The Dynamics of IPL Economy
Updated: Aug 3, 2022
Image Credits: ET Brand Equity
The Indian Premier League is the biggest cricket league in the world. It is the brainchild of BCCI (Board of Control for Cricket In India) and was founded in 2008 on the back of India's unprecedented and spectacular success in the first-ever T20 World Cup up in South Africa, in 2007.
The BCCI wanted to organize a domestic league, taking inspiration from some of the biggest leagues of the time; the English Premier League, the National Football League, and many more.
The tournament came into existence in 2008 and became an instant hit in a country with a billion cricket fans looking for fast-paced and dazzling entertainment. The success was not just limited to India, but the League achieved global fame and recognition, thus setting up a precedence for many other cricket boards around the world to set up their own leagues, such as the Big Bash, CPL, PSL and many others.
The IPL, which probably started as an experiment, revolutionized the game forever and the T20 fever took over everyone. The tournament experienced spectacular success, and with it came economic prosperity for the BCCI and Indian cricket. The IPL became such an extensive part of the cricket community that the International Cricket Council had to carve out a separate window for IPL because the players seemed to show more interest in representing domestic franchises than their national teams. The IPL has grown by leaps and bounds in its short span of 15 years and has become the fastest-growing league in the world.
The IPL achieved another feat when the media rights for the IPL cycle 2023-2027 went for Rs. 48,390.32 crores, almost thrice the amount received from the last cycle, Rs. 16,347.5 crores. This caused a stir in the cricketing community all over the world. This amount was 10 times more than what was received by Big Bash for the period of 5 years from 2020 to 2025. This brought the IPL to the same table as the most successful leagues all over the world. The Indian Premier League is now only second to the American National Football League (NFL) in terms of media rights, valued at $16 million per game, bettered only by the NFL at $17 million. This raised a few eyebrows all across the globe. Why has IPL become such a lucrative deal for the broadcasters and why are we witnessing a continuous rise in IPL’s brand value? How does the IPL economics work? What do the franchises earn? And, is the model sustainable?
Image Credits: DNA India
The IPL has a huge audience and that is why it has become a lucrative market for different brands, who are ready to pay large sums of money to be featured in the league. The advertisers paid nearly Rs. 15-18 lakhs for a TV ad per 10 seconds in the 2022 season. The broadcasters received an estimated 4300 crores for the season, the majority of which came from TV and in comparison minor contributions from the OTT platform. With an exponential rise in the media rights value, the advertising rates are expected to skyrocket, soar and achieve new heights. But still, the advertisers are expected to remain with the IPL because it provides them with a great opportunity to increase their consumer base, sway millions of consumers, and help broadcasters generate an additional user base. The Indian Premier League is one of its kind and is expected to grow in the future at an impeccable rate.
The IPL generates most of its revenue from these media rights which contribute to nearly 45% of its total revenue. It is followed by Title Sponsorship which accounts for nearly 31% of the total revenue. The rest comes from brand sponsorship, ticket sales, merchandise sales, and prize money. The Chinese smartphone manufacturer VIVO paid 2199 crore rupees for the title sponsorship of IPL from 2018 to 2022 in a deal more expensive than the English Premier League title sponsorship contract. The title sponsorship is now with the TATA group for a whopping 300 crores rupees per year. The BCCI shares 50% of its revenue from the sale of central rights with the franchises, which is their main source of revenue. The franchises have separate sponsorship contracts with different brands that pay a large amount of money for the best spots on the team’s jerseys. They also receive rights for the use of the team's name, their logo, and players' images in their ad campaigns. The next season is expected to witness a growth of 15 to 20% in sponsorship contracts, keeping in mind the increased number of matches and the possible rise in viewership. The franchises also earn money from ticket sales, 20% of which is given to the ground association for its maintenance and other expenses. Other than that, teams also earn from merchandise sales. The franchises are required to pay 20% of their total revenue to the BCCI. With a meteoric rise in media rights value, the Franchises are looking at a ×2 rise in their revenue with a minimal inflationary rise in their expenditure which is already at a record high due to COVID-19 restrictions. This would also boost their net profits which are expected to double from next year onwards. The growth in the media rights value is a win-win situation for the BCCI and in general for cricket in India as the board could spend even more to nurture talent throughout the country and maintain the dominance it enjoys in global cricket. But the real challenge is whether IPL can maintain its popularity in India because it is still a domestic product with only 2.2% revenue generation from other countries. But the 2022-23 season witnessed a 30%–35% downfall in IPL viewership for the first four weeks as compared to the last year. It was reported that many advertisers asked Disney to provide them with other advertisement slots in high-impact properties. This is a worry for both the broadcasters and advertisers, who are hoping for the viewership to rise in the coming years. If they fail to do so, the tournament would struggle economically in the upcoming cycle. Still, IPL is a profitable commodity for every major stakeholder but with rising advertising prices, will brands continue to associate themselves with the IPL, or will they look for a more economical source of advertising with rising inflation and a probable economic slowdown due to the US recession?
The broadcasting rights were nearly 55 crores per match in the last media rights cycle and Star Sports, a subsidiary of Disney, was able to recover nearly 50 crores per game, most of it coming from TV with digital streaming contributing a smaller part. The 10-second advertisement slot was sold for Rs.15-16 lakhs in the 2022-2023 season and Disney was able to make nearly 4300 crores as their ad revenue. This season the Disney-backed Star group has acquired TV rights for a sum of Rs.23,575 crores. To cover their acquisition cost and break-even they will have to price the 10-second advertisement slot at Rs19 lakhs. This is a tough task considering that the advertisement rates are at an all-time high in the sports market. The famous capital and financial firm Elara Capitals has predicted that television would attain profitability in the second year.
The major concern lies in the digital sphere which is unable to legitimize itself as a large source of the advertisement income. The Disney-backed Hotstar was able to earn only 800 crores from their ad revenue but managed to stay afloat due to their income from television. But it was in part due to their low subscriber base which is around 50 million. Though the Reliance-backed Viacom 18 is a very big player in the digital market with its reach through the mighty Jio network, it might still struggle to bring in large amounts of money through advertisements. The Viacom network would be hoping to capitalize on the already existing 500 million subscriber base created by Jio to bring large viewership to its OTT platform and make it a remunerative deal for advertisers who want to reach the maximum number of people. As many estimates suggest, the TV will be overpowered by the OTT platforms and would bring about greater profits in the long run. They would also be looking to promote the Jio mobile network, other Reliance subsidiaries, and their brand image and add to their already dominant position in the Indian market through this deal. Another problem is that a major part of the broadcaster's revenue comes from around 40 brands that earlier advertised both on TV as well as the digital platforms. But with rising advertising prices, these brands would find themselves torn between the two mediums. Moreover, due to different TV and digital broadcasters, there could be stiff competition between the two for more advertisers and a greater share of advertising revenue. Fintech, Edtech, and other coming-of-age firms would make a rapid shift to digital mediums where they could appeal to and capture more target audiences. While the traditional FMCGs are expected to remain in the sphere of television. There is also a shortage of funding for the new startups that have contributed nearly 60% to IPL’s ad revenue in the last four-five years. And already established, huge brands are unlikely to invest the same amount in their ad campaigns and would look for econ