Current IPL business model

JAI DUGGAR

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Today, I'll talk about IPL,how much money does IPL and franchisee earn and spends. How much money do the players get, how much money was spent by Vivo. How earlier the IPL teams were in losses and how do they became profitable now. And the business strategies that have changed over the course of lPL. Let us start with the business model of IPL and how does IPL earn its revenue.

 IPL is owned and governed by the BCCI. It started with the auction of teams. Everyone were asked to place a bid to purchase a team respectively. So,all the big names, entrepreneurs and others came up together(like Shahrukh Khan) and formed their own group and purchased a team. The BCCI collected an estimate of 5,000 crore from this bidding itself for 10yrs. This money was meant for the 10yrs, 500cr. for each year. This money and model was for the first 10years,so it started in 2008 and ended in  2018. After 2018,they put an end to this system. According to me,the previous business model that they were working upon was not so profitable for the franchisee owners. All the franchisee's were in losses except one or two which were profitable Like Mr.Shahrukh Khan who I personally think is one of the best businessman among the Bollywood icons. Now, we'll talk about the reasons why he was profitable? We'll talk about the history later,let us now start talking about the current scenario.

 Firstly, BCCI said that it will distribute comission 40% of the money earned through the media rights and sponsorships Media rights are rights bought by TV channels to broadcast a certain programme. Here, Star has bought the media rights of IPL, earlier reserved with Sony 40% of this money earned through media rights is distributed among the franchisee every year. And 40% of the profit money earned through title sponsorship(Vivo IPL) will also be distributed among the franchisee owners. They also get money from jersey sponsorships and team partnerships. There are logos sticked on the whole team jersey. I am taking hypothetical figures because I could not find the exact numbers while researching and I also don't want to give you vague answers, so I have assumed that each team gets around 25crores for these sponsorship logos on their jersey for one season. The teams also earn some revenue with each of their matches Like if it is a home game and it is their home venue 

Let say, Kolkata Knight Riders. If it is a home game for them,then 80% of the revenue earned through that match will be kept by the franchisee owner And 20% will be kept by the BCCI. Talking about Kolkata Knight Riders, they have one of the biggest grounds in India. So the revenue collection here will be much more than the other stadiums. This is one of the many reasons why Shahrukh Khan and KKR were profitable in these last years. Because the revenue collection is more(a larger crowd can be accomodated and sold tickets to). Taking an estimate,I think each team earns around 1 crore rupees from the sale of match tickets in one match. It is the average figure for all the teams. This figure only includes money earned through match tickets. They also make profit through advertisements on boundary boards. The whole stadium is covered with such advertisement boards. Teams also earn through these advertisements as well. So, assuming they earn approximately 1crore per match from here. The home matches,i.e.,the matches that will take place in the home ground of teams are 14. So it makes up to 14 crore rupees per season. And we earn a total of 28 crore rupees from match tickets and ground sponsor. Adding up all,we get a total revenue of around 240 crores. This is not the net profit,it is the revenue. Out of this revenue, 20% is to be given to the BCCI. So 20% of it,goes there. Alongside for bidding purposes, teams are alloted a specific amount that they can spend on players. And that amount is usually 80crores every year. So out of the revenue, 80crores is spent on the purchase of players. They also have to look after the well being and performance of the team.

Let us talk about the support staff.It consists of the coach, management, etc. If we're spending about 25 crores on the players, we can say that we are spending approx. 15 crores on the support staff as well. The franchisee owner also has to look after their hospitality, travelling, food, etc. So,I am assuming,they spend around 60 crore rupees on all this. The IPL goes on for around 60 days, so according to this,the owners spends 1 crore rupees daily for the team's well being. Now, even for their practice sessions, they have to hire local grounds, nets and handy equipments. So,I've estimated that, they spend around 10 crore rupees on this. Now, they also spend some money on advertisements. So,why do they spend money on advertisements? Thinking logically. They spend around 25 crores on advertisement. They're spending so much on advertisements to create a hype or zeal about the team among the fans. And due to this hype, people will come in huge numbers to watch their matches. So, the revenue earned through match tickets will go up. And this hype among fans can also get them good and high amount of money from jersey sponsors and ground advertisers,

As Shahrukh Khan sir is a well established and known star in the industry and knows a lot about brands. So personally I think ,that he would have carried out these brand and sponsorship deals easily. This is also one of the many reasons he and his team are one of the most profitable teams in the IPL. Even though, they don't win as much as CSK Or MI So,the overall cost fits around 232 crores. Calculating the profit from this, it comes out to be almost nothing. A lot of people will say that I have made some calculation mistake or error. Even I was thinking that there is some mistake. Later, I got to know that my estimations are almost correct. Now, this franchisee is also a 'company',right? They're actually doing business,right?  After investing so much money and incurring different type of costs, are they working to only earn 5cr profit? 10 years ago or in the previous years, the teams were running in losses. Now, why were they still functioning even after being in losses? It is because they have a small advantage. 

For instance, let's talk about Mukesh Ambani. Mukesh Ambani bought Mumbai Indians, and with this he has reserved all its rights(for example,marketing rights). And so now, he can sell also his product through them. He can take the players to do his product advertisements. These are the strategic advantages.  According to the research, I heard a lot about spot fixing in IPL.  And I have no opinion regarding this, as I have no fact to prove it. But according to people, IPL is filled with spot fixing. By chance if there is any spot fixing in IPL, then teams would also be earning huge amounts of black money. According to some people, every match in IPL is pre-fixed. Which I disapprove of. A whole match can't be fixed but it can be spot fixed. In simple terms, Spotfixing means who will bowl the first, second, other overs, who'll open the batting and who will be the wicketkeeper, etc. And matchfixing means fixing the whole match, i.e.,fixing what will happen with every bowl. This is very difficult to execute practically. If this really happens, I will all lose my faith and trust from everyone and cricket 2-3 years ago, the same happened with Chennai Super Kings. Chennai Super Kings was banned because of spotfixing. Dhoni's name was also involved in this controversy. And due to this incident,they were banned for two years. So why were they banned? If this event or news would have come under the limelight of a lot of people, then IPL would've lost its trust And it would have taken a toll over its viewership. Even I have observed the same,that if we continuously see some similar suspicious thing happening in 2-3 matches. Then we start doubting that is it a scam or conspiracy. And when you start believing the same, then you start losing your interest in the sport.

 For instance,WWE. When I was kid, I thoroughly enjoyed it. And when I got to know that it is all made up, I used to see it with a different angle. That could have happened with IPL, and I personally think that even if CSK were the actual culprit. They were dismissed without a strict action just for the sake of maintaining IPL's credibility. All these are my personal views and opinions, but I actually don't know about the true answer. Because I've heard from a lot of people about who'll win the game, when will a six be scored and that each session and every little thing is fixed.

 In the previous and initial seasons, the media rights were of only 700 crore rupees per year. Only 700 crore rupees. And after Star bought the media rights at a massive amount, teams start becoming profitable. Initially, they made a 80-20 rule,where 80% of the money received through media rights will be distributed among the franchisee and the rest by the BCCI. In the 3rd and 4th year, BCCI got hungry and changed the rule to 70-30. In the 4th year, they felt more hungry and changed the rule to 60-40 and this exists till date. And due to this, the share of profit to be earned by the franchisee only went down. With all the costs remaining unchanged BCCI became more profitable. But talking about the current scenario, the teams are getting a good amount of money because we got more media rights. And even after the 60-40 rule, the franchisees are earning more money due to Star. The title rights, now are 520 crore rupees which is distributed among teams, were initially 50-60 crores For each year. The same change in rule happened in Title rights due to the greed of BCCI. Earlier,60% of the money received through title rights was given to franchisee and now 50% is given, and the rest is kept by the BCCI. But in totality, franchisee owners are receiving more money now because of the big sponsorship deals Star has given a lot of money Vivo(title right owners) is also giving a good amount of money. DLF were the first title rights owner, then PEPSI IPL and then VIVO IPL And so the amount kept on increasing. 

When IPL was launched in the beginning, it was a blockbuster. After that it went downwards And once they went international as well, so that was a little successful. So after the initial phase,their equity kept on decreasing. But if I talk about recent years,we can see the equity going up. Why? Because now the franchisee owners are also earning a good amount of profit. If I invest my money in my business, and if I don't see the returns, then why would I continue to run my business? Ignoring the if and maybe's(that what if they get a lot of money from spotfixing, etc). Let us assume that there is no such thing happening and it is a fair world. Still why would they take so much responsibilities and burden just to earn 5crore rupees from all this? You work hard for the whole year,earn a big name for your franchisee and then end up earning just 5crore rupees. And there are a good number of chances you might end up in losses as well. Similar to what a lot of companies faced in the last 10 years. 

The other thing is the Winning prize money. The one who'll win,will take the winning prize. The winning team will get 20 crore rupees The runner ups will get 12 crore rupees. Now, this total amount does not go to the franchisee owners. It is mandatory for them to give 50% of this money to the players or more(optional). So we can't predict this money coming into our wallets. The players receive many additional benefits throughout the IPL. They get a lot of exposure, and we get to pick a lot of international players from the IPL circuit itself. They also get a good amount of money Players with a bad financial state turn into millionaires in a single night. Uncapped players also get a good amount of money and exposure. The whole company does not earn upto 5 crore rupees profit in a year and the player earns that in a single day. Even though that player is uncapped, i.e., he has not played even a single international match. Also if you win the Man of the Match, Orange Cap, Purple Cap, etc award, you get some money from there as well. They've also brought out some new awards like Stylish Player, Because basically they've got sponsorships from companies, so in order to promote them, they do anything. Like Vivo Stylish Player of the Match award and many more. So the player earns money from these awards and prizes as well.

 All of these are marketing strategies of IPL. I hope you've understood everything. I explained in this Blog. Personally, I do not think that IPL's business model is very profitable Because I had this basic view that if someone has purchased an IPL team, he would be earning loads of money. And by loads of money, I never thought it to be as little as 5 crore rupees. Even at max, they can earn as much as only 50 crore rupees. And after investing so much and putting so much, you get only 5 crore. So according to me, it isn't the most amazing business model even if it is in the entertainment industry and is very popular. So, that's all for today...

THANK YOU.