Decoding IPL Business Model

Indian Premier League or IPL, the popular Indian T-20 franchise-based cricket tournament is all in the news this time as two new teams have joined the battle to win the IPL winning cup. Another reason why IPL has been in the news is because of the whooping bids that have been made this season, the highest being 15.25 crore for Ishan Kishan.

In reality, IPL is all money! Not just in terms of spending by the team owners but in terms of the amount of money they receive. The BCCI (Board of Control for Cricket in India) and the Team Owners, both enjoy a continuous stream of money in their pockets through the hefty economic gain of running this T-20 Tournament!

Let us carefully analyze the business model of IPL from the perspective of both BCCI and Team owners, respectively.

Business Model of BCCI and Team Owners

A) BCCI

• Sponsorships:  The BCCI is all set to receive a whopping 800 crores this season through sponsorships received from various brands including TATA who is the primary sponsor offering 335 crores for it!
• Exclusive Streaming Rights: The BCCI provides exclusive streaming rights to Star Sports and Hotstar and keeps 30% of the proceeds with itself and the remaining gets distributed amongst the Franchise Owners.
• Participation Fee: A 20% fee from each match's revenue goes into the pocket of BCCI which is roughly 20% of 5- 7 crores per match.
• Ticket Sales: Sales of tickets contribute a major portion of IPL’s revenue, but BCCI gets a little share of it as the remainder goes into the team’s pocket.

B) Team owners

• Sponsorships & merchandising: IPL teams get various sponsorships from a plethora of brands to promote brands by printing logos on the player’s jersey and advertising on boundary ropes, and merchandising through the sale of jersey copies, sports memorabilia, caps, kits, and T-shirts of all IPL teams.
• Selling stake: IPL team owners also make profits by selling the stake of their teams, in the form of shares to other corporates or buyers.
• IPL Prize money: Winning teams are awarded with prize money, based on their position in the points, which is distributed between the team owners and the players of the winning team.
• Ticket Sales: Sales of tickets contribute around 15% percent of the total revenue generated by IPL franchises, of which a significant amount goes to the team owners as they set the ticket prices.

Taxation on the income of BCCI

Though being a private institution as the governing body for cricket under the jurisdiction of the Central Government of India, it has also been acknowledged as a charitable trust, hence entitled to the exemption from tax under, Sec 12A of the Income Tax Act, 1961.

But the problem arises since the IPL got introduced, the initial agenda was to just promote the cricket but, the inception of IPL and the agenda no longer remained the same instead, it’s more of commercial ones i.e, profit-earning.

Questioning the same, on the outstanding income of almost INR 1,303 crore a notice was issued by the Department of Revenue on the 20th December 2018. The lawyers representing the BCCI argued that though there’s been earning and commercial activities going on but the agenda remains intact i.e., promoting the cricket; which was accepted by the court and the final decision was made in favour of BCCI, not to pay tax on the earnings even through IPL. 

Taxation on the earnings Team players

Where the income of BCCI is exempt from tax but not of the players as they have to pay tax depending upon the citizenship of the individual. If the player belongs to India, there's a TDS deduction of @10% and if not then there's a total TDS deduction of @20% only. Seems a bit unfair right? But the story for the Indian players doesn't stop here. After getting their earnings from the IPL (already including a TDS deduction), they have to include that in their annual income which is subject to tax.

Conclusion

No doubt IPL is a great source of income, whether it’s BCCI, team owners, team players, government, and the general public. As India is a religious country and many people follow cricket religiously, hence giving the opportunity to big corporates and influential figures to make money out of it, although enhancing numerous employment opportunities and contributing a nice fair share towards the governments and nation’s revenue making it one of the growth driver of the nation that can’t be hurdled by even a worldwide pandemic.

References:

1. https://www.incometaxindia.gov.in/Pages/default.aspx
2. https://www.bcci.tv/about
3. https://blog.finology.in/business/how-bcci-earns-money
4. https://readon.substack.com/p/-no-taxes-for-ipl?s=r
5. https://bit.ly/3vVUGUN
6. https://www.relaxwithtax.com/app_ui/newsDetails.aspx?Type=Articles&PostId=95
7. https://bit.ly/3FlnWXZ
8. https://www.indiatimes.com/worth/news/why-ipl-is-not-liable-to-tax-568623.html
9. https://bit.ly/3yfqNA2
10. https://bit.ly/3FkbjfM
11. https://innovativezoneindia.com/ipl-business-model/