Want to know hidden secret of IPL Business Model?

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India loves IPL like anything. We can see the craze of IPL today, even in school-going children. Every year, IPL brings a lot of excitement, happiness, and one most important thing- money. But, have you ever thought about how IPL makes money? What is the economics behind this nationwide popular Cricket team? Who really benefits from all the events that take place? Is it the players or winning team or the organizers of the tournament? 

Today, BCCI (Board of Control for Cricket in India) is the world’s largest cricket league which earns crores of rupees every season. And what is so special about their business model where a franchise is sold for 7000 crores while gets only 20 crores if it wins? And moreover, BCCI does not pay any tax on this business model. Even then, people queue up to buy IPL franchises.

So, let’s understand the business model of IPL in a simple language.

There are a billion cricket fans in the world. Out of which, 90% are Indians. Today, BCCI is the richest cricket organization whose net worth is around 18000 crore Rs. But a few years ago, the story was completely different. 

History before IPL

1 year before the start of IPL, in 2007, ICL (Indian Cricket League)  was established. And it was started by a private company named Zee Entertainment Enterprises. And the concept of ICL was just like IPL. There will be teams from different cities and players will be auctioned. Teams will buy players and those teams will then, play with each other. 

But, neither BCCI nor ICC (International Cricket Council) recognized ICL. In fact, both of these were angry that most of the players were now playing in ICL.

To prevent the players from playing in ICL, BCCI increased the salary of their domestic tournament and said that they will ban those players for lifetime in their other tournament, who will join ICL. 

To know more about this, click on – life ban for players joining icl 

BCCI never wanted a cricket league to exist without their control in India.

About IPL

And in 2007, India won the inaugural T20 world cup which changed the definition of cricket in the coming years.

On 13 September 2007, BCCI announced their own league tournament named IPL. At that time, the vice president of BCCI was Sh. Lalit Modi.

And to keep cricket relevant for the young generation, the sport needed glamour. So, IPL mixed the glamour with cricket.

In April 2008, the first season of IPL was played and due to those restrictions on players, it caused the decline of ICL. There was the last season of ICL in 2009. 

About BCCI

Today, BCCI is the governing body of IPL. BCCI is a private entity. Govt. does not have any control over BCCI. BCCI heads cricket in India. It is the responsibility of BCCI to conduct IPL in India. BCCI mixed glamour with cricket. But, such a huge task needed money.

How does BCCI makes money?

Cricket is like a religion in India and is worshiped here. IPL is one of the most successful franchise cricket league in the world, for which every cricket fan waits. Even the people who are not fan of this sport, watch IPL because of the entertainment it provides. The 15th edition of IPL is here now in 2022. The actual money at IPL is not just the sponsors, and the auctions, that we see on TV, it is the whole ecosystem around it.

  1.  Broadcaster:   Out of the total revenue that IPL makes, more than 50% comes from broadcasting rights. Broadcasters are the channel on which we can see IPL. In exchange for exclusive broadcasting rights to IPL, Broadcasters pay fees to BCCI. 
    • During the first 10 years of IPL, from 2008 to 2018, Sony paid Rs. 8,200 crores for broadcasting rights.
    • Following that, for only 5 years, Star purchased the same rights for Rs. 16,400 crores. That means, star is paying 4 times more for the rights.
    • After 2022’s IPL season, Jeff Bezos and Mukesh Ambani will spend millions of dollars for IPL’s online broadcasting rights.
    • BCCI does not keep all of this money with itself. Half of this money takes BCCI and the remaining half is distributed among the teams too.
    • If BCCI makes more money by selling broadcasting rights, Team makes more money.

  2. Sponsors: Just look at any team’s jersey, it is filled with logos. Teams keep 80% while BCCI keeps 20% of the money earned from these sponsorships.
There is no doubt that Cricket is a favourite game of every individual. This sport has got fame much more than that outdoor games like baseball, football etc. The IPL, officially known as TATA IPL for sponsorship reasons. There are 2 type of sponsors:

    1. Title sponsors:  You have heard about DLF IPL, Pepsi IPL, Vivo IPL, and today it is Tata IPL. The name which is used before IPL is the title sponsor. And these brands give a lot of money to BCCI for their sponsorship.  
      • During the first 5 seasons (2008-2013) of IPL, DLF was the title sponsor. And DLF paid Rs. 40 crores every year for their sponsorship.
      • Then, Pepsi paid Rs. 79 crore/year to BCCI for 2 years (2013-2015).
      • Vivo spent Rs. 100 crore/year in years 2016-2017 and again, spent Rs. 440 crore/year in years 2018-2019.
      • In 2020, the title sponsor was Dream 11.
      • And in 2021, Vivo came back for sponsorship.
      • Tata paid Rs. 670 crores to be the IPL title sponsor for 2 years (2022-2023).

    2. Official Sponsors:  To become the main sponsor of a big company, brands are ready to pay as much as Rs. 100 crores.
      • Similarly, cricketers feature in ads for the brands that sponsor their team.
      • CEAT tyre has paid Rs. 30 crores to sponsor strategy break. 
      • Sources claim that BCCI gets around Rs. 120 crores/year from these official sponsors.
    So, sponsorship is also a way to get money for BCCI.

How does Teams make money?

IPL teams are owned by private companies or individuals. They may be celebrities or businessmen.  When players are purchased, the IPL team has to spend on the player’s salary, transportation, training, etc. On average, the average expense of an IPL team is around Rs. 200 crores. Now, from where do IPL team owners get this money?

  1. Through Revenue: BCCI shares revenue with teams.
  2. Through Team sponsors: Team sponsors are the brands that are printed on players’ jerseys. There are around 10 brand logos on an outfit. 6 on jerseys, 2 on pants, 2 on caps. These brands give money to the IPL team for sponsorship.
  3. Through Ticket Sales: When you go to the stadium to see a match, they get money from ticket sales. 80% of this money will go to the IPL team. Specifically, the home team of stadium will get 80% revenue. 

Example: If the match is at Wankhede stadium, then 80% of revenue will go to Mumbai Indians, and the remaining 20% will go to Maharashtra Cricket Association (Home State Cricket Association). 

Every team will play at least 7 Home matches. So, every team gets an opportunity to earn money from it.

Why Team owner wants to make their team win?

We can see that the prize money of IPL is just Rs. 20 crores while the average expense of an IPL team is around Rs. 200 crores.

Half price of prize money will go to players. And remaining half will go to the owner.

Team owner wants that their team win not because of prize money.

 So, if we see from the owner’s perspective, then they want their team to win because:

  1. The main motivation for them is not the prize money but their team’s brand value. If their team will win IPL, then there will be publicity for their team. More people will support their team and then, more sponsors want to come to their team. 
  2. The brand will want to sponsor on their team’s jerseys and will give more money to their team. So,  brand value is more important than prize money.

Why BCCI does not pay taxes in spite of a large profit?

Every team targets staying in the tournament for a long time. Because the top 4 teams get to play more matches than the other teams. More matches mean more exposure for their sponsors’ brands. 

Team and ground both earn from this IPL. But, BCCI does not pay taxes!

  1.  BCCI is a charitable organization started with the purpose of promoting cricket. Under Section 12A of Income Tax Act, 1961, Charitable trusts and non-profit organizations get a benefit. Whatever money you earn, put it to good use for society. And don’t pay any tax on earnings.
  2. The IPL teams pay tax on their earnings, TV channels pay tax on their earnings. But, BCCI does not pay any tax on its earnings.

What is the reason for this?

There was no money in cricket earlier. People saw cricket as a hobby. Players used to work in a bank or with the railways, and they played cricket at the same time. 

Cricket was not a valuable career then. But today, even, uncapped players are getting Rs. 10 Crore in IPL. The situation has changed but BCCI’s tax status has not. 

This led to a big case between BCCI and Income tax department.

You can know about this case from here: bcci cannot be denied tax exemptions rules.

On one hand, India’s soft power increased because of IPL. It gives a boost to the economy. You and I get entertained. Cricket is not just a game, it is an emotion. 

On the other hand, BCCI saves crores of taxes via a back door. So, tell us whether BCCI should pay tax on its profit or not?

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