The revenue generation and distribution model of IPL

The season of IPL has started with a bang! The gala opening ceremony mesmerized the fans of cricket across the globe. IPL is not only an event, but a celebration of cricket with entertainment. Famous singer Katy Perry, the king of Bollywood Amitabh Bachchan, the heartthrob of Bollywood Salman Khan and the two divas of Indian cinema Kareena Kapoor and Priyanka Chopra performed in the opening ceremony. It marked the beginning of the cricket carnival which will be celebrated by the entire nation during the next two months.

The success of IPL can be attributed to several factors. It introduced the concept of regional rivalry in cricket and enhanced the popularity of ‘domestic cricket’. Yes, IPL is still considered to be a domestic tournament which enjoys the participation of renowned players from abroad. Prior to IPL, domestic cricket in Indian was not much popular. IPL exploited the concept of city-based loyalty by introducing city-based franchises. Initially, eight franchises were sold to the industrialists and movie stars at whopping amounts. Two new franchises were added for the season 2011. However, the Kochi franchise was defunct due to financial controversies.

The revenue model of IPL depends on centralized and decentralized systems. The centralized revenue streams include various sponsorship and broadcasting deals of IPL. DLF, the property developer of India, paid more than Rs. 200 crore to win the exclusive title sponsorship rights of IPL for a period of five years. The other sponsors are Hero, Vodafone, Citi Bank, Karbonn Mobile, Volkswagen and Royal Challenge. Kingfisher Airlines became the official umpire partner of IPL at a price of Rs. 106 crore. The broadcasting right to show IPL matches in India was sold to Multi Screen Media at an exorbitant amount of Rs. 8,700 crore for a period of ten years. A part of this centralized revenue is distributed to the franchises. It was decided that, till 2017, 40% of this revenue would be retained by IPL while 54% would be distributed among the franchises and 6% would be spent as prize money. After 2017, 50% of this revenue will be retained by IPL, 45% will be given to the franchises and 5% will be spent as prize money. Therefore, it is evident that IPL, like any other major leagues, provides financial support to its franchises for their survival.

The decentralized revenue stream allows the franchise owners to sell the commercial rights of the individual franchise. Aircel, the telecom service provider of India, has paid Rs. 85 crore to renew its deals with Chennai Super Kings for a period of three years. Deccan Charges has added two more sponsors, Jaypee Cements as principal sponsor and TVS as co-sponsor. Mumbai Indians signed a deal with Hero Honda for three years for approximately Rs. 18-20 crore each year. Delhi Daredevils signed Muthoot Group as the main sponsor of their team. So, through decentralized revenue pool, sufficient opportunity is given to the franchises to generate fund.

The business model of IPL, therefore, depends on centralized and decentralized revenue pools. A part of the centralized revenue pool is distributed among the franchises to provide them financial support for their long-term survival. The other major Leagues of the country should also adopt this model for the benefits of the participating clubs and the League. Recently twelve I- League clubs have formed an Association and demanded a part of the revenue generated from selling the broadcasting rights. Many believe that the demand made by the clubs is relevant as this is the practice throughout the world. The model, provided by IPL, may solve these disputes and lead other leagues towards a better future.

The writer is a Member of Faculty, Naval Tata Centre of Excellence in Sports Management, IISWBM, Kolkata