SIMPLY PUT: How IPL Franchises Make Money

Happy Friday, readers — IPL media rights auction finally been wrapped up this week, tripling the value of the T20 league in just five years. Today, we're breaking down for you the economics of how IPL franchises make their money.

Let's get started.

The Indian Premier League is probably one of the few businesses in India that will remain unaffected by soaring inflation, a global pandemic and rising interest rates. After the recently-concluded media rights auction, it is gonna be raining money for its franchises.

The Board of Control for Cricket in India (BCCI) will walk home with ₹48,390 crore after the record-breaking bidding concluded on June 14. With this, India’s biggest sporting event has witnessed an increase of 3x when compared to the previous cycle, with the National Football League ahead by a small margin at $17 million.

Disney-Star retained the rights for television for ₹23,575 crore, while India’s richest man Mukesh Ambani’s Viacom18 bagged two and half bundles for ₹23,750 crore including digital, non-exclusive digital rights and a few international countries. New winner Times Internet shared the international mandate with Viacom18.

Apart from the media winners, the two biggest beneficiaries of the recently-concluded auction would be the IPL teams and their franchise owners. 

The economics of IPL

BCCI collects massive revenues from broadcasters and Over-the-top (OTT) platforms by selling media rights. It deducts its share and a big chunk of its revenues are then shared with the IPL teams. 

Franchises get a guaranteed 40-50% revenue share (share of ₹48,000 crore for the next cycle) from IPL’s central contract revenue pool. The final winning team of the season walks home with the biggest share of BCCI profits.

Now, after the latest auction, IPL value has jumped by 3x to ₹48,000 crore, which means franchises will get a bigger cut in profits from BCCI.

According to financial advisory firm Elara Capital, the average revenue of all IPL teams is likely to grow 2x in the next five years.

For the next cycle of IPL 2023-2027, 10 teams will get on the battleground which include two new teams Gujarat Titans and Lucknow SuperGiants. 

The fee and revenue share for high-demand teams like Mumbai Indians, Chennai Super Kings, Delhi Capitals is more than others as they hold better revenue potential – both in terms of sponsorship and gate receipts.

Elara Capital predicts that after the recent auction, Mumbai Indians’ revenue will jump by 109.1% from ₹3,836 million to ₹8,020 million and Chennai Super Kings will see their revenue jump by 124.9%. 

On the other hand, Royal Challengers Bangalore and SunRisers Hyderabad will see the biggest hike by 133.8% and 138.4% respectively than their previous revenue collection. 

Among the listed companies behind key franchises, Sun TV Network, Reliance Industries, and United Spirits will witness a growth in their market capitalisation as the value of their IPL teams improve. 

As per a recent poll conducted by Stocktwits, 51% are bullish on media stocks after the IPL auction.

IPL franchises also earn from brand sponsorships, prize money, ticket sales revenue, and merchandise sales. 

Brand sponsorship

Apart from media revenue discussed above, IPL franchises generate a sizeable part of their revenue through brand sponsorships.

Franchises tie-up with brands to offer visibility to the brand by endorsing their logos on their jerseys, headgear and team kits. Bigger the logo, the more the money brand has to shell out. 

Teams also earn from other tournament-related marketing activities organised by their sponsors. Sponsorship revenue reportedly forms around 20-30% of revenue for an IPL team.

Ticket sales

The global pandemic affected India’s biggest sporting gala in 2020 and 2021. However, it was back with a bang this year.

Now that the stadiums are full of spectators again, a small portion of ticket sales will be offered to sponsors and the BCCI, the rest goes into the team’s wallet.

The ticket prices are determined based on the seating capacity of the stadium, the excitement around the event, the standard of living in the city, and so on.

Ticket revenue reportedly forms around 10% of revenue for IPL teams.

Prize money

BCCI offers a colossal amount of prize money to the winning team. In 2018, IPL champion Chennai Super Kings took home ₹20 crore in prize money.

Merchandise sales

As per a ResearchAndMarkets report, India's sports equipment and apparel market is estimated to be $28 billion in 2022 and reach $40.6 billion by 2027.

Each franchise sells merchandise that includes T-shirts, Caps, Wrist watches and so on and gets a share of money collected from consumers.