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Was it worth buying an IPL team?

Was it worth buying an IPL team?

In 2008 when Lalit Modi launched the India Premier League he boasted confidently about how owners would rake in moolahs from the very first year. This was the premise on which most of the bidding was done for the teams. Seven seasons and eleven teams down the line, it is worth analyzing whether buying an IPL team was a financially prudent decision or just a status symbol for the team owners? Here we list the current eight teams in the IPL and see whether what Lalit Modi said was true.

Costs

So what is the cost to run an IPL team? Each team had to bid an amount, which they would pay BCCI in equal installments over the next 10 years. Bidding for players was capped to $5 million initially but increased $9 million in 2011. Apart from these costs there is a $4-6 million cost for each team comprising of marketing and operational activities. So on the higher end a team would be spending about $25 million a year.

Revenues

The main revenue stream for any IPL franchise is the 70% share from the IPL’s central broadcasting and sponsorship pool with the BCCI. Since these rights have been sold for 10 years a teams gets an amortized amount of approximately $9 million a year. However, there is a difference in revenue distribution of about $200,000 between any two teams placed next to each other in the ranking table. So if you are a champion then you can win about $1.8 million more than the team finishing at the bottom of the table. That is almost Rs.10 Crore more! Apart from these two major sources of revenues, a team has a variable source of cash flows from their ticket’s sale and team sponsorships.

Comprehending the influence of aforementioned sources of costs and revenues on teams can be quite difficult. Financial situations and the method of handling financials are different for different teams. Kolkata Knight Riders relies a lot on team sponsorship; in fact, this source has enabled them to become the second most profitable team. Rajasthan Royals has been the most profitable team, mainly because of their prudence in spending. On the other hand, teams such as Royal Challengers Bangalore and Mumbai Indians are bleeding money despite performing well on multiple occasions. The financial position of Chennai Super Kings is very sketchy because of lack of disclosures.

Team wise Financial Highlights

Graphic: The graphic depicts financials years on the left. 10’ would mean financial year 2010-2011. $$$ Columns represents money earned in that financial year by the team in Rs crore. Rank is the ranking of the teams in the IPL played during that financial year

 

Kolkata Knight Riders: Sold for $75.09 million, Owner: Shahrukh Khan's Red Chillies Entertainment

The Shah Rukh Khan owned Kolkata Knight Riders might have been the worst performing team in the initial few seasons, but it is one team which has consistently made money. Two major parts of its revenue comprise of individual team sponsorship and gate ticket sales. Making its start players do Nokia or Vivel Ads has ensured that every year it gets a big check from its team sponsors. Also, full occupancy of the 70 thousand plus capacity of Eden Gardens makes KKR one of the most profitable team despite despite huge expenditures on team.

 

Rajasthan Royals: Sold for $67 million, Owner: Emerging Media-led consortium

Winner of the inaugural IPL season and the cheapest team among the eight, Rajasthan Royals, has been the most profitable team in the last seven years. It was the only team to make profit in the initial season. Although, its performance post that has not been that great, it has generated profits majorly due to its relatively low amortized cost for the team. It has to shell out $6.7 million per year in comparison to other teams who have to pay above $7.5 million. In 2008 when USDINR was at 45 it would have saved 3.6 Cr a year. However, in 2015 when USDINR is 62 it is saving close to 5 Cr a year. For some teams this is the profit they are making. In addition, RR has been very wise in buying players at auctions. They are one team, which focuses more on talent rather than on star players.

 

Kings XI Punjab: Sold for $76 million, Owner: Preity Zinta, Ness Wadia, Karan Paul and Dabur's Mohit Burman

Runners-Up in the last season, KXI Punjab has disappointed in the previous seasons. It is one team that does well in patches but fails to sustain its performance and ends up finishing outside the top 4. It is among the cheaper teams and thus has managed to not lose much. However, lack of both good money from sponsorships and adequate number of top four finishes has not been helpful to their balance sheet.

 

Royal Challengers Bangalore: $111.6 million, Owner: Vijay Mallya's UB group

The second costliest team, Royal Challengers Bangalore, is undoubtedly the most glamorous team. Its charismatic owner, who spends most of his time spectating his F1 and Cricket team, has ensured that most of the branding on its team jersey is his own. Thus a crucial source of revenue from team sponsorship is lost. And its miserable performance in the last three seasons has not helped its cause. RCB is one team that has been consistently making loses of around $1 million every year.

 

Mumbai Indians: $111.9 million, Owner: Mukesh Ambani's Reliance India Limited

If was not difficult to predict that the richest family in India would become owners of the most expensive team in the IPL. However, it is has not been in profit. The team has consistently performed well, often finishing in the top four. Moreover, the team has won the Champions League T20 title twice. But, its yearly cost of the retaining the team is almost double the cost of teams like Rajasthan Royals. Thus breaking even would be extremely difficult for Mumbai Indians, even after winning championships.

 

Delhi Daredevils: Sold for $84 million, Owner: GMR Group

After winning just 5 out of its last 30 matches in IPL, Delhi Daredevils has to be the worst performing team in the IPL till date. After a solid first two seasons, Delhi Daredevils have made torrid decisions at auctions. At one point they had a full-blown pace attack for flat Indian wickets, with no star batsman in their line-up. However, as can be seen, winning is not the only way of making money in IPL. It is the sponsorships and ticket sales that eventually determine whether a team will be in black or red. Even after finishing 8th in the last two seasons of IPL, Delhi managed to finally break-even for 2013-2014 by posting a profit of 8 Cr.

 

Chennai Super Kings: Sold for $91 million, Owner: India Cements

Winning two IPLs and CLT20, Chennai Super Kings under the captain ship of M.S Dhoni is probably the most successful and popular team in IPL. Their wacky Ad campaigns and an enthusiastic set of home crowd makes them a formidable team to beat on its home ground. It believes in the philosophy of retaining its star players, which gives them limited leeway in buying new players. But they have managed to develop a core team over the seven seasons. Analyzing the financials of CSK is extremely difficult because of the cloak around the team. India Cements does not declare earning from CSK separately since it says it has bought CSK as part of their marketing strategy. Considering the success of the team, N. Srivasan should be declared a marketing genius. But has India Cements benefited from it?

 

Sunrisers Hyderabad: Sold for $80 million, Owner: Kalanithi Maran

Deccan Chargers, post their prolonged financial issues, had to discontinue from IPL. The team was then bought buy Kalanithi Maran, Owner of Sun TV network for $80 million. With this high cost of team acquisition, SRH will not be able to make profits in the near future. They recorded a loss of about 30 Cr in 2013-2014. The loss margin will reduce this year, however it will still be beyond 10 Cr.

Thus, it is clear that winning IPL championship every year will not be sufficient for the teams to be profitable. They also need to manage their entire operational and marketing activities within a particular range and not over spend. Winning matches would obviously help them in getting higher prize money, better sponsorship deals etc. but senseless spending at auctions and over marketing their team can make it impossible for them to break even.

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