What Makes IPL Lucrative for Players and Franchises?

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Dear Reader,

In this edition of our weekly newsletter, the Keynote, we will discuss the revenue model of the Indian Premier League,
the world's richest cricket league. The 14th edition of IPL commenced on the 9th of April 2021 and has caught the
attention of cricket fans around the world. The previous edition was staged in the United Arab Emirates (UAE), and it
has returned to India for the ongoing edition.

IPL season 14 is being conducted amid the second wave of COVID-19 infections in India. However, it has had little
impact on the tournament as the cricketing world's top names have turned up to represent their respective franchise.
What makes playing in IPL so lucrative, and what drives the revenue for the Board of Control for Cricket in India (BCCI),
franchises and players? Come, let's find out.

How it all started...

The history of IPL dates way back to the year 2007. Zee Entertainment Enterprises launched the Indian Cricket League
(ICL) in 2007, and it did not go down well with the BCCI. The players were barred from taking part in the ICL as it was
considered a rebel league. To incentivise players and prevent them from playing in the ICL, the BCCI decided to hike
the match fee for players in the domestic leagues and also imposed a life ban on the players playing in the rebel league.
The BCCI announced the launch of a T20 cricket league, the Indian Premier League or IPL, on the 13th of September
2007. Lalit Modi, the then office bearer of the BCCI, is said to be the mastermind behind the design of IPL, which is very
similar to the Football Premier League in England. It was also announced that the first season of the cash-rich league
would be held in April and May 2008. Later, the league got a window for itself in the International Cricket Council’s (ICC)
Future Tours Programme (FTP).

How were the franchises selected?

The BCCI held an auction on the 24th of January 2008 to decide the owners of the franchises. The following cities
received the winning bid: Bengaluru, Chennai, Delhi, Hyderabad, Jaipur, Kolkata, Mohali and Mumbai. The BCCI sold
the teams based out of these cities at a total price of a whopping $723.59 million.

The following table shows the winning bid of all IPL franchises:

Expansions, terminations and transfer of ownership

The BCCI decided to expand the league by adding two new teams in the 2011 season. On 21 March 2010, Kochi
Tuskers Kerala and Pune Warriors India were announced as the two new franchises. The Pune based franchise was
bought by Sahara Adventure Sports Group for a massive $370 million, while the Kochi franchise was acquired by Kochi
Cricket Pvt Ltd, a consortium of various companies, for $333.3 million.
In November 2011, the BCCI decided to terminate Kochi Tuskers Kerala as they did not receive a bank guarantee
despite sending multiple payment requests. In September 2012, the BCCI terminated Deccan Chargers, the
Hyderabad-based franchise, as they could not find new owners. In the following month, Sun TV Network won the
auction to acquire the Hyderabad-based team. Deccan Chargers was then renamed Sunrisers Hyderabad.

In May 2013, Pune Warriors India decided to withdraw from the IPL as a few financial disputes arose with the BCCI.
Eventually, in October 2013, the BCCI terminated the Pune-based franchise as they did not receive the necessary bank
guarantee from the owners. In June 2015, the Chennai and Jaipur-based teams were suspended for two years following
their owners' involvement in forbidden activities.

The BCCI invited bids for two new franchises to replace Chennai and Rajasthan teams for the 2016 and 2017 seasons.
Gujarat Lions and Rising Pune Supergiant won the reverse bidding process in December 2015. These two franchises
made way for the return of Rajasthan and Chennai teams in 2018.

How are the players selected?

The players in the IPL are signed through auction. In the inaugural season, every team was assigned with a salary cap
of 5 million US dollars to acquire players' services. Virender Sehwag, Rahul Dravid, Sachin Tendulkar, Yuvraj Singh,
and Sourav Ganguly were named the league's icon players and were assigned to represent the teams based out of
Delhi, Bengaluru, Mumbai, Mohali, and Kolkata, respectively. They also happen to be their hometowns.

The other players were signed through the players' auction, in which MS Dhoni emerged as the top buy. Chennai Super
Kings roped him in for $1.5 million. The term of each player's contract is one year, with the franchises having an option
to extend the contract by a year. International players may choose to get remunerated in the currency of their choice.
Every year, a players' auction is conducted through which the teams can sign the players of their choice from the list of
available players.

Until 2014, the Indian domestic players were not made a part of the players’ auction. Instead, they were signed up by
the franchises for a discrete price. However, a fixed sum of up to $42,000 was getting deducted for every domestic
player signed by a franchise. This had to be stopped in 2014 as some franchises complained to the BCCI about the
players being lured by cash-rich franchises with a higher sum. Therefore, the BCCI decided that each player will have to
be bought only through the players’ auction.

The IPL Governing Council has fixed the purse size of each team at Rs 85 crore, and they will have to buy a minimum
of 18 players while they can sign up a maximum of 25 players. In a playing XI, a team can have a maximum of 4
overseas players. The players will have to quote their base price at the time of registering for the auction. The franchise
which bids the highest will obtain the services of that player. The players will be divided based on their base price.
What makes IPL lucrative for players?

Some international players prefer to play for their IPL franchise over their national teams. This is because they earn a
lot more by playing in the IPL for just over 45 days a year compared to what they get from their national contract every
year. For instance, Mustafizur Rahman, a Bangladeshi fast bowler, currently holds a white-ball contract with the
Bangladesh Cricket Board, which fetches him nearly 3 lakh taka per month (approximately Rs 2.64 lakh), or nearly 36
lakh taka a year (approximately Rs 31 lakh). He will also earn a fixed fee for every international match he plays. On the
other hand, he will earn Rs 1 crore by playing the full IPL 2021 season, which is more than twice his BCB contract's
worth.

As per the 2020-21 annual BCCI-player contracts, Virat Kohli earned Rs 7 crore a year. He earns Rs 17 crore a year
through his IPL contract with the Bangalore-based franchise, which is nearly 2.5 times his national contract. KL Rahul is
contracted for Rs 5 crore a year by the BCCI, and he earns Rs 11 crore from his IPL deal with the Mohali-based
franchise.

As per the data available with Sportskeeda, the BCCI pays the following fees to the players taking part in the domestic
tournaments:
In addition to the match fee, players also get a dearness allowance (DA) of Rs 1,000 per match day. They also get
benevolent funds. However, if a domestic player gets picked up by an IPL side in the auction, they will get a minimum of
Rs 20 lakh. Players will be categorised based on their skill and base price, the minimum price that a team must pay to
obtain that player's services.

The uncapped domestic players generally have their base price at Rs 20 lakh. The base price of an Indian capped
player ranges from Rs 20 lakh to Rs 2 crore. Renowned international players fix their base price at Rs 1.5 crore and Rs
2 crore, while some may have it at Rs 50 lakh, Rs 75 lakh and Rs 1 crore. If more than one franchise is willing to rope in
a player, it leads to a bidding war. Ultimately, the franchise that bids the highest will get the player.

How does the BCCI make money from the IPL?

As per Arun Dhumal, the Treasurer of BCCI, IPL 2020 yielded the BCCI with a revenue of Rs 4,000 crore. One must
remember that the BCCI or franchises are generating no revenues by selling match tickets as the games are being held
behind closed doors due to the ongoing COVID-19 pandemic. Even the 2020 edition was staged with no spectators
being allowed inside the stadium. Most of the revenues earned by the BCCI through IPL comes from selling the media
rights.
In December 2019, Rahul Johri, the then BCCI President, had predicted that BCCI would earn nearly Rs 18,000 crore
by selling the media rights of the IPL. His estimate was right as Star TV bagged the media rights of the IPL for a
staggering Rs 16,348 crore for a period of five years. Star TV pipped their rival Sony, who held the IPL rights since its
inception. You might be wondering as to what made Star TV bid this massive sum. The answer is simple- they earn
through advertising as many people would be glued to their television sets watching the matches for over 45 days.

The next major source of income for the BCCI through the IPL is title sponsorship. Numerous title sponsors have come
and gone over the years. Initially, the IPL’s title sponsor was DLF. They had won title sponsorship for the duration
between 2008 and 2012 for Rs 40 crore a year. Pepsi acquired the title sponsorship of the cash-rich league between
2013 and 2015 for Rs 79.2 crore a year. Vivo was then onboarded as the title sponsor for the 2016 and 2017 seasons,
and the BCCI made Rs 100 crore a year from this deal.
In 2018, Vivo managed to get another title sponsorship deal with the BCCI for five years in exchange for a sum of Rs
439.8 crore a year. However, a Sino-Indian military standoff resulted in Vivo opting out of the deal for a year. For the
2020 edition, Dream 11 was roped in as the title sponsor in a deal worth Rs 222 crore. Vivo has now returned as the
title sponsor and will hold their deal until 2022 for Rs 439.8 crore per year.

How do IPL teams make money?

The IPL teams earn in the following ways:

Media rights
Every IPL team has its claim over the revenue earned by the BCCI through selling the media rights. The BCCI is in
charge of generating the money through media rights and distributing the same to all franchises.

Prize money
The IPL teams are rewarded for their performance by the BCCI with a cash prize. In the ongoing edition of the IPL, the
winning team takes home Rs 10 crore, and the runners-up get Rs 6.25 crore, while the teams finishing at the third and
fourth places get Rs 4.37 crore.
Merchandising
The popularity of the IPL teams has got them into the merchandising business. They earn a considerable amount of
money by selling the replicas of their jerseys, souvenirs and sports equipment.

Gate money
The sale of tickets is also a significant source of revenue for the franchises. Almost every IPL game is staged in front of
a packed stadium, which helps the franchises’ cause. Every team plays seven home games.

Sponsorship deals
Numerous brands are sponsoring every team. The logos on the jerseys of the teams are priced at a staggering sum.
This helps teams generate a good sum of money.

Conclusion

The IPL is a cash-rich league in which most international players play. In fact, major cricketing countries don’t schedule
their international matches during an IPL season and allow their contracted players to take part in the IPL.