IPL franchisees set to make a killing; revenue from media rights may go up

The future has just got rosier for Indian Premier League (IPL) franchises. The owners of the 10 franchises, including two new ones that joined this year, might see their revenue from the IPL’s media rights shoot up two-and-a-half times, raising their Ebitda (earnings before interest, taxes, depreciation and amortisation) income as well as valuations to new highs.

This, at a time when broadcasters were slugging it out for the media rights of the coveted cricket tournament today.

Franchisees make most of their revenues from a central pool that accounts for 85-90 per cent of their revenues. Under this, they get a 50 per cent share of what the Board of Control for Cricket in India (BCCI) earns from media rights and official sponsors’ rights. The money earmarked for franchisees is then divided among them all.

If the media rights hit around Rs 50,000 crore (as many, including the BCCI, are expecting for the upcoming 2023 edition of the league), each franchise will on average make Rs 500 crore annually as its share, up dramatically from the Rs 201.65 crore that all 10 franchisees made in 2022.

At the base price, each franchise would have seen its revenues go up by 63 per cent to Rs 328 crore in 2023 over this year. But by the end of the first day of auction, it had already hit Rs 43,050 crore. However, that is good news for the franchisees because their revenues from media rights will more than double to Rs 450 crore if the winning bid is at Rs 45,000 crore.

In 2022, Disney Star paid around Rs 4,033 crore for 74 matches for the IPL media rights based on a per match price of Rs 54.5 crore.

The number of matches went up from 60 to 74 because the new teams of Ahmedabad and Lucknow were added to the IPL. Half of that money, Rs 2016.5 crore, went to the ten franchisees. However, for the next five years, the number of matches promised under the bid conditions is 410 (at 74 matches per year it would have been 370 overall). This means the BCCI has left the option for more teams to join and add to the number of matches. However, for 2023 the total number of matches has been pegged at 74.

As far as BCCI revenue from sponsors is concerned, in 2022 it was around Rs 708 crore according to estimates; each franchisee received over Rs 35 crore.

In the upcoming IPL, the BCCI increased the base price to Rs 32,890 crore for five years — double of what Disney Star paid in 2017 for the media rights.

According to Forbes Research, the average revenue of the eight franchisees stands at around $35.2 million and an EBITDA of $9 million. With media rights expected to rise sharply, so will valuations. Seven of the 10 franchises already have valuations of over $1 billion.

PE funds have clearly seen a big opportunity and have started putting money in franchises. CVC Capital (which has sports investments in the Spanish La Liga, a top soccer tournament, and Volleyball World) grabbed the Ahmedabad franchise at Rs 5,625 crore.

This is more than three times what Sahara paid for the Pune Warriors in 2010, which was the previous highest bid for a team.

Compared with the Mumbai Indians, which paid the highest in 2008 when the IPL began, CVC Capital is paying over twelve times that amount.

But there is a method to the madness. PE funds are seeing media rights as an assured return business, with returns virtually guaranteed by the BCCI.

Average valuations are already at around $1.1 billion. A top executive of a PE fund, which is looking at investment in sports, said the high media rights that are on auction “will add another incremental revenue of Rs 100-300 crore every year and their share of sponsor rights will also go up”.

He added: “But your costs will go much slower as your big contributor to cost (buying players) is capped at Rs 90 crore. So, margin improvement and increased profitability are guaranteed.”

Parth Gandhi, founder, India Media and Entertainment Fund, also said that only specialised global PE funds — that are a small minority — with experience in sports investments and an ability to tackle the reputational risks in teams will come in. Business Standard