IPL has to grow beyond broadcast money in the long run

The new five-year IPL broadcasting deal, concluded on Tuesday, will fetch the BCCI ₹48,390 crore, or Rs9,678 crore per year—a three-fold increase over the 2018-22 cycle. Even on a per match basis, the increase is about 2.2 times. This brings the IPL closer to prominent global sporting leagues in overall media rights. For example, in the previous cycle, the IPL was about one-tenth of the English Premier League (EPL) in football. It’s now about one-third. On a per match basis though, the IPL is more valuable than the EPL, partly because the latter has a longer season and more teams and games.

Even though the IPL has lifted value for all stakeholders, there is a wide variance in the scale of growth. At the top of the pecking order is the BCCI (which gains from the sale of media rights and umbrella sponsorships) and franchises (who gain by way of greater revenues and expanding valuations). As much as player salaries have drawn attention, they have not kept pace. Neither has how much the BCCI spends on cricketing activities.

Player Expectations

Players, who define the IPL strongly, have reason to expect more. The IPL caps a team’s total salary bill. For IPL 2022, this was at ₹90 crore. Further, in the last five-year broadcast cycle, this increased at a compounded annual rate of 6.4%. Assuming a similar increase, the 2023 salary cap will be set at ₹96 crore.

Further, a back-of-the-envelope calculation shows the new broadcast deal will nudge a team’s revenues from the ₹300-400 crore band to the ₹700-900 crore band. Even at the lower end of this revenue band, a ₹96 crore salary cap would mean a 13.7% share in revenues for players—the lowest in IPL history. By comparison, top European football clubs in 2018-19, the last pre-pandemic year, paid 50% to 77% of their revenues as salaries to players. At present, players don’t have pricing power; the BCCI and franchises do. At some point, could the players rally for more?

Made by Broadcast

The business model for IPL franchises, on both the revenue and expenditure side, is fairly defined. Franchises earn revenues from three sources. The major revenue head is the ‘share of central pool’. Half the revenues the BCCI makes from the sale of broadcast rights and central sponsorships is shared with the 10 teams. The other main revenue heads are commercial (which includes team sponsorships and merchandise sale) and matchday earnings (which includes sale of tickets and prize money).

At present, in a total revenue band of ₹300-400 crore, about 70% of revenues of an IPL team is coming from the central pool (basically, media rights). The new TV deal is likely to increase this dependence further. Compare this to top European football clubs, for whom media rights account for 25-50% of revenues. Going forward, for the teams, the evolution of IPL has to mean lower dependence on media rights and greater diversification of revenue streams.

Adding Elasticity

In the short 15-year history of IPL, franchises have hit limits in trying to grow the two revenue streams that are entirely in their control. These are commercial and sale of tickets. For example, in the five-year period to 2019-20, Kolkata Knight Riders has seen its revenues from sponsorships and brand promotion move in the ₹40-50 crore band and ticket sales in the ₹15-20 crore band. The elasticity and pricing power is missing, though the new media deal could improve that.

Meanwhile, both the winning broadcasters and the BCCI have work to do to make this deal work. There are two immediate challenges. The first is to grow audiences, which shrank during IPL 2022. The second is advertiser interest. In IPL 2022, advertising interest was led by internet businesses, which are seeing a pullback in funding, and thus spending. The new deal is great, but there’s also work to be done.