How IPL Works?

As the players from across the world are walking with the tags around their neck, the BCCI, the franchise owners and the other stake holders are busy making things commercially feasible and economically sustainable. The billion dollar question is – Will IPL work? if, yes then how?

Irrespective of whether it is a success or a failure, the mastermind of IPL, Mr. Lalit Modi has played his mind in such a way that it will keep the BCCI’s cash register ringing. It is set to pocket around $723.6 million through the auction of eight big Indian city teams to some of India’s biggest business houses like GMR, India Cement, Reliance etc. It has already sold television rights for $918 million to Sony and World Sports Group (WSG) for a period of 10 years. WSG has also been sold the marketing and promotional rights for another $108 million. Most of this ($1.06 billion) will be distributed amongst the franchise owners, but BCCI still will be making money. IPL has also raised $72 million from giving title sponsorship to DLF ($50 million) and title co-sponsorship to Hero Honda ($22 million).

Now let’s look at things from the franchise owners, Sony-WSG and players point of view.  Sony-WSG will be paying only $350 million in the first five years and rest (about $550 million) over the next five years; hence Sony-WSG will be paying IPL $70 million in the first year. Sony is banking on the TRP which it might get for the inaugural season. The tri-series in Australia – which was a great success because of both on field and off field news – saw ESPN-Star cash register ringing; they got whopping $62 million for 14 ODI matches, out of which 2 were rained out. Now balancing out the equation will mean that the number of advertising spots in an ODI match will be equal to that in around 3 Twenty-20 matches. If above numbers are to be believed then Sony will be making near about $60 million in the inaugural season. That would mean that only a drastic increase in the popularity of IPL will mean profits for Sony-WSG. Also, Sony has around 12744 ten second spots, for 59 matches that will be played, which it can sell for around $5000 to $7000 and can get around $60-65 million.

Coming to franchise owners, bids ranged from $117 million (Reliance – Mumbai Indians) to $67 million (Emerging India - Jiapur) for eight teams, totaling to 723.6 million for ten years.  This means the owners will be spending anywhere between $7 – $11.7 million per year in owning a team and another $7 – $10 million in maintaining staff, building team and other activities. This translates to a expense of $15-21 million in the first year for every franchise. IPL will be giving a share of 8% to each team (i.e. total of 64%) from the $918 million that it got from Sony-WSG, which translates to an earning of $7 million for each team. Also, another 8% will be distributed according to the rank a team gets when they finish the league. Each team will play at least seven matches at their home ground and the money coming out of the sale of tickets will go to the home team’s owner. Assuming attendance of 12.000 for each match (which is least) and Rs 500 as an average price, owner will get approximately $1.5 million from all seven matches. Another $2-3 million from the local team sponsorship deals. Another take away will the of 7% share that teams will get from the IPL sponsorship deals which currently stands at $ 72 million but can go much more. Also, each team will have to pay 20% of local revenues to BCCI. Taking in account all the above expenses and earnings, a franchise will earn about 12 million and let’s not forget the winning prize of $5 million. Hence, if franchises manage their teams and other details nicely, they will break even and make profits in the ten year period. Some of the franchises apart from the profits are more interested in creating a brand image for their companies such as UB group, Reliance, emerging India etc. This will also make launch of new products and services easier for them as IPL is a national phenomenon.

Players are the root of IPL and they are the ones who are actually bringing cash to BCCI. Each player has to sign a contract with BCCI. IPL has two type of contracts – under first, called the firm agreement, the player will get a fixed sum from BCCI and the difference between the bid amount and the fixed fee will be earned by BCCI, on the other hand the second, called the basic agreement, gives a player freedom to take home the amount he has been bid for. The average amount of money each player will take home is whopping Rs 80 lakhs.  IPL also makes it mandatory for franchise to spend at least $3.3million annually for player fees and give $100 as per day per player daily allowance. International players will be immediately released to attend their international matches if they clash with IPL whereas for domestic boards, which rely heavily on the players, will have to give way to IPL as players need to decide where they want to play, and a player who gets Rs 80 lakhs for 45 days will not leave IPL anyhow. Hence, it will be a loss to domestic boards but a great opportunity for youngsters who don’t get chance to perform in national and international leagues.

Some of the figures stated above are well researched and analyzed but there is no surety that it will happen. If everything falls into place, IPL will be remembered for its glamour, money, cricket and opportunities for young cricketers.