3 years


Indian Pretender League

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Who is IPL kidding? Compare it with Formula 1, and it is clear that it has generated more hype than money

Just over a year ago, the Indian Premier League (IPL) was touted as among the world’s most successful sporting events. Those were heady days, when the marriage between cricket and entertainment was in its honeymoon period, and former IPL Commissioner Lalit Modi was on a perpetual high. If the media hype back then was to be believed, the IPL generated more profits than what the Board for Control of Cricket in India (BCCI), under which it functions, earned from other avenues.

Before the start of the League’s third season in 2010, two new city franchises were added to it, and one of them, Pune, sold for $370 million. It was more than three times the highest price paid in 2008—$111.9 million, by Reliance for Mumbai Indians. This was enough for Modi to brag that the IPL was “recession proof”; after all, owners were willing to cough up huge sums to sign up, even though the world economy was caught in the panic of the global financial meltdown of 2008.

However, once Modi was suspended in April 2010 on allegations of irregularities in the running of the League, and on charges of corruption, the real truth came trickling out. It turned out that the IPL was a loss-making venture for the BCCI and most team owners. In fact, in terms of actual money involved, the League was much smaller than imagined earlier. The only stakeholders who’d gained from it were cricket players, who were paid handsomely, and Sony, which held its telecast rights.

This may be an opportune time to dissect the economics and finances of IPL for three reasons. One, the Champions League, an IPL offshoot, has just got over. Two, the BCCI and IPL are now headed by two new individuals, N Srinivasan and Rajeev Shukla, respectively, who are expected to manage the League and Indian cricket in a different manner. Finally, experts have partially blamed IPL 2011 for the dismal performance of the Indian team during their recent England tour, in which they did not win a single game.

To get a clearer picture of the League’s finances, it may be worthwhile to compare it with Formula 1 car racing. This is for two reasons. Both the events are estimated to be worth $4 billion each. Unlike other leagues (such as football) that run for several months at a stretch, the IPL and F1 (including qualifying races) are held over a similar period—51 and 38 days (for 19 races), respectively. So, in terms of TV rights, sponsorship, cost of team ownership, other expenses incurred by owners, and profit generation, the two are comparable.

Before the first IPL season, Modi sold the event’s broadcast rights for an unbelievable $918 million (for ten years), which was revised the next year to $1.69 billion (for nine years). This meant that Sony paid $91.80 million ($918 million divided by 10) in the first year and $188 million ($1.69 billion divided by 9), more than double, for each of the next three seasons (2009–2011). Many observers saw in this a coup pulled off by Modi, who got Sony—which earned a profit of $75 million on the first season—to pay more.

How does this compare with F1? In 2009, the BBC bagged a deal for $45 million annually to air the then 17 F1 races (now 19). This year, Federation Internationale de l’Automobile (FIA), which organises F1, has tied up with Sky Sports, and the price has gone up to an estimated $60-70 million. But remember, this is for the broadcast of F1 races only in the UK. In addition, FIA sells similar telecast rights in 36 other countries and regions, including Germany, Spain, Middle-East & Africa, Japan and other parts of Asia, each of which boast of vast viewerships.

Extrapolating from the UK figure, one can be reasonably sure that FI earns more than IPL in terms of broadcast revenues. But since the BCCI has to share a sizeable proportion of this booty equally with IPL team owners, as per their contracts, its contribution to its topline is modest. While the BCCI retained only 20 per cent of the telecast money in the IPL’s first two years ($18.36 million and $37.8 million, that is), its share went up to 30 per cent ($56.4 million) in the third and fourth years. The rest was distributed among IPL franchisees (eight in the first three seasons and ten in the fourth).

There is another reason to believe that F1 is a larger TV event compared to IPL. Over the past four years, the highest TV-

viewership rating in India for an IPL match has been in the 7-plus region (TAM figures). This implies that just over 7 per cent of the country’s estimated 110 million cable and satellite-TV homes watched the game. This translates to roughly 35-40 million viewers in all, at an average of five members to a house. There is additional viewership in other cricket-playing countries, overseas Indians accounting for some of it, but this may not be more than another 35 million. So the grand total would be some 70-75 million viewers.

However, for most IPL games, especially in the fourth season, viewership ratings have stayed in the 3–5 region, which indicates that viewership may be on a decline. In comparison, almost 550 million people have watched each and every F1 race this season. The average figure for the 2010 season was 527 million.


Wooing sponsors for individual teams hasn’t been easy for IPL franchise owners. Going by the annual income of franchisees whose figures are public—namely, Mumbai Indians and Deccan Chargers—the highest sponsorship earning may not be more than $6-7 million. For the smaller city teams, such as Kochi Tuskers and Kings XI Punjab, revenues from this source may be lower still. Even if a generous $7 million is taken as an average, the total sponsorship sum comes to $70 million for the League’s ten franchises.

In contrast, for the 2011 season, with six more races to go, the 12 F1 teams (with multiple ownerships) have collectively garnered $831 million in commitments for team sponsorship. This figure could go up, as it did last year, if the season’s races become especially competitive and multiple drivers are vying to win the championship. Last season, when four drivers were in neck-to-neck contention, nearly $30 million of additional sponsorship money was put on the table towards the end.

Team sponsorship is critical to the success of sports events, as this money goes directly into the coffers of owners. But the dynamics of each sport is different. In football (English Premier League), as in the IPL, revenues from team-specific sponsorship deals account for less than a third of any team’s total income; but for many F1 teams, it is as high as 60 per cent. So, when an F1 team loses a huge sponsor, it takes a big hit. Similarly, the economics of selecting a driver partially depends on the sponsors who come with him.

However, the cost of owning an F1 or IPL team may not vary too much. This

year, shares of Williams, once a renowned F1 team that hasn’t won a single race since 2004 and whose drivers’ best rank has been No 5 over the past eight years, were listed for trading on the Singapore Stock Exchange. Based on their listing price, the team’s valuation was $350 million, which was comparable to the $370 million and $333.3 million paid by the two new IPL franchisees, Pune and Kochi, respectively, in 2010.

There are two caveats here. One can argue that since Williams was selling a part of its ownership during recessionary times to external investors, it could not afford to overprice its shares. In contrast, the two IPL owners—Sahara (Pune) and a consortium (Kochi)—may have paid an ‘ego premium’ for a high-profile cricket debut. This is possibly why they paid much more than other franchisees. At the same time, while an F1 ownership is held in perpetuity, unless the team is sold to someone else, an IPL franchise is valid only for ten years.


Compared to F1, the annual recurring cost of running an IPL team is minuscule. The 2010-11 annual report of Reliance Industries Ltd, which owns Mumbai Indians, shows that its IPL subsidiary earned an income of Rs 113 crore ($22.6 million), and incurred a loss of Rs 15.42 crore ($3 million) that financial year. The accumulated losses of the team over the first three seasons (accounts for the fourth season will appear in the 2011-12 annual report) were Rs 90.22 crore (about $18 million).

Bear in mind that the profit-and-loss account of an IPL team includes the part-cost of owning it. So, if Reliance picked up the franchise for $111.9 million in 2008, and had to pay the BCCI a sum of $11.9 million annually for the next ten years, this fee is recorded as part of the team’s annual expenditure. If this were regarded instead as a capital investment, which it is, Mumbai Indians would have earned a profit of $8.9 million in 2010-11.

An F1 owner typically spends between $75 million and $225 million every year. According to Formula Money, an annual publication on F1 economics, the average across all teams was $170 million in 2010. These figures are mindboggling when juxtaposed with IPL team expenditures. By the same token, the profits and losses of an F1 team are also larger. To cite an example, Renault (not to be confused with another team, RBR-Renault) lost over $50 million in 2010, which is almost thrice the accumulated losses of Mumbai Indians over three years.


Contrary to popular perception, the Indian cricket board is much smaller than several other global sports bodies. In 2009-10, the BCCI earned net revenues (including those from IPL) of Rs 886 crore ($177 million); this was lower than its peak net revenues of Rs 1,000 crore (over $200 million) in 2007-08. The 2010 gross income of the FIA, which also manages several motor sporting events apart from F1, is believed to be around $1 billion (over Rs 4,900 crore).

Moreover, despite the hoopla around it, the IPL hasn’t really added much to the BCCI’s topline or bottomline. In 2008-09, the first IPL season, the Board’s revenues dropped by over 27 per cent to Rs 726 crore ($145 million), while profits tumbled by over 80 per cent to Rs 53.77 crore ($10.75 million). However, the next year, revenues and profits grew by 22 per cent and 17.5 per cent, respectively. But this rise may not have been on account of the IPL factor, as the BCCI has told the Income Tax Department (investigating irregularities during Modi’s tenure) that the League is a loss-making venture.

There may be two reasons for this claim. One, in a bid to woo team owners in 2008, Modi had devised a mechanism that guaranteed them a specific income every year. The former commissioner said that a substantial chunk of IPL revenues earned through telecast rights, format/title sponsorship deals (DLF, Pepsi and Hero Honda), and internet streaming rights would be shared equally with team owners. Of the IPL’s overall telecast inflows, 80 per cent was doled out in the first two years, and 70 per cent the next three. Of the central sponsorship kitty, 60 per cent was given to franchisees.

In addition, Modi dangled BCCI largesse for state cricket associations to attract their interest in the League’s success. He announced huge hikes in the BCCI’s budgetary allocations for renovation and modernisation of existing stadia and construction of new ones. Most of this money came from IPL receipts. Thus, what was left for the Board was only a small fraction of overall League earnings.

Today, it is obvious that the IPL was an economic mirage. Modi’s grand projections of its image were what he wanted the world to believe, and this had little to do with the truth. Although it is popular, entertaining and exciting, the League is not nearly as big or successful as it was thought to be—be it for the BCCI, team owners or sponsors. Yet, for an owner like Reliance, losses on Mumbai Indians are not even a matter of spare change. The megacorp earned profits of over $11 million every single day in 2010-11. Annual income of $22.6 million from a cricket franchise is peanuts for it. For most of the rest, however, there are some re-calculations to do.