The Economy of IPL: Cricket’s billion-dollar child
The festive season in India is said to be around October-November but for an ardent cricket fan, it’s in the Indian summer when a two-month-long festival is on. This festival is popularly known as the Indian Premier League (IPL). While this world’s most high-profile cricket tournament is said to be the toughest cricket league in the world with the best world-class players competing in it, there’s a more important financial angle that goes with it. IPL is the most profitable cricket league and the fourth most profitable sports league in the world. It’s even a notch higher than the English Premier League(EPL).
The brand value of IPL was estimated to be a mammoth $6.7 billion by the Duff and Phelps financial consultancy in 2019. This comes as no surprise as the league attracts a huge TV audience in India and has spawned T20 tournaments across the world. Before the pandemic, it was estimated to generate more than $11 billion for our economy each year. On October 24, two new franchises in the IPL went under the hammer in Dubai. This was because IPL is all set to increase from 8 to 10 teams as it seeks to capitalize on the wave of international popularity it has sent across the globe.
The size of the bids for the new teams reiterates the fact that the cricket economy is just getting buoyant with time. Sanjiv Goenka’s RPSG group won the bid for Lucknow with Rs 7,090 crore while international investment equity firm CVC Capital claimed the Ahmedabad franchise at Rs 5,625 crore. However, CVC Capital is still under scrutiny owing to ethical and legal reasons. The teams had a base price of Rs 2,000 crore. Sourav Ganguly, the president of the Board of Control for Cricket in India (BCCI), the country’s apex cricketing body, said it was “heartening” to see the bids of “such a high valuation”. He went on to say that “It reiterates the cricketing and financial strength of our cricket ecosystem”.
To throw insight on the size of the bids, let’s go back to 2008. Mukesh Ambani, the billionaire bagged Mumbai Indians for $111.9 million which cost about Rs 450 crore at the then exchange rate. Thus, the present bids are more than ten times for what the most successful franchise, Mumbai Indians was purchased. It’s raining money for the BCCI as they have raked in Rs 12,715 crore just from the sale of 2 teams. When we add the additional revenue that is in the pipeline due to this change brought in the dynamics, we understand the scale of it.
The revenue from broadcasting and sponsorships is expected to increase by Rs 450 crore in 2022 as the number of matches will go up from 60 to 74 due to the additional 2 teams. Disney + Hotstar has to pay Rs 54.5 crore per match for streaming the live matches. However, the biggest jackpot is expected to arrive in 2023 when the digital and media rights of the IPL will be up for auction again for a period of five years. Industry and BCCI experts believe that the winning bid price, which was Rs 16,347.5 crore and was made by Disney + Hotstar, would double to Rs 32,694 crore. If this is achieved, the share of revenue only from this segment for each of the 10 franchisees will increase by 60%. For those uninformed, the central revenues of BCCI from the IPL, which include sponsorships as well as the digital and broadcasting rights are shared in a manner such that half of it goes to BCCI and the other half is shared equally by the teams.
Besides a monumental increase in revenue from the broadcasting and digital rights, the new teams would also mean increased revenue from sponsorships as more matches will be played. The stars seem aligned to do all the good not only for the BCCI but also for the new and old franchisees. The bid winners don’t have to pay the entire money in one go but only 20% of their revenue each year until the total amount is met. Apart from the central revenue, the franchisees also earn from team sponsorship like branding on the jersey, selling team-branded products, tickets sales, etc. However, the matter of concern is that ad volumes have dipped during IPL 2021 when compared to last year. They grew by 7% in the first leg of this IPL which saw 29 matches but saw a decline of 8% in relation to last year. Moreover, the total count of brands decreased by 6% in this IPL and the total ad volumes drop was 0.8% in the 60 matches.
Notwithstanding this fact, the huge expected revenue upside is a reason enough for the teams to have the interest vested in the form of huge investments. Some say that the share from central revenues would decrease next year as it would now have to be divided among 10 teams instead of 8. But looking at the larger picture, especially the acquisition of broadcasting and digital rights in 2023, there's an assurance that the future is bright for cricket’s billion-dollar child- IPL that continues to prove to be a cash cow.
Author: Mayank Kedia
Illustration by: Udeshay Teotia