IPL franchisee will not make money initially
As the likes of Shah Rukh Khan, Ambani brothers and others from India Inc bid to become franchisees of the IPL on Thursday in Mumbai, sources in the industry say that the Twenty20 league will not be a profitable venture for at least the first two years.
Like any other business, it will take at least two to three years to break even, if the calculations are done on the base bid price of $50 million for 10 years. "But, thereafter, it has huge potential in the Indian market," the source said.
According to the IPL tender document, the franchisee revenue is divided into two sections. The first is centralised revenue under which falls the title sponsorship, media right and official umpires' sponsorships.
The second is franchisee revenue which primarily deals with team naming rights, team shirt sponsorship and ticketing revenues. Based on the calculations of the media rights, some of the bidders have reached the conclusion on Wednesday evening that earnings from the sale of different rights are not going to exceed more than $8 million (Rs 320 crore).
Hence, the franchisee will really have some spending to do in the first year after winning the bid.
The tender says that the franchisee will have to bear the minimum cost of the players' salary that's between $3.2 million to $4 million. Then, there are other expenses like travel, accommodation, office and support staff, team management, coach, training and preparation, insurance, ground expenses and floodlights, marketing and promotional cost.
Moreover, the bid amount, which will be paid to the IPL, will also be accounted for expenditure. This means that if a franchisee buys a team for $60 million for 10 years, that team will have to shell out an amount of $6 million per year. In all probability, the expenditure will go up to $12 to $13 million.
Sources close to the bidders reveal that a franchisee is willing to undergo losses worth at least $4 million in the first year. Hence, to make it lucrative for the franchisee, the IPL has granted a 10-year ownership initially. From the 11th year, team owners will have to pay a certain percentage of their revenue to the BCCI to get the license for life.
"It is natural for any business to break even in a couple of years. IPL is a big venture and it's certainly going to do wonder to the world of cricket," a top IPL official told TOI on Wednesday. If that happens, Indian cricket will surely benefit from the 10-year event on and off the field.