How does IPL function financially? How it makes a profit? What’s the revenue model of the franchise owners? - letsdiskuss
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Sumil Yadav

Sales Manager... | Posted on | Share-Market-Finance

How does IPL function financially? How it makes a profit? What’s the revenue model of the franchise owners?


Entrepreneur | Posted on

Let’s take a look at your question in two parts. One, how Indian Premier League make money (which includes how it operates financially and how it makes a profit). Two, how team/franchise owners make money.

See, each team has 10 years contract with the BCCI to be a part of the tournament. And they got this contract after bidding for an amount. For example, in the first IPL, many people/companies bid to own a team in IPL. Whoever was the highest, those 8 teams were chosen to play the tournament. This team was bound to pay the bidding amount over the course of the next 10 years. For example, if someone bid for Rs 500 crore, the team owner was to pay BCCI Rs 50 crores every year for the next 10 years. This is how BCCI financed the initial stages of the first IPL, after which the tournament became pretty much self-sustainable.

Aside from getting money from the franchise owners, there are plenty more revenue streams for the BCCI.

· Sponsorship- First it was DLF, then Pepsi and now Vivo, BCCI gets a big money from the title sponsor of the tournament. Additionally, there are many different types of sponsors of the tournament. CEAT tyre, Vodafone, and more. Each of them pays decently to the organizers.

· Broadcast/Media right- It was Sony for the first 10 years. Now it is Star. The broadcasting partners pay very BIG. Like, Star is paying BCCI Rs 6,138 crore for the next 5 years. (These broadcasters make money from advertisements, and few other streams, which is a different topic altogether.)

· Tickets Sales- The money that stadiums make from tickets sale is distributed among many people. And it includes even BCCI. Depending on attendance and how much the revenue is generated from tickets sale, the organizers get paid a part of it.

These are the 3 big revenue streams for the BCCI, the organizer of Indian Premier League. They make money through these means, employ thousands of people, afford advertisement, prize money and sustain other expenditure. After all the expense, there are left with a big profit.

Now coming to the franchise owners. Well, they have their own share of the expense. First, they pay a stipulated amount to BCCI as fees. They afford players’ salaries. They also spend big on the hospitality aspect for the players every year, which includes accommodation, food, and traveling. When all combined, their bill gets quite too much. Thankfully, their revenue model is just as much. And when big names like SRK, Preity Zinta, Dhoni, Kohli, and Gayle are associated with the team, their brand gets valued much higher, in which case they can easily get big sponsors for themselves.

· Money from BCCI- Yes, BCCI doesn’t eat away all the money. A part of the money the organizers generate from the media rights goes to each of the teams.

· Tickets Sales- Each team gets a large sum of money generated from the tickets sales played on their home ground. This is why it’s so very important for each team to advertise properly and be exciting in the league to pull the good crowd in every match. Because their profit depends on it.

· Sponsors- Each team has different (and multiple) sponsors for themselves. The more brand value they have, the more brands will be willing to associate with them. For example, in IPL 1, KKR was at the very bottom of the points table. However, it was the most profitable team in the tournament. That’s because of King Khan, who brought his celebrity power, added more value to his franchise and attracted big brands like Nokia.

· Prize Money- Admittedly, Prize Money isn’t very much. The winning team, for example, got Rs 20 Crore in IPL 2018. The runner-up got Rs 12.5 crore.

All these money from different avenues not only make sure the franchise owners afford all the expense but are also left with a big profit.

This is how IPL sustains financially—this is how IPL team owners make big money. It is on this simple model has the valuation of Indian Premier League touched Rs 34,000 crore recently.