IPL is a great example of how a combination of cleverly designed IPRs and contractual arrangements have helped create one of the world’s premier annual sports events. In this 2nd part of a 2-part blog, we look closely at some little-known IPR aspects that are both, the foundation and scaffolding of the IPL.
IPL: How do the other entities in the IPL Ecosystem fare?
There are 8 team franchises in the IPL and each team is given a budget cap to spend on players, foreign and domestic, by bidding at an auction conducted every year by the BCCI. Teams can save on their budget to buy other players at two other windows for bidding.
A sponsor wanting to have its own team pays a stipulated fee to the BCCI to get the ownership. But since there are only 8 teams who have signed long-term contracts with the BCCI, an existing team would have to be bought out by a sponsor if he wants a team of his own, at a negotiated price. This is one of the possible exit routes open to a team owner.
Each Franchise stands to earn from the following:
the gate money (tickets, food & beverages) in its home stadium, 20% of which is shared with BCCI/IPL
the income from in-stadium advertisements
the value generated from an IPO at a future date (that has yet to happen)
the Official Beverage sold exclusively in stadia
Rights for team-branded merchandise (attire, shoes, t-shirts, souvenirs, mementos, etc.) along with the IPL logo
Television broadcasting and other media rights – these are sold for different territories and with commentary in different languages all over the globe. In IPL 2008, 72% of media rights revenues were shared with franchises in Year 1; the franchises’ share declined every year after that till it touched 50% till 2017. The balance in each year is BCCI’s take. In the next 5-year block, BCCI's share was set at 60%.
End-of-season Prize Money - in 2020, it was totally ₹500 million for all 8 teams put together.
Franchises pay for
Annual instalment of franchise fee based on the bid put in and winners of the team franchise
Players, Managers, Coaches – players are paid for as per bids accepted in auction/ trading by mutual negotiation by teams
Marketing costs to promote their team (about US$ 4 Mn per year)
Sponsors earn from
Ad revenues (mostly from in-stadium advertising)
Lots of creativity here! The boundary rope, the LED barriers, the sight screen behind the batsman, the sponsor of the car or mobike kept on display throughout the tournament, the tickets themselves – all carry ads. Even sixes are branded – DLF Maximum, or Vivo Maximum, for example
Special offers from sponsors jointly with the franchise – whether online or in-stadium.
As against that, each sponsor pays a sponsorship fee for different bundles of rights (IPR) decided with the BCCI or the franchise.
Players have to choose (before the auction) from two kinds of contracts: (i) Where BCCI guarantees a fixed price, and if the player fetches a higher sum, BCCI keeps the excess (which suits new players) ; and (ii) Where the player keeps the auction price (which suits senior players who are confident of the power of their own brand
Players are licensed based on whether they are winners at player auctions. Players are bound to a team by a 3-year contract, but teams can trade players after 1 year
Value of each player’s brand, which the BCCI can use in relation to the IPL matches
If a player selects the second type of player contract, he retains with himself the right to his own name and image for non-BCCI, non-IPL brand endorsements
This enables star players like Tendulkar, Dhoni, Kohli et al become mega-earners.
Players also get prize money (Orange Cap, Purple Cap, Man of the Match, etc) out of a pool of a small portion of the media rights collections. In addition, there are also prizes that may be announced by the sponsors.
Is it profitable for all entities in the ecosystem?
Players – domestic and foreign - have undoubtedly benefitted greatly. Senior players have seen their careers extended because they have to play well for only a few overs and therefore, if they are fit but have less stamina due to age, their skills, experience and wisdom outweigh the disadvantage of lower stamina.
For BCCI, IPL is a golden egg that keeps giving. It has raised BCCI’s profile in the cricketing world, and today, there are many senior foreign players who give preference to IPL if their schedule clashes with domestic cricket schedule. As a result, over a period, most cricketing bodies plan their domestic calendar so as not to clash with the IPL.
For franchises, it is a mixed bag: Some franchises that were promoted heavily early on (like Shah Rukh Khan's KKR) became profitable after 1 or 2 full years, while some franchises are still making a loss. Holding IPL matches at non-home venues or with social distancing or in midst of a lockdown means an inability or reduced ability to earn revenues from ticket sales and F&B (Food & Beverages) sales at home stadia.
However, team owners are happy because they have been more than compensated in other ways – the valuation of the IPL, and consequently of each team franchise, has skyrocketed. The IPL itself is valued at over $6 Bn and there are reports of team owners who bought a franchise for under Rs.300 crores were getting offers for their stakes for Rs.920 crores after just two years. Also, at least one team finds team ownership and other sponsorships as an ideal vehicle for surrogate advertising of liquor brands (liquor is not allowed to be directly advertised).
We have not yet seen megabucks of valuation arising out of an IPO by an IPL franchise. In Football leagues and Formula 1, we have seen teams going the IPO route.
There are also stories that have become B-School case studies on “ambush marketing” beyond the reach of BCCI, the most well-known instance being the “Nothing Official About It” campaign by Pepsi when Coke was the “Official IPL Beverage”. Obviously, Coke and BCCI were both unhappy about this, but could do nothing.
Adv Nayan Talwar and Ms Vaani Shrivastav contributed significantly to the authoring of this blog.
Disclaimer: All information has been culled from public domain secondary sources. We would be glad to correct any errors - they are not deliberate.
Rajesh is a qualified CA & CWA. He has served as a Director of PricewaterhouseCoopers, a Director of a large urban co-operative bank and Dean of a B-School over the years. He has taught Finance for over 20 years & trained participants from several Companies and B-Schools. He is an educator and a learner (he believes both are inextricably intertwined), and a knowledge product developer. Law Gyani, which he has founded to help Law Students with their exam preparations, and to understand nuances of the law.
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