The Economics of the Indian Premier League
The Indian Premier League or the IPL is one of the world’s biggest and richest T20 cricket leagues. The IPL alone accounts for 60% of the BCCI’s (Board of Control for Cricket in India) revenue.
The birth of IPL
Cricket is a religion in India. One can see children in the narrowest of streets playing with worn-out balls and bats. Cricket has a billion fans globally and 90% of these come from India.
During 2007, when India won the first-ever T20 world cup, Indian fans were amazed by this new structure of cricket called T20. T20 consisted of a 20 overs per team format, which meant reduced playing durations and higher entertainment for fans because of the power-packed hitting by the batsmen.
The founder and first chairman of the IPL, Lalit Modi, saw an amazing opportunity after watching several seasons of the EPL (English Premier League). So, he first introduced the IPL in 2008, with 8 teams in a 56-match format and semifinals and finals for the top 4 teams. The rest is history.
How does the IPL generate revenue?
Accounting for more than half of BCCI’s revenues must mean that the IPL must be thriving. In the auctions we see teams spending 80 crore rupees to form teams of 25 players, whereas, the winning team only receives 20 crores at the end of the season. How do the team owners profit from this and how does the BCCI profit from this?
1. Media Rights
The most important source of revenue for an IPL team and BCCI is media rights. To broadcast the IPL matches on live coverage, a media channel buys rights from the BCCI. In 2018, Stars Sports India paid 16,374 crore rupees for a 5-year contract! This is paid directly to the BCCI and is then paid to each team depending on a variety of factors. The most important factor is the viewership they receive on each game. Higher the viewership, the higher their share.
2. Sponsorship and title sponsor rights
The IPL has a title sponsor which is embedded in the IPL’s name for that particular season. For example, for the 2021 season, the title sponsor is Vivo, so the name of this year’s IPL is Vivo IPL. Vivo pays 440 crores. The 5 official sponsors, Upstox, Dream 11, Unacademy, Cred and Tata Motors pay 220 crores. This money is then again paid to the teams in a share. Moreover, each team also has its sponsors. These can be seen as logos on their jerseys. They are called brand sponsorships. Players also have to sign a contract which forbids them from naysaying against shooting any advertisement for the sponsors.
One must wonder why a company or brand would invest such a large sum of money in the IPL. Well, the answer is simple, it is very profitable. Vivo’s market share has jumped from 6% to 17% in the 4 years it has been with IPL, which is a very significant rise in such a competitive industry. The IPL’s viewership is larger than any other sport at that particular time frame in India. Furthermore, it is viewed by every age group. Fan loyalty is very common to the extent that fans prefer the products of the sponsors of their favourite teams. In between each over there is a roll of 20-30 seconds ads of the official and brand sponsors. Moreover, including the timeouts, innings break and technical breaks, the ad time is around 40 minutes in one game. These 40 minutes is very valuable time for companies looking to make a name.
3. Ticket sales
Each stadium has an average seating capacity of 50,000 to 70,000. IPL games are generally near full which makes these sales very profitable. Each team has 7 home games which means that fans would be eager to watch their favourite team in a stadium near them. The majority of the revenue earned goes to the pockets of the teams whereas a small share goes to the BCCI.
4. Prize money
All 8 teams are allocated prize money worth 50 crores where 20 crores are awarded to the winner and the rest is split up among the teams depending on their standings on the points table.
5. Merchandise
In the last few years, IPL teams have been focusing on production lines of different replica jerseys for fans. This is a growing stream of revenue for IPL teams. Teams also have partnerships with other clothing brands to style their clothing lines. For example, the Royal Challengers Bangalore have signed a deal with Polo to design comfort wear with the RCB logo.
Another stream of revenue, which have been recently growing, is YouTube. Many teams are starting to focus heavily on their YouTube videos which include, in-team discussions, post-match celebrations, highlights, etc. All these videos bring the fans closer to their favourite cricketers which is why they have been so successful in gaining views and ad revenue.
On average a team earns 200 crores in one season with a 30% profit on the revenue. Costs for the teams include franchise fees to the BCCI (20% of the franchise revenue), player and coach’s salary, support staff, stadium rent, and administration cost, marketing, living and travel expenses, and cricket associations fee.
Over the 14 years of the IPL, each team has made their average brand value of over 500 crores with the tier A teams: Mumbai Indians, Chennai Super Kings and Sunrisers Hyderabad, having a value upwards of 700 crores. It must be noted that this is a very rough figure and each team’s revenues vary each season. The revenues of the BCCI exceed 4,000 crores, which is a huge figure in any sporting event.
Macro-Level Implications of IPL on the Indian economy
Now we know that the IPL is very beneficial for the BCCI, the teams and private companies. But does it have any impact on the Indian economy?
Before the IPL, the BCCI was considered a charitable organization and paid no taxes. However, after the IPL was considered a commercial activity, the BCCI has been contributing largely to government revenues through taxes. Since 2008, the IPL has paid upwards of 350 crore rupees every year.
Furthermore, the IPL has majorly influenced the tourism industry throughout India, not only in tier 1 cities but also in tier 2 cities. The IPL teams consist of many foreign players from all around the world. When they come to play in India some of their fans follow, which results in large numbers of tourists from the United Kingdom, Australia and South Africa. In the 2019 season, there was an increase in tourists by 30% during the 2 months when the IPL was played, in the major IPL cities. Because IPL games take place in tier 2 cities like Pune, Indore, etc, their respective governments are encouraged to increase spending in infrastructure to accommodate the tourists.
Another area where the IPL has been a blessing is employment. Each team requires some support staff which include, their physios, medics, analysts, drivers, coaches, etc, which add up to more than 100 members. Each venue also requires several groundsmen to look after the field, pitch, stands, concession stands, etc.
In conclusion, we can see that this extremely popular 2-month sporting event leaves all 3 parties with smiles on their faces: the BCCI, the teams and the fans. The BCCI and teams generate revenue due to media rights, sponsorship rights, ticket sales, prize money and many other activities that individual team owners are implementing such as merchandise. The IPL also leaves many macro-level positives for the Indian economy such as boosting sports tourism, employment and government revenues. Fans will hope that the IPL continues for the years to come!
Written by Aryan Jain; Edited by Alexey Dudarev
