India Premier League (IPL), is a flagship cricket tournament conducted by the BCCI, involving players from across the globe playing in T20, city-based-franchising formats. IPL started in the year 2007 and has since seen 8 successful seasons being played in India, South Africa and UAE.
India is a cricket crazy country. Its love for the sport can be traced back to the 1950s when it started making an impression for itself at the world stage. Things spiraled out of hand after its famous 1983 World Cup victory. Ever since then, it has more or less, been amongst the top 3 performing cricket nations of the world. Sustained dominance at the top, though, requires a robust domestic set-up. This existed and evolved in the form of Ranji tournaments, which then developed into a division based league and expanded to other formats too. But with the advent of T20 cricket, the cricketing landscape across the world changed. And this is how IPL was born.
IPL not only serves as a domestic league for training and development of player, but is also a big cash turner for Indian cricket, already the richest board in the world.
The major stakeholders’ at play here are the city-based franchises, BCCI itself, players and of course, the audience.
The teams and franchises are city-based entities created by the BCCI for the purpose of participation in the tournament. These were auctioned to private corporate players for a period of 10 years starting 2007, with a cumulative base price of $400 million per year. The auction ended up fetching them $729 million for a total of 8 franchises. These were lapped up by corporate entities like Reliance and Kingfisher to movie stars like Shahrukh Khan and Preity Zinta. This unique mix of owners not only brought capital to these franchises, but also added the glamour and star quotient, which ultimately proved to be instrumental in engaging more and more people with the league. If one was to judge the league by the value of the franchises, the league can be considered a success as two additional franchises auctioned off after 5 years i.e. Pune Warriors and Sunrisers Hyderabad alone were valued at $703 million.
The main reason for such high value action is the highly lucrative stream of revenues. At least theoretically.
Sources of revenue for the IPL are:
- Auction of broadcasting rights to media partners
Sony Television presently holds that license for an estimated $1.026 Million for a 10 year period. It has recovered a substantial part of that capital by selling off these rights to media partners in other parts of the world, For eg. Sky Sports in USA. A large part of it i.e. 54% of broadcasting deals was given to the franchises for the first 7 years, after which it was reduced to 45% of total money.
- Title sponsors and central partners
Central sponsors include sponsors like Pepsi, Hero, Yes Bank, who bring about revenue to the tune of at least $200 million per year. These are shared by the franchises and BCCI in a unique formula.
- Ticket Sales
IPL uses the existing infrastructure of stadiums present in India, which are owned by the respective state cricket associations. Still, about 20% goes to BCCI and the rest is divided amongst the state board and the franchise in a pre-negotiated ratio. This is the reason why, in the recent years, games have been shifted out of native, home states of franchises.
- Franchise Sponsorships
Franchises are free to engage with as many sponsors as they deem fit and give them visibility as per certain norms. This acts as a heavy source of revenue as multiple sponsors look to gain mileage out of the tournament.
The major costs for the franchisees are primarily the cost for player acquisition and marketing costs. If we match these costs to streams of revenues, then:
- Player Acquisition
The cost incurred to purchase players of international caliber to represent the teams is directly linked to performance. Along with this, maintenance costs like lodging, travel, etc are also borne by the franchisees. This cost might seem less profitable if compared solely with the prize money, but makes sense if seen from a marketing stand-point. There are certain players who hold mass appeal and are star attractions, for whom the public throngs to stadiums irrespective of performance. They also bring additional revenue in terms of merchandise sales. It is this reason why some Indian players, like Yuvraj Singh, are bought for extremely high valuations, despite poor performances.
- Marketing Costs
These are necessary to support the team in all aspects, monetary, popularity and entertainment quotient. Often, this forms the bulk of franchise expenses, but what such franchises fail to realize is that the quality of expenditure on players is something that influences popularity through performances.
Despite a robust theoretical business model, not more than 3 franchises have clocked profits for more than 2 consecutive years and none of the franchisees has broken even in the same period. This is worrying as 8 out of the original 10 year period has been played and the next two years do not provide much hope as well. Often, unforeseen circumstances have been the major culprits.
Shifting the tournament to South Africa and UAE in 2009 and 2014 respectively increased the expenditure of the franchisees, impacting profitability.
In recent years, IPL has been rocked by a match-fixing scandal as well, causing a fall in sponsor payments and ticket sales. For eg. After DLF withdrew its title sponsorship, IPL took a 13% hit in its title sponsorship from Pepsi.
Qualitatively, IPL has brought immense value by marrying quality cricket with glamour and entertainment. This has had a significant improvement in quality of Indian players, development of infrastructure and globalization of the sport itself.
While it is a worthwhile experiment, replicated onto other sports in India, one needs to look at the long –term sustainability of IPL, especially when franchisees are auctioned off for a specified period of time. More freedom in determining player prices, guided more or less by market prices and removing franchisee title-transfer barriers can help IPL become more commercially sustainable for franchisees in the long term.
Tushar is a student at SSCBS, DU. The views expressed are his own based upon the analysis and research he did on the topic from various books, reports and web articles. He regularly writes for Corporate Monks as a research associate. The writer takes person responsibility for the ownership of the content shared and incase some sources have not been given credit, you can directly mail him firstname.lastname@example.org