The $6.7 Billion Dollar IPL Business
India may be the soul of world cricket, but IPL is its commercial heart.
India may be the soul of world cricket, but IPL is its commercial heart.
Just as 'Who Wants to be a Millionaire' changed the ground rules for quiz shows by injecting a massive dose of money into the equation, IPL has changed the dynamics of the cricket economy.
- Vikas Swarup
I’m just gonna jump straight into it, and leave my commentary for the Final Thoughts section at the end.
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T20 cricket isn’t even 20 years old. Yet the Indian Premier League’s brand value is an estimated $6.7 billion.
And depending on what list you see, the IPL is often in 4th place for league revenue in the world, behind American giants the NFL, NBA and the MLB. And those leagues have all been around for 70+ years
So how did the IPL achieve such massive success in just a fraction of the time compared to other leagues?
So I’m gonna explain how the IPL came to be, how the league and the teams make money, and the industry as a whole, so let’s get straight into like Sehwag facing the first ball of an innings.
Like the first instalment in a superhero movie trilogy, it’s all about the origin story.
So the Board of Control for Cricket in India (BCCI) currently own and operate the IPL, and started the idea for the league in late 2007.
The IPL was formed to take advantage of 3 major tailwinds:
There was national excitement over India’s early success in the growing T20 format,
The sheer size of the Indian cricket market, and
Taking advantage of a previously underused time of the year. Scheduling games during April and May, between the conclusion of the Ranji trophy and the onset of the annual monsoon.
In early 2008, an auction was held to decide the owners of the original eight franchises. The base price for all eight teams was set at $400 million USD. $723 million would end up being spent. $111.9 million alone was spent for the franchise in Mumbai. Fun fact: Deutsche Bank failed in its bid to own an IPL franchise.
But this style of cricket league was an entirely new concept. IPL strayed from traditions and ushered in a new form of cricket management: privately owned, big-money professional clubs.
Usually, in domestic leagues, national cricket bodies run the state teams. Where they pull profits from international cricket to then fund lower leagues.
But the IPL bucked that trend by allowing private ownership, and today even represents a significant proportion of the BCCI’s revenue. Not bad for only a two-month tournament!
So how does the IPL (as a league) make money?
Sponsorships: For a while there, the IPL’s title sponsor was Vevo, a Chinese technology company. But they paused their Rs 440 crore (~$60m USD) per season sponsorship due to India-China tensions.
So Dream11, an Indian startup, was able to nab the title sponsorship for nearly a 50% discount at Rs 222 crore (~$30m USD) for 2020.
Vivo came back as Title Sponsor for 2021 then bounced again, so the TATA group took over as title sponsor for 2021 for a rumoured Rs 300crore +
Broadcasting Deals: In 2018 the IPL signed a four year deal with Star India, worth Rs 16,347.50 crore (~$2 billion USD). Overall, the IPL is set to net around $500 million USD a year for the deal.
Just for reference, the NBA has a deal with ABC, ESPN, and TNT worth around $2.66 billion USD, but per year!
Franchises: BCCI has a 20% share in franchisees’ respective revenues. So for every dollar a team makes, BCCI will earn a fifth of it.
TV deals in sport are bloody big business and have been rising across the board around the world. But why?
Because only drongo boomers watch delayed sports. Bonus points because live sports broadcasts have ads that can’t be fast-forwarded through. Making live sport like the IPL that much more valuable to advertisers.
But the BCCI doesn’t keep 100% of the revenue earned from broadcasting fees and sponsorships.
Revenue sharing (which is common in sports) allows IPL franchises to receive a portion of the revenue generated by the IPL overall. Teams do help drive the IPL’s value after all.
Apparently, revenue is split 50:50, but as the BCCI has a 20 per cent share in franchisees' respective revenues, it effectively works out to be a 60:40 split.
How the Franchises Generates Revenue
Revenue Sharing – Which is made up of:
Title Sponsorship: All eight teams receive an equal share of the league sponsorship. Eg Of Dream11’s Rs 222 crore (~$30m USD) title sponsorship, 50% might be allocated to the teams. Which would then equally be split among teams. A relatively fixed revenue source for teams.
Broadcasting Fees: The teams get a portion of the four year Star India broadcasting deal worth ~$2 billion USD.
So there’s about ~$500m USD per year from the broadcast deal. Of which around 40% gets distributed to teams.
But unlike the title sponsorship revenue, this revenue isn’t distributed equally. Reportedly it’s distributed based off viewership numbers, meaning bigger market teams often pocket a larger amount.
Sponsorships and Advertisements: Not only on the uniform but at the stadium itself. Advertisements are everywhere in the IPL. On shirts, pants, helmets, boundary ropes, and all around the ground. Sponsorship on the front of jerseys is reported to cost anywhere from Rs 18-20 crore (~$2.5m USD) a year for the larger market teams, and Rs 12-15 crore for the smaller market teams.
If there’s space, there’s money to be made.
All up, the larger market teams earn around Rs 70-80 (~$10m USD) crore from sponsorships whilst the smaller market teams can expect Rs 30-40 crore (~$5m USD).
Match Day: Ticket sales make up the bulk of matchday revenues. Gate revenue is reportedly on average around Rs 25 crore ($3.4m USD) per year. Food and beverage stalls within the stadium also generate revenue for franchise owners.
Merchandise: Clothing, caps, jerseys. Any official merchandise purchased by fans is another revenue stream for IPL franchises. I can’t manage to find concrete numbers, but it’s assumed that IPL merchandise revenues aren’t as high (as a percentage of overall revenue) compared to other sporting leagues around the globe.
The players. They drive the value, and they deserve to be compensated for it. You want King Kohli or the man MSD? You better be ready to cough up some cash
For the 2020 season, the total salary for each team was Rs 85 crore (~$12m USD) per year.
And the process to build a team of players is pretty different from other leagues around the world.
Players sign up for the auction (and set their own base price!), and the highest bidding team wins the rights to them. Side note: My base price is one Aussie dollarydo for any gully cricket teams that want me
So player salaries take up the majority (~60%) of franchise costs, whilst operations and management expenses take up most of the rest.
You only have to look at the sums of money being spent on the title sponsorship and broadcasting deals to see just how fast it has grown.
The original title sponsorship? DLF at Rs 40 crore ($5.5m USD) per year.
Now? Dream11 at Rs 222 crore (~$30m USD) per year.
The original broadcast deal? Was a ten-year contract worth around US$100 million per year.
Now? A four-year contract worth around US$500 million per year.
So a 5x growth in broadcasting fees. Plus a ~6x growth in title sponsorship (10x growth if using Vivo’s sponsorship!).
Another possible area of growth is making the IPL accessible to more Indians:
Until this year's introduction of the Ahmedabad and Lucknow IPL teams, the most populous state in India didn’t even have a team!
While nearly 70% of Indians continue to live in rural areas, not a single team is located in Uttar Pradesh, India’s most populous state, nor is there a team in Bihar, Orissa, or Madhya Pradesh.
Before the 2022 season, The states of Uttar Pradesh, Bihar, Odisha, and Madhya Pradesh, which represent over 400 million people, don’t have teams.
A huge opportunity for growth.
But for cricket overall, and the IPL specifically, they get their growth from younger audiences.
The IPL has caused a cultural shift in how the game is played. It’s attracted younger, more casual fans. Test cricket traditionalists might cry and think it’s a joke. But the IPL has grown the game of cricket when it seemed to be dying.
So how can teams improve their business?
It’s mostly a case of a rising tide lifts all boats. So growing the IPL as a whole will create flow-on benefits for teams.
But on-field performance can be a key driver of value. If a franchise wins a season, they’ll pocket Rs 20 crore (~$2.7m USD). Finishing top 4 will net the franchise at least Rs 8 crore (~$1m USD). 50% of winnings must be distributed among players.
But still, a decent payday for a franchise. And Not only from prize money, but on-field performance can be a key driver in brand value once a team is established.
It’s a strong business model. I wish I owned even a fraction of an IPL team. And a significant portion of revenue is locked in prior with sponsorships and broadcasting rights. So whilst no gate revenue is a big hit, it’s not the end of the world for the IPL.
The Indian Express reported that franchises on average make a profit of around Rs 102.6 crore (~$14m USD) each per season. And that number is sure to grow even with the hiccup of Covid.
First big newsletter and video done and dusted! Lot of
blood, sweat and tears into this. Mostly tears. Video editing has been one tough cookie to crack but hoping to power through more of ‘em more often.
Future videos I have scheduled/nearly finished: The Legend of Li Lu, Robert Kuok’s life, The Bloke Who Broke Baring’s Bank - Nick Leeson, and Gambling in Australia.
And some future video *ideas*: Asian Godfathers, Hotel Saravana Bhavan deep dive, The Asian Financial Crisis, Hui Fong's Sriracha Story, Masayoshi Son Brother, Macaus gambling godfather-Stanley Ho, 1MDB explained in 100 seconds, The Guangxi Massacre, Mitsuyasu Maeno, The Blue Diamond Affair, The 1998 Sokcho submarine incident, 1980’s Japan, Why does Japan have so many old businesses?, and the Lao Gan Ma Story
Happy to hear any suggestions or feedback!
But yeah other than that it’s been mostly a case of same shit, different day. BUT! I do get married tomorrow! So forgive me if I’ve been zero-dark-thirty online.
But until next time, have a good one!
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