How does the IPL make money?
Decoding the revenue sources of one of the world's biggest tournaments
The IPL is one of the biggest league tournaments of the world. Here's how they make money, even during the pandemic.
About the IPL industry
Whether you're a mad cricket fanatic or not, if you're Indian, you might have stumbled upon an IPL match for sure. This annual tournament is one of the biggest intra-country tournaments of the world, with the total IPL ecosystem boasting of a 45,800 crores valuation in 2020, according to an Economic Times report, with Mumbai Indians topping the charts as the most valued franchise.
If you still don't know, the Indian Premier League (IPL) is a professional cricket Twenty20 league, contested by eight teams based out of eight different Indian cities. Founded by the BCCI in 2007, this is the 14th season being held so far.
According to some estimates, some of the most valuable teams include Mukesh Ambani owned Mumbai Indians, valued somewhere between Rs 2700-2800 crores. Next in line is the popular Chennai Super Kings, which is valued at Rs 2200-2300 crores with its share trading at around Rs 75 in the unlisted market. If it were listed, it's expected to be valued at Rs 2,500 crores. There is also Rajasthan Royals, which valued themselves at Rs 1855 crores, in a recent acquisition of 15% by Red Bird Capital.
Where does the money come from?
The above valuations seem like a thing, but what is the basis for this? Here's where the cash comes from:
The major source of revenue for this home cricket economy is media broadcasting rights. This is a mode of revenue for not only the teams, but BCCI as well. The BCCI gains revenue from broadcasters (currently Star Sports) and online streamers. It then shares this with the teams after deducting its share of 50%. This hefty source forms roughly 60-70% of the total revenues earned by a franchise, according to a Business Insider report. In fact, the rapid growth of the brand value of the IPL was after signing a deal with Star India Private Limited, which engaged more viewers as IPL was transmitted to regional channels in 8 different languages, rather than sticking to just English, as was the case previously.
The IPL was founded by the BCCI and the association milked a lot of cash through this, since the core idea of the league was to invite private firms to own franchise rights. Investment firms see an opportunity here and values have soared year after year. These franchises make huge chunks of money by selling stake at just the right time, just like selling a security after appreciation. For example, the JSW Group bought a 50% stake in the Delhi Capitals for a hefty ₹ 550 crores ($77 million) from GMR. That was a huge deal for GMR, who had originally bought the team for a little more than the figure JSW paid – $ 84 million.
The IPL franchise is a commercial property and attracts millions of eyeballs. It was one of the first large league sports events to be streamed on YouTube. Even OTT platforms showcase these matches during the season. The current title sponsors Vivo, who has bagged a title sponsorship right till 2022, pumped in Rs 440 crores in a bid, the total amount being collected by the BCCI and distributed to the teams equally. Rs 220 crores was also earned from 5 other official sponsors, some of them being Dream11, Phonepe and Byju's. Other than these, teams earn when companies pay to get promotion through logo and name placement on the jersey. The highest sponsor gets the main attraction area for the largest number of views. Industry estimates reveal that the broadcaster charges anywhere between Rs 13 – 14 lakh for a 10-second slot. Imagine the revenue collected by streamers for a tournament that spans 45 days.
Around 10 percent of the revenue for IPL teams comes from this segment. One team hosts at least 7 games at its home ground, and revenue generated from the sale of tickets goes to franchise owners. Here too, BCCI gets to keep a little portion, but most of it goes into the team's wallet. The teams themselves fix the prices of these tickets. Sadly, this wasn't a revenue generating option during 2020, when the event was conducted in a bubble in the UAE.
Every team receives a minimum prize money. When a team reaches the play offs, or more importantly, wins, it receives a hefty additional revenue, which is divided between the owners and players of the team. About 50% of it has to be given to the players. The IPL 2020 winners MI received 20 crores, while runners up Delhi Capitals ended-up receiving 12.5 crores. Not to mention, the players receive a hefty salary and any one time fee if they are bought by teams during auctions.
The smallest piece of the pie for team franchises is through its merchandise and other goodies. These include jerseys, caps, bats, souvenirs, and other novelty-gift like items which are sold to cricket fans, especially youngsters. The more successful and famous players in the team, the more they're able to sell these items.
Why does it make so much?
The IPL is a huge source of entertainment for Indians who are head over heels about cricket. As this is the most popular intra national cricket league in the world, it attracts viewers from abroad too. The owners of the teams being celebrities and especially Bollywood actors also contribute to the popularity of the event hugely, making it a perfect mix of sports and entertainment.
The league is designed in such a way that it spans only 20 overs for both teams in a match, making it a result oriented, fast format game. People watch it less for the game, and more because they want to support their favourite team and players, which are the crux of this massive tournament.
Though other sporting associations in India have tried such a format like the Pro Kabaddi League for kabaddi and the Premier Badminton League for badminton, IPL tops the charts for popularity and money, consistently, given India has such an enormous fan base for the sport.
A team's success is dependent on how well they are able to recognize the underdog players, garnering fresh, inexpensive talent and making the most of them by either aspiring to win the tournament or profitably trading them for another in the next season. Needless to mention that the popularity and success of individual players in the team attracts huge amounts in sponsorship revenue, merchandising and ticket sales.
Can we invest?
Though none of the franchises are publicly listed, the MS Dhoni led Chennai Super Kings team is listed at around Rs 75 in the grey market. It has a profit after tax of Rs 4026.22 lakhs as of March 2021.
In a nutshell,
The IPL industry is an entertainment sub sector having the perfect mix of cricket, Bollywood and media. With valuations rising every year (except recent due to the pandemic) and a growing economy that encourages sports, it is bound to thrive in the long run.