Business Model of IPL | How IPL Teams Make Money? | Dhruv Rathee

Whichever team wins in this IPL season, it'll get ₹200 million as the prize. ₹200 million. That's a tonne of money for a common man. But for an IPL team? What does it mean? Think about it. Even the cheapest IPL team, the Rajasthan Royal, per the last season, its brand value is almost ₹2.5 billion. And for teams like the Chennai Super Kings, their brand value is ₹27 billion. So what would a winning prize of ₹200 million mean to these teams? Obviously, the IPL matches that you see on your TV, are just the tip of the iceberg. The real money is exchanged behind the scenes. So friends, in today's video, come let's understand the Business Model of IPL. "Indian Premier League. It has developed a unique brand of cricket that combines entertainment with fast-paced action, and attracts players from around the world." "The Indian Premier Leauge or the IPL, has only been around for 12 years. But it's fast becoming one of the most popular and valuable cricket leagues on the planet." "India has given a model for other countries to follow." "When the IPL is successful, all these other places will set up their leagues." I'm not sure if you remember this friends, about 1 year before IPL began, ICL was established. Not IPL, the ICL. The Indian Cricket League. It was special because it was started by a private company. By the Zee Entertainment Enterprises. The company that runs TV channels like Zee TV, Zee News, etc. This company set up this league. The concept of ICL was similar to the one of IPL. There were supposed to be teams from different cities, players would be auctioned, the teams would buy the players, and then they would play against each other. But neither did our cricketing board BCCI recognised the ICL, nor did the international cricketing board ICC. Both organisations were displeased to see the larger number of cricketers playing in the ICL. To prevent the players from playing in the ICL, the BCCI increased their salaries for playing in their domestic tournaments. And said that the players who would play in the ICL, would face a lifetime ban from the BCCI tournaments. BCCI did not want to have a cricket league that it could not control. Later in September 2007, BCCI announced a similar league. The Indian Premier League or the IPL. The Vice-President of BCCI was Lalit Modi then. The tournament was being organised under his supervision. He said that they did not draw inspiration from the ICL. And that they were developing this idea for a long time. Earlier, this idea was quite popular in football and basketball. The English Premier League or EPL, a tournament for football. And the NBA in the USA for basketball. The first season of IPL was played in April 2008. The previous restrictions on players preventing them from playing in the ICL, slowly killed off the ICL. The last season of ICL was played in 2009. It is important to know this because if you want to understand the business model of the IPL, you need to understand how BCCI is at the centre of this business model. BCCI is the governing body of IPL. Had a tournament like the ICL gained popularity, the governing body of it would have been the Zee Entertainment Enterprises. It's not that BCCI is not a private company. The BCCI is also considered a private entity. It's an interesting fact. Many people consider BCCI as a government agency, but the government has no direct control over the BCCI. But since the International Cricket Council (ICC) recognises BCCI as the sole representative for the Indian team, and for cricket in India, it gives BCCI the authority to head cricket in India. If someday the ICC stops recognising BCCI, the BCCI would not be considered the cricket authority in India any longer. And because BCCI is not directly controlled by the Indian government. There have been several controversies in the past between the BCCI and the Indian government. But anyway, to return to our topic, the responsibility of conducting and organising IPL lies with the BCCI. In addition to BCCI, there are three other main components in the Business Model of IPL. First: the Broadcaster. The TV Channel on which you watch IPL. Second: the teams of IPL. Owned by private companies and private individuals. And the third: Sponsors. The private companies sponsoring IPL and the IPL teams. And run ads on the TV channels. BCCI is the fourth component in this model and is the governing body of IPL. They have 2 main sources of revenue. First is the sponsorship amount received by the BCCI. There are two types of sponsors. One, the title sponsor. You'd recall it used to be called DLF IPL at one point. Then it was known as Pepsi IPL. Vivo IPL. And now we know it as Tata IPL. The brand name that's used here with the name IPL, is the title sponsor. Because whenever you'd talk about IPL, you will recall the name of the company as well. So these brands pay a lot of money to become the title sponsor. Initially, in the first five seasons of IPL, DLF was the title sponsor with the sponsorship fees of ₹400 million each year. It was paid to the BCCI. Then Pepsi paid ₹790 million per year. Vivo had spent a lot of money on this. ₹1 billion in 2016-17 and almost ₹4.4 billion in 2018-19. The title sponsor in 2020 was Dream11, but Vivo was back in 2021. In 2020, Vivo withdrew as the title sponsor because of the tensions between India and China and it is a Chinese company. That's why Dream11 was the sponsor in 2020. But then Vivo was back with ₹4.40 billion. You can see how the Chinese company was willing to pay a large amount to be the sponsor. For the title sponsor of this year, Tata, it is estimated that they'll be spending ₹3.30 billion. Not as high as Vivo. With this, you can understand why Chinese sponsors are coveted so much,

whenever IPL is organised. Of the money received by BCCI from the title sponsorship, 50% of it is retained by them. And the remaining 50% is given to the teams. Since Tata has signed a contract for two years, Tata will remain the sponsor next year as well. Brands that sponsor various aspects of IPL. For example, CEAT tyres has sponsored the strategy break. They had paid ₹300 million to sponsor the strategic timeout. Apart from this, you might have noticed commentators say "The 'Cred Power Play' is going on." It is sponsored by Cred. Then they have the Dream11 Game Changer of the Match. There are several companies which sponsor multiple aspects. In total, it is estimated that BCCI receives around ₹2.10 billion from these official sponsors. Sponsorships are a source of revenue for BCCI, apart from this, the second important source of revenue for BCCI is selling rights to the Broadcasters. IPL will have to be broadcasted on some TV channel or the other so on which channel should it be broadcast? Every TV Channel would want to broadcast it so that they can get a high rate of viewership. So BCCI sells the Broadcasting Rights in exchange for money to the TV channels. For the first 10 years of IPL, Sony owned the media rights. From 2008 to 2017. They had spent ₹82 billion on it in total. So almost ₹8.2 billion for each season. But then in 2018, Star Sports bought its rights at ₹164 billion for 5 years. The approximate cost of it per year would be around ₹33 billion. Even here, half the amount received is retained by BCCI and the remaining is given to the franchises of the participating teams. If you look at it from the perspective of the broadcaster, If Star Sports is willing to spend ₹160 billion. it would be benefiting out of it too, because obviously, they wouldn't spend this large amount for no reason. Friends, the thing is that not only do they earn back this amount they end up making profits from this deal. Because if you want to run an ad for 10 seconds on Star Sports during IPL 2022 you will have to spend almost ₹1.5 million for the 10-second long ad. ₹1.45 million to be exact. It is the price charged by Star Sports if you want to run the ad during the match. The ads that are run between overs. Star Sports spends a considerable amount and most likely, it earns a higher amount by running the ads of the other sponsors on their TV channels. Now, let's look at it from the perspective of an IPL team. An IPL team is owned by private companies or by private individuals such as celebrities and rich businesspersons. They buy the IPL teams and after that, they have to spend on a lot of things. When the players are bought the IPL teams have to pay the salaries of the players for their transportation, training, all these expenses are borne by the IPL team. It is estimated that on average, an IPL team spends around ₹2 billion. It is a significant amount And the owners of the IPL teams wouldn't want to bear these expenses obviously, so where do they get this money from? I've already told you about one of the sources. BCCI shares 50% of its revenue with the IPL teams. But it is not enough. Even for the teams, the main source of revenue is from the sponsors. There are team sponsors. The brand sponsorships can be seen on the jerseys of the team members. On average, there are 10 brand logos on a regular IPL outfit. 6 on the jerseys,. 2 on the pants, and 2 on their caps. The brands pay the IPL teams to put their logos on the outfit. Apart from this, when you go to watch the matches in the stadium, the revenue from the ticket you buy, 80% of it goes to the IPL teams. Specifically speaking, for the stadium that's hosting the match gives 80% of the revenue to the home team. Such as if there's a match in the Wankhede Stadium, 80% of the revenue from the sale of tickets would go to the Mumbai Indian teams. The remaining 20% goes to the Home State Cricket Association. Each team plays at least seven home matches. So the teams have an opportunity to earn from this source as well. Although the revenue from the sale of tickets doesn't make much money. It is estimated that the stadium ticket sales from one match make about ₹40 million in a match. And since the price of food and beverages are hiked up there, it is another source of revenue. But ₹40 million on ₹50 million isn't very significant when you compare it to the expenses of each team, around ₹2 billion. Additionally, merchandising is also a source of revenue for the IPL teams. When you buy jerseys of your favourite teams. IPL merchandise can be of several types apart from jerseys. Such as keyrings, mobile covers, chargers, caps, joggers, coasters, wrist bands, and many other things. That you can purchase at stores. The revenue from selling these merchandise goes directly to the IPL teams. And finally, at the end, there's the prize money. ₹200 million goes to the winner of the IPL season. And the runner-up team, the one losing the final match, get about ₹130 million. The loser of the Qualifier 2 match would get ₹70 million, and the team losing the Eliminator match, get ₹65 million. Half of the prize money goes to the owners of the team. And the remaining goes to the players. It's divided equally among them. If you look at this from the perspective of the players, For playing in the IPL,

they obviously get a high salary, each player has their brand value. Famous players make more money during the auctioning. But in addition to this, since half the prize money is equally distributed among the players, this is an additional motivation for the players to win the tournament. If you look at the Business Model of the IPL from the perspective of the teams, as I've told you at the beginning of the video, The prize money is only ₹200 million. Whereas the average expense of an IPL team is ₹2 billion. And the brand values of the IPL teams have started exceeding ₹20 billion as well. So from the perspective of the owners of the IPL teams, what motivates them to own the winning team? Think about it. Why would the owners of the IPL teams want their teams to win the tournament? ₹200 million isn't significant in this context. It is not because of this ₹200 million that they would want the team to win. Instead, the real reason here is the brand value of their team. If they win the IPL, it will be a sort of publicity for their team. More people would know and support their team. And more people would watch the team's matches. And when they'd get positive feedback from the people, with more viewership, sponsors would also flock to the IPL team. And the brands will be willing to pay more to sponsor their logo on the jersey of that IPL team. The brand value of the IPL team is much more important from the perspective of the Business Model rather than the prize money. Additionally, the brand value of the IPL team, increases when they get a famous player in their team. Like MS Dhoni playing for Chennai Super Kings, Virat Kohli for Royal Challengers Bangalore. Teams try to nab the good players. Oftentimes, famous Bollywood stars and famous businesspersons increase the brand value of the team. Take the case of Shahrukh Khan and Kolkata Knight Riders. Teams also give out the stakes in the team. So that they can be bought by other private companies. For example, LIC holds a 6.04% stake in Chennai Super Kings. Rajasthan Royals had sold a 15% stake to RedBird Capital Partners. So this is how the Business Model of IPL works. If you enjoyed this video, I would definitely recommend that you watch the other videos I have on Business Models. I made one on the Business Model of the T20 World Cup. On the Business Model at work when the World Cup is organised. The flow of funds in it. I have made videos on the Business Models of several companies as well. Such as Amazon, Tesla, You can click here to get the playlist of the Business Models to watch them. Let's meet in the next video. Thank you very much.,