The Fiscal Genius Of IPL
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The fiscal genius of IPL

 
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The Indian Premier League (IPL) is a cricket league that attracts international sporting talent aswell as high-profile investors. In 2014 IPL was estimated to be worth $3.2 billion. As of 2020IPL is worth $6.8 billion. It has become an event that sends the best known international brandsscrambling for a piece of the pie.

History

IPL was established by the Board of Control for Cricket in India (BCCI) in 2008. The BCCI isthe national body that governs cricket in the country. Its decision to design the IPL in theTwenty20 format was driven by the need to make the sport popular among a wider fan base,including women and children. The league is based on a robust and sustainable business modelproposed by the then BCCI chairman Lalit Modi. The IPL is now a multibillion dollar leaguethat everyone wants to be a part of.

The franchise revenue model

IPL has franchises in several Indian cities and states where cricket viewership is high. Thefranchises were auctioned-off by the BCCI in 2008 to the highest bidders. They were quicklybought by some of the best known names in the country:

  • Mumbai Franchise: Bought by Mukesh Ambani of Reliance Industries Ltd for $111.9million
  • Bangalore Franchise: Bought by Vijay Mallya of United Spirits Limited for US$111.6million.
  • Hyderabad Franchise: Current owner Sun TV Network purchased the franchise for $60.7million in 2012 after the previous owner ran into financial troubles.
  • Delhi franchise: This was bought by infrastructure giant GMR for $84 million.
  • Kolkata Franchise: This franchise was jointly bought by bollywood icon Shah RukhKhan and another bollywood personality Juhi Chawla for $75 million.
  • Punjab Franchise: This one was jointly bought by Dabur group, Preity Zinta, Dey & DeyGroup, and Ness Wadia for $76 million.
  • Rajasthan Franchise: The company that owns this franchise is in turn is owned by EMSporting Holding, a Mauritius-based company. They bought the franchise for $67million.

The franchise rights were assigned for 10 years. Franchise owners pay annual royalty to theBCCI. This constitutes an important revenue stream for the governing body. For instance, if the 10-year franchise is worth US$111.9 million the owner pays US$11.19 million annually toBCCI. Each of these franchises assembles its own cricket team to compete in the matches.

Media rights

In 2018 BCCI signed a broadcasting deal with Star Sports worth $2.55 billion. This translates to$7.7 million per match. As per agreements between BCCI and its franchisees, 40% of thisrevenue goes to the team owners. The broadcaster (Star Sports) gets its revenue by selling spaceto advertisers.

Sponsorships

Sponsorships constitute about 60% of the BCCI’s revenue. The teams get 50% of thesponsorship money. From 2008 to 2012 DLF Limited, a commercial real estate giant was grantedthe IPL sponsorship rights for $28.6 million. Pepsi signed a 5 year deal from 2013 to 2017 for$56.7 million. However, Pepsi pulled out in 2016. Chinese smartphone maker Vivo sponsoredthe IPL in 2016 and 2017 for $14.3 million. Vivo also won the 2018-2022 rights in a biddingwar, for $314 million.

Players’ compensation

IPL aims to attract the world’s best cricket players. To this end it offers two types of playeragreements.

  • Firm agreement: BCCI agrees on a fixed fee with a player for them to participate in thetournament. During auctions, franchisees bid for the players and BCCI keeps thedifference between the fixed fee and the bid price
  • Basic agreement: Players receive the entire bid amount. The average amount each playergets is about $114,000.

IPL requires each franchise to spend $3.3 million per year on players’ fees. Also, each playergets a minimum daily allowance. Top IPL players are highly paid. Australian cricketer PatCummins was sold for more than $1.9 million in the IPL 2020 auctions.

Teams’ compensation

In addition to their very sizable shares of sponsorship money and broadcast rights sales, IPLteams have other revenue streams.

  • Individual team sponsorships: Depending on the value of its brand an IPL team canattract very profitable sponsorship deals.
  • Stadium tickets: Ticket sales generally account for about 10% of the total revenue earnedby teams. They earn between $2.14 and $4.29 million in ticket revenues annually. Millions of fans travel abroad to see IPL matches. Many of them send money online totake care of expenses in foreign countries, and minimize costs related to currencyconversion.
  • Merchandising: The franchises sell sports merchandise such as caps, t-shirts, watches andmany other items to maximize their revenues.
  • Prize money: IPL champions are awarded $2.86 million in prize money. However, thiswill be reduced to $1.43 million for the champions and $893,000 for the runners up.

The IPL business model revolutionized cricket in India and made BCCI the most profitablecricket governing body in the world. Everyone involved with the IPL, including the franchisees,teams and players is awash with money.

About the author:Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency.When he’s not writing, he loves to travel, scuba dive, and watch documentaries.

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