How is IPL a Multi-Billion Dollar Business? | IPL Business Model 2022
Whichever team wins this IPL season, it’ll get ₹200 million as the prize. That’s a tonne of money for an ordinary man. But is it sufficient for an IPL team?
Per the last season, even the cheapest IPL team, the Rajasthan Royals, has a brand value of almost ₹249 crores.
And for teams like the Chennai Super Kings, their brand value was ₹7,600 crore.
So what would a winning prize of ₹200 million means to these teams? The IPL matches you see on TV are just the tip of the iceberg.
The real money is exchanged behind the scenes. That is why in this blog, we will understand the Business Model of IPL. “Indian Premier League.
History Of IPL: How it Started
I’m not sure if you remember this, but about one year before IPL (The Indian Cricket League) began, ICL was established.
It was special because a private company started Zee Entertainment Enterprises. The company runs TV channels like Zee TV, Zee News, etc.
This company set up this league. The concept of ICL was similar to the one of IPL. There were supposed to be teams from different cities; players would be auctioned, the teams would buy the players, and then they would play against each other.
But neither did our cricketing board, BCCI, recognize the ICL, nor did the international cricketing board, ICC.
Both organizations were displeased to see the more significant number of cricketers playing in the ICL.
To prevent the players from playing in the ICL, the BCCI increased their salaries for playing in their domestic tournaments.
And said that the players who would play in the ICL would face a lifetime ban from the BCCI tournaments.
BCCI did not want a cricket league that it could not control.
Later in September 2007, BCCI announced a similar league. The Indian Premier League or the IPL.
The Vice-President of BCCI was Lalit Modi. The tournament was being organized under his supervision.
He said that they did not draw inspiration from the ICL. And that they have been developing this idea for a long time.
Earlier, this idea was quite popular in football and basketball. The English Premier League, or EPL a tournament for football.
And the NBA in the USA for basketball. The first season of IPL was played in April 2008.
The previous restrictions on players preventing them from playing in the ICL slowly killed off the ICL. The last season of ICL was played in 2009.
This is important to know because if you want to understand the business model of the IPL, you need to understand how BCCI is at the center of this business model in the Indian cricket industry.
BCCI is the governing body of the IPL. The BCCI is also considered a private entity. It’s an interesting fact because many people consider BCCI a government agency, but the government has no direct control over the BCCI.
But since the International Cricket Council (ICC) recognizes BCCI as the sole representative for the Indian team and cricket in India, it gives BCCI the authority to head cricket in India.
If someday the ICC stops recognizing BCCI, the BCCI would no longer be considered the cricket authority in India.
And because the Indian government does not directly control BCCI. There have been several controversies in the past between the BCCI and the Indian government.
IPL Business Model
The responsibility of conducting and organizing IPL lies with the BCCI. In addition to BCCI, there are three other main components in the Business Model of IPL.
The Broadcaster: The TV Channel on which you watch IPL.
The team in IPL: Owned by private companies and private individuals.
Sponsors: The private companies sponsoring IPL and the IPL teams. And run ads on TV channels.
IPL has 3 Primary Sources of Revenue
Sponsorship amount received by the BCCI. There are two types of sponsors.
1. Title sponsor
You’d recall the IPL used to be called DLF IPL at one point. Then it was known as Pepsi IPL, Vivo IPL, and now we know it as Tata IPL.
The brand name used here, IPL, is the title sponsor. Because whenever you’d talk about IPL, you will also recall the company’s name.
So these brands pay a lot of money to become the title sponsor. Initially, in the first five seasons of IPL, DLF was the title sponsor with sponsorship fees of ₹400 million each year.
It was paid to the BCCI.
Then Pepsi paid ₹790 million per year. Vivo had spent a lot of money on this, ₹1 billion in 2016-17 and almost ₹4.4 billion in 2018-19.
The title sponsor in 2020 was Dream11, but Vivo was back in 2021. In 2020, Vivo withdrew as the title sponsor because of the tensions between India and China, and it is a Chinese company.
That’s why Dream11 was the sponsor in 2020. But then Vivo was back with ₹4.40 billion.
You can see how the Chinese company was willing to pay a large amount to be the sponsor.
For the title sponsor of this year, Tata, it is estimated that they’ll be spending ₹3.30 billion. Not as high as Vivo.
With this, you can understand why Chinese sponsors are coveted so much whenever IPL is organized.
Of the money received by BCCI from the title sponsorship, 50% of it is retained by them. And the remaining 50% is given to the teams.
Since Tata has signed a contract for two years, Tata will also remain the sponsor next year.
2. Official Sponsors of IPL
As the official sponsors of IPL, brands sponsor various aspects of IPL. For example, CEAT tires have sponsored the strategy break.
They had paid ₹300 million to sponsor the strategic timeout. Apart from this, you might have noticed commentators say, “The ‘Cred Power Play’ is going on.” It is sponsored by Cred.
Then they have the Dream11 Game Changer of the Match. Several companies sponsor multiple aspects.
It is estimated that BCCI receives around ₹2.10 billion from these official sponsors. Sponsorships are a source of revenue for BCCI.
3. Selling Rights to Broadcasters
| Media Company | Right Period | Amount Paid |
| Sony | 10 Years | ₹8200 Crore |
| Star Sports | 5 Years | ₹16400 Crore |
The third most important source of revenue for BCCI is selling rights to the Broadcasters.
IPL will have to be broadcasted on some TV channels, so which channel should it be broadcast on?
Every TV channel wants to broadcast it to get a high viewership rate.
So BCCI sells the Broadcasting Rights for money to the TV channels. For the first 10 years of IPL, Sony owned the media rights. From 2008 to 2017.
They had spent ₹82 billion on it in total. So almost ₹8.2 billion for each season.
But then, in 2018, Star Sports bought its rights at ₹164 billion for 5 years. The approximate cost of it per year would be around ₹33 billion.
Even here, half the amount received is retained by BCCI, and the remaining is given to the franchises of the participating teams.
If you look at it from the broadcaster’s perspective, Star Sports is willing to spend ₹160 billion.
It would benefit from it too because obviously, they wouldn’t spend this large amount for no reason.
The thing is that they earn back this amount and end up making profits from this deal.
Because if you want to run an ad for 10 seconds on Star Sports during IPL 2022, you will have to spend almost ₹1.5 million for the 10-second ad.
So, Star Sports spends a considerable amount in purchasing the Broadcast rights; it earns a higher amount by running the ads of the other sponsors on their TV channels.
How IPL Teams Make Money
An IPL team is owned by private companies or individuals such as celebrities and wealthy businesspeople.
They buy the IPL teams, and after that, they have to spend money on many different things.
When the players are bought, the IPL teams have to pay the players’ salaries for their transportation and training; the IPL team bears all these expenses.
It is estimated that an IPL team spends around ₹2 billion on average. It is a significant amount, And the owners of the IPL teams wouldn’t want to bear these expenses, so where do they get this money from?
50% From BCCI
I’ve already told you about one of the sources. BCCI shares 50% of its revenue with the IPL teams. But it is not enough.
Sponsorships
Even for the teams, the primary source of revenue is from the sponsors. The brand sponsorships can be seen on the jerseys of the team members. The brands pay the IPL teams to put their logos on the outfit.
On average, there are ten brand logos on a regular IPL outfit. 6 on the jerseys, 2 on the pants, and two on their caps.
80% From Stadiums
Apart from this, when you go to watch the matches in the stadium, the revenue from the ticket you buy, 80% of it goes to the IPL teams.
Specifically, the stadium hosting the match gives 80% of the revenue to the home team.
Such as, if there’s a match in the Wankhede Stadium, 80% of the revenue from the sale of tickets will go to the Mumbai Indian teams.
The remaining 20% goes to the Home State Cricket Association.
Each team plays at least seven home matches. So the teams have an opportunity to earn from this source as well.
Although the revenue from the sale of tickets doesn’t make much money, it is estimated that the stadium ticket sales from one match make about ₹40 million in a match.
And since the price of food and beverages is hiked up there, it is another source of revenue.
But ₹40 million on ₹50 million isn’t very significant when you compare it to the expenses of each team, around ₹2 billion.
Merchandising
Additionally, merchandising is also a source of revenue for the IPL teams. When you buy jerseys of your favorite teams,
IPL merchandise can be of several types apart from jerseys. Such as keyrings, mobile covers, chargers, caps, joggers, coasters, wristbands, etc.
You can purchase them from stores, and the revenue from selling these merchandise goes directly to the IPL teams.
Brand Value
Finally, in the end, the prize money of ₹200 million goes to the winner of the IPL team.
And the runner-up team, the one losing the final match, gets about ₹130 million.
The loser of the Qualifier 2 match would get ₹70 million, and the team losing the Eliminator match get ₹65 million.
Half of the prize money goes to the owners of the team. And the remaining goes to the players.
It’s divided equally among them. If you look at this from the players’ perspective, For playing in the IPL, they get a high salary, and each player has brand value.
Famous players make more money during the auction.
But in addition to this, since half the prize money is equally distributed among the players, this is an additional motivation for the players to win the tournament.
Why
If you look at the Business Model of the IPL from the teams’ perspective, the prize money is only ₹200 million. At the same time, the average expense of an IPL team is ₹2 billion.
And the brand values of the IPL teams have started exceeding ₹20 billion.
So from the perspective of the owners of the IPL teams, what motivates them to own the winning team?
Why would the owners of the IPL teams want their teams to win the tournament? ₹200 million isn’t significant in this context.
It is not because of this ₹200 million that they would want the team to win.
Instead, the real reason here is the brand value of their team. If they win the IPL, it will be a sort of publicity for their team.
More people would know and support their team. And more people would watch the team’s matches.
And when they’d get positive feedback from the people, with more viewership, sponsors would also flock to the IPL team.
And the brands will be willing to pay more to sponsor their logo on the jersey of that IPL team.
The brand value of the IPL team is much more critical from the perspective of the Business Model rather than the prize money.
Additionally, the brand value of the IPL team increases when they get a famous player in their team.
Like MS Dhoni playing for Chennai Super Kings and Virat Kohli for Royal Challengers Bangalore.
Teams try to nab the good players. Often, famous Bollywood stars and businesspeople increase the team’s brand value.
Take the case of Shahrukh Khan and the Kolkata Knight Riders. Teams also give out the stakes in the team.
So that other private companies can buy them. For example, LIC holds a 6.04% stake in Chennai Super Kings.
Rajasthan Royals had sold a 15% stake to RedBird Capital Partners. So this is how the Business Model of IPL works.
Still, if you have any questions, let us know in the comment section; we would love to hear that.
