other items.
In India, the sports merchandise market is growing at an annual rate of 100 percent.
For much of the first decade, the franchisees were bleeding or barely breaking even, considering the high costs and low returns involved. Any guesses what they would be spending on?
- Franchise owners have to give 20% of their revenue to the BCCI at the end of the tournament.
- Owners need to pay fees to the players whom they’ve bought at such exorbitant prices. The title for the most expensive player goes to Virat Kohli who is priced at ₹17 cr followed by MS Dhoni and Rohit Sharma at ₹15 cr each.
(In 2019 – ₹140 cr was spent to buy 62 players in the IPL Auction.)
- Apart from that, fees needs to be paid to the support staff, trainers, coaches etc.
- Hospitality of the players and Admin costs are also borne by the franchisee.
- The local cricket associations charge a fee as rent for allowing the teams to play the matches on their grounds.
- Publicity – Most teams create their own brand properties to promote their team and increase viewership on ground and on TV.
The commercially driven IPL has changed the dynamics of Indian Cricket in a massive way.
We can decipher that the IPL teams with a stronger brand value will always rake in the moolah even if their on-field performances are below par. Having said that, team owners want their teams to excel on the field because at the end of the day, a good team will be recognized for their performance on the cricket field and not by what happens off it. The IPL began as a start-up and now has culminated into a mature, stable and profitable business model. It is all about long term investment.