Key Takeaways

1. IPL is not just a cricket competition, but a game of money underpinned by different revenue streams: broadcasting rights, sponsorship income and other tournament-related income.
2. Even though IPL teams, like CSK, might be hitting 'fours' in terms of their revenue numbers, they are not necessarily hitting 'sixes' on the profitability front - there's a clear downward trend in profits due to the escalating costs of operations.
3. Despite lower profitability, IPL teams are still highly lucrative due to their brand value, derived predominantly from player popularity, team performance and visibility.

IPL: A Game of Money

Contrary to popular belief, success in the Indian Premier League (IPL) is not measured merely in terms of cricketing victories but also in terms of the financial gains reaped by the teams involved.

Revenue Streams of IPL Teams

The first step of understanding the economics of IPL is to acknowledge the various revenue streams feeding into this cricketing colosseum. There are three primary sources of income:

• Income from Grant of Central Rights.

• The broadcasting rights form a major chunk of this income, constituting about 70% of the total revenue.

• Broadcasting rights are sold by BCCI to platforms like STAR, Viacom 18 and Times for sums that could be as high as 48,392 crores.

• The revenue from these rights is split between BCCI and the teams, 45% is equally distributed among all teams and an additional 5% is given based on the team's performance.

• Sponsorship Income.

• This includes title sponsorship and jersey sponsorship.

• For title sponsorship, brands pay a hefty sum to have their name associated with the IPL (like DLF IPL or Vivo IPL).

• Jersey sponsorship, on the other hand, involves having logos of different brands printed on different parts of the team's jersey (e.g., Jersey front, Jersey back, Jersey chest etc.)

• Other Tournament-Related Income.

• This section constitutes the minimum proportion of the overall revenue (about 10%) and includes income from selling tickets, merchandise, and the prize money won.

Profit Trends in IPL Teams

While the revenues are definitely hitting 'fours', the profit scene doesn’t paint an equally rosy picture. For instance, CSK's Profit After Tax (PAT) showed a consistent decline from 2019-2022 despite a slightly fluctuating revenue curve. The main culprit for this appeared to be the increasing operational costs.

Among the operational costs, team players and staff remuneration, franchisee fees, and tournament expenses swallowed up a large chunk of the revenue. Over 2019-2022, the cost of operations as a percentage of revenue climbed from 60.4% to 82.6%, squeezing the PAT percentage of revenue from 27.1% to just 9.4% in 2022.

Brand Value is King

Despite the lower profitability, the brand value of IPL teams remains the primary attraction for investors. For illustration, the brand value of a team like CSK is enhanced thanks to star players, great team spirit and the high visibility garnered from consistently reaching the playoffs or finals. This enables them to pull in more sponsors, which boosts the brand value further.

This fact is attested by the whopping sums of money investors paid to acquire new teams like Gujarat Titans and Lucknow Super Giants. Tellingly, the brand value these investors perceive in such teams dwarfs the one-year revenue and profits of established teams like CSK.

Conclusion

In conclusion, the game of cricket in IPL is entwined with a high-stakes game of money. The economics underpinning the teams is a unique mix of broadcast revenues, sponsorship wealth, cricketing prowess and brand charisma, making IPL a riveting spectacle both on and off the pitch.