Thread by @KShriniwasRao

As promised, a #thread on how #IPL revenue system works from a franchise perspective. Feedback welcome.

Let’s start with original 8 franchises sold in 2008 – BCCI earned approx Rs 2900 crore from sale of those teams 14 yrs ago. Exchange rate of US dollar stood at Rs 40. (1/25)

MI was costliest at US$111.9m & Rajasthan Royals was cheapest at US$67m. As we'll see later in this thread, each franchise also have different spending models. Franchises like MI and CSK believe in spending on the best. Teams like RR and Punjab have other ideas. (2/25)

But let's keep franchise trends for later. Two years after the sale of initial franchises, BCCI sold two more franchises. Sahara Pune Warriors and Kochi Tuskers (both not playing now) went for collective Rs 3,230 crore. Now remember, both exited IPL for different reasons. (3/25)

Sahara had issues with BCCI over number of matches, payments, etc. Kochi had no issues with BCCI. Their problems stemmed from internal shareholding and had nothing to do with finances. So, it’s a misnomer that they quit because they couldn’t pay. That’s misinformation. (4/25)

11 yrs later, two new franchises again. CVC has bought Ahmedabad at Rs 5,625 cr & RP-SG Lucknow at Rs 7,090 cr. That’s collective Rs 12,715 cr. Now, let’s keep these new franchises aside and look at the revenue model of IPL’s original 8 franchises in the first 14 years. (5/25)

In 2008, when the 8 original teams were sold, BCCI also sold broadcast rights of IPL – there was some controversy then but let’s look at the bigger picture – for Rs 8200 cr for 10 yrs. Real estate player DLF was the title sponsor for five yrs at Rs 200 cr. (6/25)

With official partners in, total central revenue of BCCI was at around Rs 8,400 cr. Here’s how distribution model worked: Franchises 80% & BCCI 20% in 1st 3 yrs; franchises 70% & BCCI 30% nxt 3 yrs; BCCI 60% & franchise 40% nxt 3 yrs; 10th yr on, BCCI 50% & franchises 50%. (7/25)

The last model is in effect right now, which means BCCI takes 50% of central revenue & remaining 50% gets distributed among 8 franchises. Stakeholders are equal. In initial years, BCCI offered franchises a bigger share of revenues because everybody was new to the business. (8/25)

In initial years, franchises could hardly break even in the first 6 to 7 years. Every team was busy finding its own business model. There were franchise fees to be paid to BCCI every year for 10 yrs. For ex, MI bought team at US$111.9m was paying US$11.9m every year. (9/25)

However, IPL was growing at a very fast pace. In 2017, Star India paid Rs 16,347 cr to buy broadcast rights for 2018-22 period. Vivo got title rights at Rs 2200 cr. Close to four official partners came on board at around Rs 40 cr per year each. (10/25)

Therefore, the total central revenue pool of the IPL grew from Rs 8,400 cr in 2008 to around Rs 19,500 cr in 2017. Kochi and Sahara were not around, which means, this amount of Rs 19,500 cr would get distributed among BCCI and the eight franchises at a 50:50 ratio. (11/25)

That’s where we stood until Monday, when the two new franchises – RP-SG Group and CVC – came up with mind-boggling numbers to change this whole storyline once again. But we’ll keep this for later. Let’s see how revenues work in the 2017-18 to 2021-22 cycle. (12/25)

First things first: IPL is a rare business model where money you’re committing to buy franchise doesn’t need to be paid at one go but over 10 yrs. Also, it’s interest free. And moment you buy a team, you’re in business because central revenue starts coming in from year 1. (13/25)

At a 50:50 ratio, BCCI was earning Rs 9,750 cr of the central revenue share and a similar share (of Rs 9,750 cr) was being distributed among 8 franchises. That means, each franchise was earning Rs 1,218 cr for five years, means approx. Rs 244 cr per year. (14/25)

So, on an average, the central revenue of each franchise stood at Rs 244 cr between 2018 and 2022 (although next year, numbers will change because of two new franchises now coming in). But let’s continue with Rs 244 cr for the math. (15/25)

There are two revenue streams in IPL – Central & Local. Central is what I explained earlier, through which we arrived at a figure of Rs 244 cr per season. Let’s now look at the local revenue pool where each franchise has its own business model. (16/25)

What constitutes local revenue? Ticket sales, jersey sponsorships, hospitality. Due to pandemic, there were no ticket sales – but let’s look at the big picture. A franchise like MI ends up raking in sponsorships to the tune of Rs 50 cr. Some other franchises struggle. (17/25)

Gate money is anywhere between Rs 2.5 to Rs 3.5 cr per game, also depending on the venue, size and city-spending capacity. Every franchise has its own idea of hospitality. So, the numbers keep varying. (18/25)

So, at an average, let’s assume, the local revenues for franchises every year oscillates anywhere between Rs 40 and Rs 70 cr. For the purpose of math, let’s take Rs 50 cr as the average local revenue. That’s what the franchise earns from its own operations every year. (19/25)

Add this Rs 50 cr to central revenue pool of approx. Rs 244 cr and total revenues of a franchise stand at Rs 295-odd cr each season. This is prior to EBITDA. Add to this prize money – comes from BCCI’s share – & top four franchises end up earning in excess of Rs 300 cr. (20/25)

Now, let’s look at the expenses franchises incur every season. They have to spend Rs 90 cr on players. Anywhere between Rs 35 and Rs 50 cr is spent on operations, depending on the scale at which the franchise functions. On an average, that’s around Rs 130 cr per season. (21/25)

Franchises have to pay Rs 50 lac to local state association to host each IPL game, which means Rs 3.5 cr for seven home games each season. Franchises also have to pay 20% of their topline revenues to BCCI every year. BCCI routes that money to domestic cricket. (22/25)

The 20% of topline works out to anywhere between Rs 12 to 15 cr each year. So, the approximate total expense of each franchise stands at around Rs 145 cr. That means, on an average, a franchise is still making Rs 145 net / net (I’ve not calculated the taxes). (23/25)

The numbers I’ve taken here are bare minimum. Top franchises like MI, CSK, KKR draw far bigger local revenues by way of sponsorships and other year-long activities. Some franchises invest in state-of-the-art academies. Some do branding right through the year. (24/25)

This is just an idea of how IPL revenues worked between 2018 and 2022 under the existing contract with Star / Disney as broadcaster, Vivo as title sponsor, and five-odd official partners. These numbers will change drastically. But that’s for another thread. : ) (25/25)