Though IPL season 3, is over, but Indian Premier League (IPL) is still continuing to be the talk of the town. In fact, it has become more strident now with lot of entrepreneurs aspiring to take up a new IPL franchise or buying an old one. Let us explore t
The victory of Chennai Super Kings marked the ending of IPL’s third edition. IPL an initiative of BCCI, inaugurated in 2008 when BCCI auctioned the franchise rights to eight franchise teams for ten years to the highest bidders. IPL generated a total amount of $724 million to BCCI from bidding. Bidding has served as the main revenue resource for BCCI, but what about return on investment (ROI) for franchisee business owners.
Most of us have been watching IPL with lot of interest. But very few of us have tried to understand the IPL franchise model. No doubt, IPL franchise is similar to any other franchise model, but still it is unique in the sense that it is one of its kinds that got huge popularity in the very first year of its launch. Here in this article we are presenting the franchise model followed by IPL franchise.
The Indian Premier League is a Twenty20 cricket competition initiated by the Board of Control for Cricket in India (BCCI) with its headquarters in Mumbai. It is headed by BCCI Vice President, Chirayu Amin Chairman and Commissioner for IPL, and CEO, Sunder Raman. Till the IPL 2010 there were eight franchisees but for the upcoming IPL season 4 there will be total 10 franchise teams consisting of cricket players from across the world. The two new teams to be introduced from IPL 2011 are Sahara Pune Warriors owned by Sahara Pariwar and and Rendezvous Sports’ Kochi franchise (Logo and name yet to be finalised).
IPL franchise opportunity
With the IPL becoming hugely popular, it will be interesting to find out the business model of an IPL franchise. Let us have a look at the revenue streams.
Except for the team sponsorship revenue resource, rest all revenues are shared with IPL franchisor as per initially determined equations for 10 years.
Sale of broadcast rights: IPL has sold its broadcast rights to Sony for 10 years and profit generation depends upon the television rating points (TRPs) and the success of the league. For the initial two years, 80 per cent of the money from broadcast rights was shared by the franchisees and rest was taken up by the IPL. However, gradually the IPL’s share increased and by fifth year, IPL will start getting 40 per cent share.
Brand sponsorship for franchisor: The title sponsorship fee for the initial five years to be paid by DLF will be shared with the franchises. However, later on IPL will retain 40 per cent of this revenue with the balance 60 per cent to be shared between the franchisees equally.
Sponsorships for franchisees: The franchisees will generate team sponsorship at individual levels also. The revenues from individual sponsorships will remain wholly with the franchisees.
Sale of tickets: Another significant source of revenue for franchisees is the sale of tickets. Seven matches will be played at home stadium and accept for some percentage of revenues that goes to IPL, rest is taken by the franchisee.
In stadia: Another small revenue resource is the in-stadia advertising, a share of which which goes to the franchisee.
Break even period
The break even period may differ from franchisee to franchisee and on sponsorship agreement. In some cases, franchisees have taken straightforward team sponsorship, while in other cases; the franchisees may have taken sponsors on board as partners. The profit generation is entirely varied in both the case. The profit generation might start from the very first year depending upon various conditions.
Expected investments for IPL franchise
On an average, each franchisee is expected to invest about $ 4-5 million in the inaugural tournament on players, coaches and support staff. The classification for franchise investment are:
The biggest investment on the part of franchisee for taking up the IPL franchise is the franchise fee. The franchise fee is payable in equal sums over a 10-year period. The franchise fee is calculated by considering the cost of the franchise and is paid every year.
Cost of players
Another main investment required by the franchise business owner is the player costs, decided in the auction, held before the beginning of the League. The franchisee is required to pay players. Franchisee has a three-year contract with the players.
The franchisees are also expected to pay for the use of the stadiums for which they have to enter into contracts with the local association. There are also other marketing costs such as events for promotion of the team, star ambassadors, and so on, which the franchisees have to bear.
IPL 3 concluded with great success with the victory of Chennai Super Kings. No doubt, the third edition of IPL has left behind numerous controversial issues and various questions unanswered. Nevertheless, as for the brand IPL is concerned, it would not be wrong to say that, IPL is here to stay and will keep entertaining the cricket lovers and generating profits for the franchisor and the franchisees in a much higher and larger scale in years to come.