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Explained | How does IPL make money and where does it stand with global sports leagues?

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June 24, 2022
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Explained | How does IPL make money and where does it stand with global sports leagues?
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How does the IPL business model work? We explore its revenue ecosystem and compare it to leagues such as the EPL and NFL

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How does the IPL business model work? We explore its revenue ecosystem and compare it to leagues such as the EPL and NFL

The story so far: The Indian Premier League (IPL) got richer by a whopping ₹48,390.5 crore ($6.2 billion) last week by negotiating a broadcasting rights deal for the five-season cycle from 2023 to 2027. As per data collated by ESPN Cricinfo, the rights for the 2023-27 seasons have been sold for double the price in comparison to that for 2018-22.

Mukesh Ambani-backed Viacom-18 bagged the digital broadcasting rights for ₹23,758 crore, replacing the incumbent Disney Star, which managed to retain the television rights for ₹23,575 crore. The rights to air IPL matches globally were shared between Viacom and Times Internet, for a total of ₹1,075 crore. Viacom also paid another ₹2,991 crore for a separate category of non-exclusive rights to air 18 crucial matches each season.

Making the announcement, BCCI Secretary Jay Shah said that IPL had emerged as the second-most valuable sports league in the world, after the American National Football League (NFL), also having surpassed the English Premier League (EPL), Major League Baseball (MLB), and National Basketball Association league (NBA).

How does the IPL ecosystem make money?

The revenue flow into the IPL ecosystem

The revenue flow into the IPL ecosystem

When the IPL began in 2008, some of India Inc. and Bollywood’s biggest names spent a total of $723.59 million to buy eight city-based franchises. A decade and a half later, the IPL has grown manifold in popularity and commercial value. In 2021, CVC Capital, a British equity firm that formerly owned Formula 1, paid approximately $740 million for the Gujarat Titans.

With the huge amounts of money being pumped into the IPL ecosystem every season, here’s how it works-   

Central pool: Broadly, it consists of broadcasting rights and central sponsorship deals, making up about 70 to 80 per cent of the overall revenue of teams. The BCCI retains 50 per cent of the overall central pool revenue with the remaining 45 per cent being distributed equally among the franchises. The remainder is bagged by the four teams that make it to the playoffs as prize money, with the largest amount being given to the victor.

As per the regulations, last tweaked in 2018, franchises are required to annually give the BCCI 20 per cent of their overall revenue (from all sources except ticket sales) as fees.

It is expected that with the latest deal and central sponsorships combined, the total revenues from the central pool in the upcoming five-year cycle may touch $7.6 billion. With half the share being divided among franchises, it could secure each of them an annual income of $76.9 million (₹600 crore). This is more than double the estimated income of each team in the 2022 season (approximately ₹275 crore). 

As for sponsorship deals, Tata will pay the BCCI Rs 335 crore for being the title sponsor for the 2022 and 2023 seasons. Chinese smartphone maker Vivo has opted to terminate its deal two years before expiry, paying ₹1124 crore to the BCCI as part of an exit plan. IPL also got upwards of ₹300 crore through associate sponsorship deals from official partners, strategic time-out partners, and on-ground partners, among others.

Team sponsorships– These are the exclusive sponsors of the franchises and not the tournament. These include shirt sponsors, radio and digital partners among others. This, however, constitutes a small percentage of the franchise’s revenue.

Ticket sales: With 7-8 home matches every season, the ‘domicile’ franchise owner takes home an estimated 80 per cent of the revenue from ticket sales with the remaining 20 per cent divided between the BCCI and sponsors.

The revenue from ticket sales reportedly makes 10- 15 per cent of a team’s revenue Additionally, teams also earn from match-day food and beverage sales in home stadiums.

Merchandise and others: Official team merchandise like jerseys, hats, and other accessories also constitute a small share of the franchise’s revenue.

Franchise auctions: With the tournament expanding and new teams entering the league, franchise auctions are emerging as another revenue stream for the BCCI. In 2021, the RP-Sanjiv Goenka group shelled out around $940 million (₹7,090 crore) to buy the new Lucknow Super Giants franchise, while the CVC capital group paid approximately $740 million for the Gujarat Titans. With the scale of the new media rights deal, some expect the BCCI to increase the number of teams from 10 to 12 by 2027.

What’s in it for the broadcasters?

They earn from advertisements. Star India (now Disney Star) had paid more than ₹16,300 crore for the broadcast rights of five seasons from 2018 to 2022. Advertisers paid the broadcaster as much as ₹14 lakh for a ten-second ad slot during a match. As per Moneycontrol, the total revenue generated from television and digital (streaming) ad sales in IPL 2021 was almost ₹3,500 crore. The Hindu BusinessLine estimates that with the new media rights deal, ad rates for a 30-second television slot could reach ₹1 crore.

Viewership brings ratings and that in turn brings more ads. Star India had said in 2021 that IPL was on track to cross the 400 million viewership mark for the fourth year in a row that season.  The tournament had set a viewership record in 2020 with 31.57 million average impressions per match. However, viewership in IPL 2022, as per Broadcast Audience Research Council (BARC)’s estimates, saw a 30 per cent dip in the first three weeks of the season. Experts attributed this to the easing of COVID-19 restrictions and more viewers stepping out of their homes.

Subscriptions also drive revenue for digital streaming rights holders of IPL, despite the fact that the average revenue per user (ARPU) for OTT platforms in India is one of the lowest globally. Disney+ Hotstar, for instance, derived close to 60 per cent of its subscriber base in India with the help of IPL. According to Christine McCarthy, CFO of The Walt Disney Company, toward the end of the second quarter this year, a “little over half” of the net new subscribers for Disney+ were from Disney+ Hotstar, buoyed by IPL 2022. The company also attributed higher advertising revenue from its ‘International Channels’ business to an increase in the average viewership of the matches and higher rates.

Industry experts do maintain, however, that after the new $6.2 billion deal kicks in, it would take the rights holders at least three to four years to break even and start making profits.

In comparison, the NFL recorded an average viewership of 17.1 million per game (TV plus digital) in 2021- a 9 per cent increase year-on-year. Games involving top sides had many more viewers — the Dallas Cowboys vs Las Vegas Raiders game had about 40.8 million viewers, setting a record for the 2021 season. 

As for the EPL, a total of 26.8 million in the U.K. watched the coverage in 2020-21 – about 40 per cent of the country’s population. Domestic viewership for high-octane games as that of Liverpool and Manchester United had about 4.5 million people watching. 

How does the IPL compare to global sports leagues?

The National Football League (NFL) in the United States, cited by the BCCI Secretary as the only international sports league more valuable than the IPL, began in 1920. Since the IPL’s business and monetization strategy was modelled on leagues like NFL and EPL, the way they earn money is quite similar.

The NFL has 32 teams playing a combined 285 games— 272 regular season games and playoffs— in a five-month-long season. Like the IPL, it also earns a major chunk of its revenue from media rights. The national revenue, consisting of media rights, merchandising and licensing contracts negotiated by NFL, is divided equally among the 31 individually-owned teams and one community-owned non-profit status team (the Green Bay Packers). In addition to this, teams also earn local revenue from ticket sales in home stadiums and team sponsorships.

The NFL earned a total revenue of around $12 billion in the 2020 season, and recently signed a new media rights deal worth more than $110 billion for 2023 to 2033 with CBS, Amazon, ESPN, FOX, and NBC.

Meanwhile, the EPL, which began in 1992, has 20 teams competing in a nine-month-long season with weekly matchdays.  The league is run by the Football Association Premier League (FAPL), a corporation with the 20 clubs as shareholders, and a chairman and board of directors to oversee daily operations. The national revenue generated is divided between the corporation and teams on a 50:50 basis, while teams also sign sponsorship and merchandise deals.

For the EPL, income from commercial avenues— sponsorships, merchandise sales and other commercial agreements such as endorsements by players — and broadcast avenues are in nearly equal proportions of 40-45 per cent each, with matchday activities such as ticket sales and leisure activities (museum visits, bar and restaurant sales among others), contributing between 10-20 per cent depending on the facilities in the stadium.

How much did the pandemic affect IPL’s growth?

The onset of the pandemic exposed the sporting world to new undesired realities. All major sports tournaments, both at the club and international level, had to be temporarily suspended to curb the spread of the novel coronavirus. Income from merchandise sales, ticketing and broadcasting avenues had all dried up as there was no activity in the arena.

A comparison of the cumulative revenues of three IPL teams (namely, Mumbai Indians, Chennai Super Kings, and Royal Challengers Bengaluru) put forth that overall revenues dried up about 24.5 per cent in 2020-21 compared to 2018-19. Matchday earnings, accrued from ticket and merchandise sales dried up 67 per cent in the period- emerging as the worse-affected avenue. Income from sponsorships and central rights narrowed by 14.5 per cent and 25.6 per cent respectively.

In the same vein , cumulative revenues for Premier League clubs Arsenal, Liverpool and Manchester United combined fell 18.5 per cent during the period with matchday revenues narrowing by a massive 95 per cent.

NFL too suffered the same fate, with the revenues of the Dallas Cowboys, Los Angeles Rams and New York Giants drying up by 16 per cent during this period.

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