The Economics Of IPL In India

The majority of IPL revenues come from the media rights income and the franchise fee

The economics of sports leagues in India are a little warped. Let me phrase it a bit better. Only the IPL is a self-sustaining league. Every other league is losing money. And not just from a league perspective. The team owners are losing crores every year with no path to profitability.
Let’s look at the IPL central & team numbers, and compare them with a non-cricket sports league like the Indian Super League (ISL for short, football league in India). Do note, that the numbers here are pieced together from annual reports, and public newspapers, and are all indicative.

The majority of IPL revenues come from the media rights income. This is the fee that is paid by broadcasting companies, to be able to stream the sport on their platform. I’ve taken a look at the latest numbers that were available in the BCCI annual report. This is the biggest piece of the revenue not just for the league, but for the teams, and is what is required to make this whole business sustainable. From 2018 - 2022 this was ~3200 cr per year (Star paid 16,347 cr for the rights to stream this from 2018 - 2022).  From 2023 - 2028, Viacom bought these rights from ~23,000 cr, growing the annual fees by ~55 per cent.  This is important because the way the league business model works is that the media rights, along with the central sponsorship generated constitute the central pool. For the first 10 years, 60 per cent of this central pool is returned to the franchises. This per cent of the central pool is the biggest source of revenue for the IPL franchises. 

The second biggest share of income for the league comes from the franchise fee. This is the fee that is paid by the franchisee every year to the league for the right to own and operate the team. Normally, this is paid out as a fixed number of instalments for the first 10 years, after which the owners own the team until perpetuity. While the earlier teams started in 2008 (Mumbai Indians, Chennai Super Kings etc) paid ~850 - 900 cr in total over the years as franchise fees, newer teams such as Gujarat Titans (started in 2021), and Lucknow (Started in 2021) have to shell out a total of ~5600 - 7100 cr, which comes to roughly ~560 - 700 cr every year as franchise fee that they have to pay to the league, add to the central income. The reason for this exponential increase is that when the earlier teams first came in the league was still new and unprofitable, and the media rights fees were not that high. Now teams stand to make ~300 cr just from the Franchise share of media rights fees. This is close to ~500 cr if you count the entire central pool (media rights + sponsorship revenue). 

Take a look at the Chennai Super Kings P&L:



Some quick points here:
1. 70 per cent of the franchise revenue comes from the central pool. This covers ~90 per cent of the cost of operations. Only the central revenue is majorly needed to fund the franchises. And that’s what makes them sustainable.
 2. The franchise fee is paid only for 10 years. This is the cost of buying the team essentially. This ended for the original IPL franchises in 2018. The franchise fee that you see for the Chennai Super Kings is part of a clause added in 2018 - which states that franchisees have to pay 20 per cent of their revenue (which includes the central pool share) back to the League. But because everyone is making crores, no one complains about this.
 3. After the new negotiated rights for 2023 - 2028, the central pool (sponsorship + media rights) stands to be close to ~500 cr, and teams are expected to jump in profitability from ~40-50 cr in 2022-23, to ~300 cr from 2023-24 onwards
 4. And that’s why new teams such as Lucknow, and Gujarat are okay paying ~500-700 cr every year as franchise fees. The original teams were profitable in 7 years, and have started recouping costs back on their original investment of ~1000 cr. And even if they haven’t, they’ll make it back in this next 2023 - 2028 cycle.

But the key takeaway here is that:

The central pool earned by the League is what makes the Franchises self-sustaining. This is essential for the first 10-12 years of the franchise operation. The team owners have to see a path to profitability and be supported by the central authorities. It’s also probably why in the IPL, no one complains about the 20 per cent fee that the teams have to pay back to the BCCI. Everyone is making money.

(The author is Ambika Pande, Associate Consultant - Corporate Strategy, Razorpay)

Tags assigned to this article:

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.