Wed. Apr 17th, 2024

If Starc’s earnings seems to be straining levels of incredulity, former Indian batsman Robin Uthappa stretched that further. “If you have an open auction, and there is no limit on the purse…we have 10 players who can get over 100 crore. Jasprit Bumrah. Virat Kohli. Rohit Sharma. Hardik Pandya also,” Uthappa told News24 Sports. For IPL 2024, 100 crore is the total amount a team can spend on its entire squad.

In the way the IPL has cemented itself on the cricketing calendar, a day will probably come when that will happen organically. But Uthappa is alluding to a scenario when that salary cap doesn’t exist. How much then would the most bankable players command in the IPL? Put another way, from the teams’ perspective, given their revenue and the imperative to build a profitable business, how much would they be willing to pay marquee players?

View Full Image

Australian fast bowler Mitchell Starc smashed all Indian Premier League auction records. (Saeed Khan/AFP)

As the IPL matures, these are questions that are likely to crop up, perhaps in uncomfortable and disruptive ways. The revenue pie for the Board of Control for Cricket in India (BCCI), which runs the IPL, and the 10 IPL teams, has increased with each sale cycle of broadcasting rights. Broadcasting and sponsorship are the main revenue streams for the IPL. Half of this is shared with the 10 teams, who, in turn, use it to pay salaries to players, among other things.

The annual reports of three IPL teams—Kolkata Knight Riders, Royal Challengers Bangalore and Mumbai Indians—show their cost of players amounted to about one-third of their revenue in 2022-23. This is significantly lower than the 50-70% of revenue that is the norm in most prominent global sports leagues, including football, baseball and basketball.

So far, in the 17-year history of the IPL, growth in broadcasting revenue, team revenue and valuations have all outpaced growth in player salaries.

 

Further, when the IPL teams release their 2023-24 financials, that 33% figure is likely to drop significantly. That’s because the latest broadcasting cycle, from 2023 to 2027, is going to fetch the BCCI three times as much as the previous five-year cycle. Since half of this flows to the teams, they are also in line for a bigger cut. So far, in the 17-year history of the IPL, growth in broadcasting revenue, team revenue and valuations have all outpaced growth in player salaries. If the overall pie is growing, but one part—that too the showpiece—is growing slower than all others, it could well become a fault line.

Variable and Fixed

The IPL business model, from the outset, has been straightforward. There are three major stakeholders—the BCCI, the 10 IPL teams and about 250 players.

The BCCI, principally, earns by selling broadcasting rights, title sponsorships and other sponsorships. This forms the ‘central pool’. A certain proportion of this is retained by the BCCI. The remaining is divided equally among the 10 IPL teams—80% in 2008 and 50% now.

BCCI secretary Jay Shah.

View Full Image

BCCI secretary Jay Shah. (PTI)

As in all major sporting leagues, the biggest, and the fastest-growing component in the central pool is broadcasting rights. In 2011, this went for 820 crore a year. In 2018, it increased to 3,270 crore a year. In the latest five-year cycle, beginning 2023, this is 9,678 crore a year. Since 2011, that’s an average annual growth of an impressive 23%.

Then, come the IPL teams. They are assured of an equal share of 50% of the central pool. Thus, given the tripling of broadcasting revenue, they would have received a bump in 2023, which should show up in their 2023-24 results. They also earn revenue by generating their own sponsorships and selling tickets. But their main source of income is the share of the central pool—it was 65% for the Mumbai Indians in 2022-23.

On the cost side, teams pay the BCCI an annual franchise fee—20% of their total revenue. And they pay players. For most teams, the cost of players amounted to roughly about one-third of their gross revenue in 2022-23. Before each season, the BCCI announces the salary cap. It was 20 crore per team in 2008; 60 crore in 2014; 80 crore in 2018 and 100 crore in 2024.

That’s an average annual increase of 11%, which is significantly lower than the pace at which broadcasting rights, or IPL team revenue and valuations have increased. Thus, while the auctions create big paydays for players, each round of increase in media rights creates a bigger revenue stream for the BCCI and the IPL teams (see chart).

The principal reason is the growth basis for the three stakeholders. It is variable for the BCCI and the IPL teams, but is fixed for the players. And the variable part has grown significantly faster than the fixed part.

Risk and Reward

At one level, it can be argued it’s the BCCI and the teams that have invested risk capital into the business. At another level, it’s the players who are the show-stoppers. While the players are the equivalent of salaried employees of a company, the legitimate question they can ask is: what’s a fair revenue distribution, given what they bring to the show and, more importantly, the pace at which the league has grown.

Manchester City celebrates scoring a goal during a match against Leeds United in May 2023.

View Full Image

Manchester City celebrates scoring a goal during a match against Leeds United in May 2023. (Action Images via Reuters)

In the IPL’s current compact, it’s the BCCI that decides how much players earn collectively. There are global leagues whose financial models are similar to the IPL—led by broadcasting rights, which are shared with the teams. But players there have negotiated a deal for themselves that is greater and more aligned to the market.

Take the five big European football leagues. In 2021-22, teams in these five big leagues collectively paid between 59% (Germany) and 87% (France) of their revenue as wages to players, according to the Deloitte Annual Review of Football Finance 2023. For England, the world’s most-lucrative football league today, and which broke away from other leagues on the strength of broadcasting rights, this ratio was 67%. Back in 1996-97, this was 48% (see chart).

The numbers in American leagues are similar. This was not always the case. Players organizing themselves as a grouping made a difference. Most leagues have a players’ union, which draws up a ‘collective bargaining agreement’ (CBA) with the league and team owners. For example, the 2023 CBA of the National Basketball Association is a 676-page document that delves into just about every aspect that matters for players and their engagement with the league. At present, the IPL does not have a players’ union.

In addition, the BCCI currently has a significant say on player rights. Thus, while players are the assets that make the league, they don’t have choices. Players don’t decide which team they play for; the teams do so, within the auction and retention framework laid down by the BCCI. Players don’t decide how much they are worth; the teams do so. And Indian players are barred by the BCCI from playing in foreign leagues, even though the BCCI seeks players from other countries to play in the IPL.

The Disruption Factor

Rohit Sharma (left) and Hardik Pandya play for the Mumbai Indians, a team valued at over $1 billion.

View Full Image

Rohit Sharma (left) and Hardik Pandya play for the Mumbai Indians, a team valued at over $1 billion. (PTI)

Right now, the balance of power is in favour of the BCCI and teams, rather than players. It can be ruthless in preserving its hegemony. Between 2007 and 2009, when the Zee Group floated the Indian Cricket League, a rival T20 league, the BCCI took it to court and excluded players from representing India or playing domestic cricket. It also raised prize money in domestic cricket and launched the IPL in 2008.

Imbalances in power equations is something that older global sporting leagues have experienced, and stakeholders have worked to resolve it, mostly in stages and with some pain. For example, in the US, Major League Baseball (MLB) saw a 232-day strike by players in 1994-95, when team owners tried to break their union and reduce pay and benefits.

Entrepreneurs, and now countries, have also tried to capitalize on these fault lines. Since the players make the show, they offer them big paydays. A case in point is Kerry Packer and World Series Cricket in Australia. Today, the sovereign wealth fund of Saudi Arabia is trying to do the same in golf and football, as part of the country’s effort to build its soft power.

Imbalances in power equations is something that older global sporting leagues have experienced, and stakeholders have worked to resolve it

 

In football, the 18 teams that make up the Saudi Pro League are paying about €1 billion in 2023-24 to players, according to Capology.com. By comparison, the 20 teams that make up the English Premier League will pay €1.8 billion. In the case of Saudi Arabia, 60% of €1 billion is going to just 10 players, led by Cristiano Ronaldo, Neymar and Karim Benzema.

Similarly, in golf, the LIV Golf tour paid $225 million to players in 2022, its first year, as per news reports. In 2023, this increased to $405 million. This was only the prize money. Players also got a signing bonus, which for marquee players such as Phil Mickelson, Brooks Koepka and Dustin Johnson reportedly exceeded $100 million. By comparison, the US PGA, which raised its prize money after LIV Golf was launched, paid $560 million, and no signing bonus. Disruption is an expensive proposition.

It also takes quite a bit to break roots. Both golf and football have withstood the Saudi advances, though there have been uncomfortable moments.

The IPL trophy. In November 2023, Bloomberg reported that Saudi Arabia had sent feelers on investing $5 billion in the tournament at a $30 billion valuation.

View Full Image

The IPL trophy. In November 2023, Bloomberg reported that Saudi Arabia had sent feelers on investing $5 billion in the tournament at a $30 billion valuation.

Cricket will cost far less to be disrupted. In IPL 2024, the total wage bill of the 10 teams is 1,000 crore, or about $120 million. On two occasions, the IPL has been held in the Middle East. Indian cricket fans fill up stadiums across the world. With broadcasting, boundaries are diminishing, especially in sports where the intersection with the fan base is not as tight as, say, European football. LIV Golf plays out in golf courses across the world.

The threat of disruption is not something that would be lost on the BCCI, and they might be moving to safeguard themselves by partnering with potential disruptors. In November 2023, Bloomberg reported that Saudi Arabia had sent feelers on investing $5 billion in the IPL at a $30 billion valuation.

For the BCCI, that might still be a deal of many objectives. It pares the threat of disruption. It raises the IPL’s profile globally and gives it the finances to reimagine the IPL, especially in a global context.

Whatever the contours, it will have to address the mismatch emerging in the IPL. On the one hand, broadcasting rights are shooting up. As are team valuations. According to Forbes,the valuations ofsevenIPL teams had reportedly crossed $1 billion, one reason being that IPL teams are finite assets—there are only 10.

Players would not like to be left behind.

howindialives.com is a search engine for public data

By admin

Related Post

Leave a Reply

Your email address will not be published. Required fields are marked *