Tuesday, June 03, 2008

A look at how IPL makes money

  • A lowdown on the IPL business model
    • The business model is relatively straightforward. The revenues for the IPL and the franchisees come from three streams: media rights, sponsorships under the central or local pool, and gate receipts. The central pool includes sponsorships for the entire league, to be distributed between the IPL and the franchisees. The local pool comprises sponsorships each team manages to attract, of which the franchisee/team keeps the entire amount. The franchisees’ expenses include team franchising instalments, player and personnel, marketing, stadium expenses, and promotion, event management and administration.
    • The auction of the eight teams generated $724 million. Franchisees own the teams in perpetuity, but make the payments in instalments over the next 10 years. In addition, each team spends $4-6 million per year on players and team personnel. Players signed three-year contracts with the franchisee, and icon players excepted, can be traded after the first season. Stadiums could cost up to Rs 30 lakh per match, and each team is also expected to spend approximately $3-4 million per year on marketing, promotion, and event management costs.
    • A consortium including Sony Entertainment Television (SET) and World Sports Group bought the broadcasting rights for a total of $1.026 billion for ten years. SET will spend $108 million on marketing, and the remaining $918 million goes into the central pool. The proceeds are divided between the IPL and the franchisees, where IPL’s share is 20% until 2013, and increases to 40% from the sixth year onwards. The franchisees receive 80% up to 2013, and 60% from 2013-2018, less a fixed percentage that goes towards prize money.
    • The central sponsorship deals are for five years and for the next ten years, IPL and the franchisees will divide the revenues in the proportion 40%:60%, with the latter amount to be divided equally among the franchisees. Sponsors include DLF as title sponsor, and associate/partner sponsors include Kingfisher, Hero Honda, Pepsi, Citi, Vodafone, and ITC. Each franchisee could earn almost Rs 30 crore annually for the next five years. Additionally, the franchisees keep all the revenue generated from the local pools, which include team title sponsorship, partner sponsors, licensing, merchandising (87.5%), in-stadium signage, as well as other forms of sponsorship at the team level. Franchisees have appearance rights over the players during the IPL tournament, which can amount to approximately 10 days, of eight hours each. Gate receipts are a significant revenue source, and the IPL’s share is 20% of the total receipts from each franchisee, while the franchisees retain 80%.

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Sara Thomas said...

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