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Case Study: How IPL franchises make money?

Running a franchise in the Indian Premier League is no easy job, considering the amount of money required to sustain themselves in the cash-rich league. Winning a title is important, but that isn’t all the franchises are focussed on.

In an article spanning about a topic that is seldom heard of, in cricketing circles of discussions and debates, Sportwalk presents the few known ways of the IPL franchisees for spending and earning millions.

How the IPL franchises earn money?

Revenue Streams

Brand Sponsorships: The IPL franchises generate a chunk of revenue through sponsorships. Top brands tie-up with the franchises in a quest to provide a much-needed visibility to their brand with the public by endorsing the names and logos of their brand on team kits and jerseys. The amount varies significantly as the size or the visibility increases and decreases. Right from the title sponsors to the ethnic wear partners, teams sign a wide array of deals to keep the cash flowing.

Revenue through the BCCI Central Pool: The IPL, as a brand generates its own share of revenues through the official sponsorships (such as Pepsi), partnerships (such as Vodafone, McDowell’s No.01, Yes Bank, CEAT) and also by selling the broadcast (currently to Sony Max) and streaming rights (currently to Hotstar). A share of the total revenue is added to the BCCI central pool which is distributed among the franchisees based on several factors including their position in the league table.

Merchandise Sales: According to the report by The Times of India dated November 11, 2014, the sports gear business market growth in the country is 100% annually and the value is projected to be approximate $30million. The franchises sell merchandise that includes stuff like Tee-shirts, Caps, Wristwatches and generate a revenue tapping the fan base.

Prize Money: According to a report published in The Bangalore Mirror, the IPL Prize money has raised 300% from 9.8 Crores INR in 2008 to 40 Crores in 2015. The Champions get a major portion of that with the runners up and other teams which make it to the playoffs getting a lesser share.

Ticket Sales: Ticket Sales form an integral and important part of the income of each of the IPL franchises, given the immense popularity of the tournament and the large crowds that flock the stadiums in every single game. It is reported that each IPL franchise gets to sell 80% of the tickets for its home games with the rest being reserved for special people.

In ground Ads: The in-ground advertising banners that are captured on the screen and off it, by the spectators in the stadiums add a part to the income of the franchisees.

Player Trading: Before the IPL Auction each season, a transfer window is opened for a certain period of time during which teams can exchange the players between them. It has been observed that good players are often exchanged with average players with a sum of money as a compensation.

Champions League T20: Champions League T20 was introduced by the BCCI where the top T20 teams around the globe gather to compete for glory. The latest edition of CLT20 tournament had a prize money of $6 million at stake. In other terms, the tournament awarded the winner with $2.5 million (15 Crores INR), the runner with $1.3 million, the losing semifinalists with USD 500,000 each and the rest of the participating teams with USD 200,000 each.

Direct Revenue Revenue through BCCI Central pool Expenses
Sponsorships Share from BCCI on Broadcast rights and sponsorships. Franchise fee
Merchandise sales Share to BCCI on ticket sales
Prize money Payment to the local cricket club for using the ground.
Ticket sales Player fee
Player trading Marketing
In ground ads Running cost
Champions League T20

With the revenue streams on one side of the coin, there is a list of expenses that each franchise bears.

Expenses

Franchise Fee: The IPL franchises are bought by the owners for a certain amount and 10% of the sum must be paid to the IPL by the respective owners before the start of every season. To put things in an easier perspective: aMumbai Indians franchise was bought by Reliance for 111.9 crores, they have to pay 11.1 crores each season in the form of franchise fee while Rajasthan Royals pay the least (6.7 crores) among all franchises.

Priety Zinta, IPL, Kings XI Punjab, Owner, Cricket, Sportwalk
© Photograph from Wikimedia Commons

Payment to the local cricket club: While the IPL franchises generate revenue through the ticket sales at their respective venues, they must pay the local cricket association for using the ground facilities.

Player fee: With an eye on their performance and another eye on their brand value, IPL franchisees hand pick players who go under the hammer. The IPL franchise pays the players for the amount that they were bought. In certain cases, where a player is retained by a franchise, a salary is negotiated and agreed upon before the retention.

Marketing and Running Cost: Right from the day to day operations of the franchise during the tournament to the marketing costs has to be taken care off by the team management.

How BCCI generates revenue?

The BCCI’s revenue structure is much safer than the ones followed by teams as the BCCI generates revenue regardless of the fact how the individual teams fare. The following table shows the revenue and expense streams of the BCCI.

Direct Revenue Revenue through BCCI Central pool Expenses
Sponsorships Franchise fee Prize money
Broadcast rights Share on ticket sales Share in sponsorships and broadcast rights to IPL franchises
Marketing