Comparing the IPL’s Media Rights and Salary Cap to Other Professional Leagues Worldwide: An In-Depth Analysis
Abstract:
The Indian Premier League (IPL) received a massive hike in their recent media rights contract (2023–2027), growing by 143% in terms of the annual amount of dollars paid to the league per season, placing it among the top two richest leagues in the world in terms of dollars per game. However, the salary cap growth in the IPL does not reflect this same upward trend. This article aims to critically analyze the factors responsible for the relatively subdued salary cap growth while exploring the key factors driving the massive media rights growth in the IPL. At the heart of this analysis lies the IPL’s governance structure, which is overseen by the Board of Control for Cricket in India (BCCI), endowing them the power to regulate the financial constraints imposed on player remuneration. To provide an in-depth understanding on this, nine other global sports leagues will be examined as points of comparison for media rights and three other global sports leagues will be investigated as points of comparison for the salary cap.
1. Introduction
The IPL traces its origins back to the Board of Control for Cricket in India (BCCI), which played a pivotal role in conceptualizing and initiating the league. Recognizing the potential for a franchise-based cricket tournament in India, the BCCI introduced the IPL in 2008 as a revolutionary cricketing extravaganza. The league aimed to combine the thrill of T20 cricket (the shortest format in cricket spanning three-four hours) with a unique franchise model that drew inspiration from successful sports leagues around the world. Under the leadership of the BCCI, the IPL quickly gained popularity and transformed the cricketing landscape, attracting top players from across the globe and captivating audiences with its innovative format and high-quality competition.
Since its inception in 2008, the IPL has undergone remarkable growth on the national and global stages. This growth can be observed through various indicators, particularly through the rise in team valuations. For example, the Lucknow SuperGiants was bought for around $2 billion in 2021, whereas the Rajasthan Royals was bought for about $67 million in 2007. Additionally, the IPL 2022 final boasted an attendance of approximately 100,000, representing a significant increase from the 55,000 attendees at the IPL 2008 final. Furthermore, the IPL’s media rights per game became the second richest across all professional sports leagues globally in under 15 years, highlighting the league’s substantial growth. The recent media rights deal further solidifies the IPL’s standing, with the league now worth more than three times greater than the English Premier League (EPL) and eight times greater than the National Basketball Association (NBA).
Despite the significant strides made in the realm of media rights and other aspects within the IPL, the IPL Salary Cap has consistently lagged behind the standards set by prominent sports leagues such as the National Football League (NFL), National Basketball Association (NBA), and National Hockey League (NHL) throughout the history of the IPL.
The IPL Salary Cap is the maximum amount of money each franchise participating in the IPL can spend on player salaries during a given season, limiting the total amount each franchise can allocate towards player salaries, including payments for retainment, transfers, and contract renewals. Franchises must strategize and manage their financial resources effectively within the confines of the salary cap to build a competitive team. It is a financial mechanism put in place by the BCCI, the governing body of the IPL, to ensure a level playing field and maintain financial stability within the league.
This article aims to comprehensively examine the structural framework of the salary cap in the IPL and investigate the factors that contribute to its notable disparity when compared to the prominent “Big 4” American leagues (NFL, NBA, MLB, and NHL). Furthermore, this research undertakes a rigorous comparative analysis of the IPL’s media rights timeline with respect to nine other prominent professional leagues, effectively showcasing its exceptional growth trajectory and shedding light on the comparatively modest salary cap.
2. Background on the revenue model
The IPL revenue model as explained in this article and elucidated in Figure-1 serves as a solid foundation for comprehending the intricacies of cash flow within the IPL. Among the various inflows and outflows, the segment with the most accessible and comprehensive data pertains to media rights contracts, which constitute about 90% of the league’s overall revenue. The recent announcement of the IPL media rights deal solidified the significance of this analysis as the most representative indicator of IPL’s growth trajectory. By conducting a comparative assessment of the IPL’s media rights alongside those of other prominent leagues worldwide, a compelling framework emerges for evaluating the league’s progress and positioning within the global landscape.
Another article provides additional insights into the revenue model of the IPL and how it has evolved over time. One key aspect highlighted in the article is the central pool, which consists of broadcasting rights and central sponsorship deals. This central pool accounts for a significant portion, approximately 70–80%, of the teams’ overall revenue. Within this pool, the BCCI retains 50% of the revenue, while the remaining 45% is distributed equally among the franchises. Furthermore, the remaining 5% of the central pool is allocated as prize money to the four teams that qualify for the playoffs, with the highest amount awarded to the eventual winner. Overall, the central pool plays a crucial role in generating revenue for the IPL and ensuring a fair distribution among the participating franchises.
Additionally, as per the 2018 regulations, franchisees are obligated to pay the BCCI 20% of their overall revenue (excluding ticket sales) as annual fees. This effectively creates a 60–40 share between the BCCI and the IPL franchises in the central revenue share.
The above figure visually depicts the distribution of revenue by the International Cricket Council (ICC) among international cricket-playing countries from 2016 to 2023. It highlights the significant value of Indian cricket within the global cricketing community, as India receives the highest revenue share from the ICC. This article aims to shed light on the substantial contribution of the BCCI to the global cricketing landscape, while also delving into the factors behind the ICC’s decision to allocate them the highest revenue share.
3. Methodology
In the Media Rights section, we conducted a comparative analysis of the IPL alongside nine other prominent professional leagues: NFL, NBA, NHL, EPL, Major League Baseball (MLB), La Liga Santander (LLS), National Rugby League (NRL), Major League Soccer (MLS), and Pakistan Super League (PSL). These leagues include the top six leagues in terms of overall league revenue in 2020 and three developing leagues, providing a comprehensive perspective on the IPL’s global positioning. The inclusion of the PSL (Pakistan Super League) was motivated by its status as a renowned cricket league, allowing for an insightful evaluation of the IPL within the international cricket landscape. To ensure consistency across all leagues, we focused on Media Rights deals post the year 2000, considering each league’s different foundations.
Table-1 provides more information on the ten leagues, their year of establishment, ownership information, and the number of teams currently playing in each league. Approximately three different ownership/business models are evident from the table. The NFL, NBA, NHL, EPL, and MLB are collectively owned by their individual franchises, whereas IPL, NRL, and PSL follow a corporation ownership model with the IPL owned by BCCI, NRL owned by ARL, and PSL owned by PCB. The MLS follows a single-entity structure, where teams and player contracts are centrally owned by MLS itself.
In the Salary Cap section of this analysis, a comparative study was conducted between the IPL and three well-established professional leagues: NHL, NBA, and NFL. The selection of these leagues was based on their implementation of a salary cap system, and the exclusion of the other six leagues was due to the absence of a salary cap or insufficient data about their salary cap regulations. Focusing on these three leagues, which are highly established and share a similar level of development to the IPL, offers a comprehensive assessment of the IPL’s position regarding its Salary Cap globally.
4. Results and Discussion
4.1: Media Rights
Figure A highlights the Compound Annual Growth Rate (CAGR) of Media Rights of the top leagues, which reveals the IPL as the league with the highest CAGR. This finding indicates that the IPL has achieved the fastest growth rate compared to other top leagues such as the EPL, NBA, and MLB. Interestingly, despite having the most significant Media Rights deal, the NFL has the slowest CAGR among these nine leagues considered in this analysis.
The NFL, with the largest media rights per game and media rights per year, is indisputably the most comprehensive league. Despite having the fourth lowest number of games per season among the ten leagues under consideration, the NFL’s media rights outstrip all others. On the other hand, the MLB has media rights per year that surpasses the IPL, but since it has the highest number of games (2430) among the ten leagues, the value for each game is significantly lower than the IPL. In fact, despite having media rights per year of $12.5 million, the Pakistan Super League (PSL) closely trails behind the MLB’s media rights per game, due to the significantly lower number of games per season (30 games). From this data, it is evident that the number of games per season and the media rights per game are interdependent. Despite the NBA’s ten-year, $24 billion contract and the MLB’s seven-year, $12.3 billion contract, their value per game is far less than that of the IPL and NFL, as they have thousands of games per season.
Likewise, the IPL has completely distanced itself from the likes of the EPL, NBA, NFL, and LLS. Many individuals compare the IPL’s media rights per season and media rights deals over time to those of the “Big Four American Leagues” or the EPL and assume that the IPL is expanding rapidly but still lags behind these leagues.
But due to the IPL’s comparatively lower number of 70 league games per season, its Media Rights contract holds a higher valuation than that of every professional sports league, with the exception of the NFL.
Similarly to Media Rights per game, the NFL stands out as the dominant force among the leagues in terms of Media Rights per year. However, looking beyond the NFL, this graph highlights the remarkable recent growth of the IPL and, to some extent, the NBA. In 2008, both the IPL and NBA were positioned among a cluster of two to three leagues. Then, in a sudden turn of events, the NBA surged ahead of the EPL and MLB in 2014, securing the second-highest Media Rights per year. Fast forward to 2023, and the IPL emerges from the pack consisting of MLS, NRL, and NHL, surpassing LLS to claim the fifth-highest Media Rights per year.
The relationship between the number of games per season and the number of teams for professional sports leagues like these are linear and positive, exemplifying how the more teams in a league, the greater number of games played. The weak correlation is due to the fluctuation of the number of games played for leagues with over 30 teams. For example, the NFL has more than 5 times less number of games compared to the NBA and NHL, and 10 times fewer games compared to the MLB, even though all four leagues have similar numbers of teams.
On top of that, La Liga and EPL have exactly 108 more games than the NFL even though both leagues have 12 fewer teams. However, it is important to take away that leagues with more teams generally have more games per season than leagues with fewer teams, with a couple of exceptions like the NFL compared to the EPL.
Additionally, the number of teams within a professional sports league serves as a key indicator of its age/developmental stage. A noteworthy example is the MLS, which has witnessed substantial growth over the past two decades. Although not reflected in the scatterplot, the MLS expanded by 18 teams during this period, approaching the team count of the esteemed “Big 4 Leagues.” In its seventh season (2002), the MLS comprised a mere 10 teams, further reinforcing the notion that developing leagues typically commence with a limited number of teams. Among the nine leagues analyzed, the PSL stands as the only league currently in the developmental phase, featuring six teams across seven seasons. While some may contend that the IPL, being a relatively young league at 15 years old and comprising only 10 teams, is still developing, its position as the second most valuable league globally in terms of media rights per game suggests otherwise.
This graph highlights the remarkable impact of the IPL’s latest Media Rights deal, propelling it to surpass both LLS and EPL. As a result, the IPL now boasts the highest Media Rights among leagues outside of the NBA, NFL, and MLB. The CAGR further underscores the significant progress achieved since 2008. Interestingly, the data reveals that La Liga has experienced the slowest growth among these five leagues since 2008. This observation may be indicative of La Liga’s status as a more mature league compared to the previously mentioned four leagues, given its establishment in 1929, in contrast to the EPL in 1992, MLS in 1993, NRL in 1998, and IPL in 2008. This trend suggests that younger leagues tend to exhibit greater growth potential.
4.2: Salary Cap
The line graph presented above highlights a significant disparity in the salary cap between the IPL and the renowned “Big 4” leagues that enforce a salary cap system. Despite the IPL’s media rights per game being approximately eight times higher than that of the NBA, the IPL’s salary cap remains considerably smaller compared to the substantial salary cap of the NBA, which is ten times larger. Similarly, the salary caps of the NFL and NHL far exceed that of the IPL, with the NFL’s salary cap being approximately 17 times larger and the NHL’s salary cap being approximately 7 times larger.
The line graph above indicates a consistent growth in the IPL Salary Cap over time. In fact, there was a significant increase in the Salary Cap between 2017 and 2018, coinciding with the IPL’s acquisition of a new Media Rights deal. Additionally, there has been a positive linear progression in the Salary Cap between 2021 and 2023, with both years experiencing an approximate growth of $665,000.
However, despite these satisfactory increments in the Salary Cap, the percentage of the IPL Salary Cap to IPL Media Rights per year has exhibited a significant decline since 2017. Initially, at 5%, this ratio has dwindled to approximately 1% in recent years. In fact, each time a new IPL Media Rights deal is secured (such as in IPL 2009, IPL 2018, and IPL 2023), this percentage undergoes a substantial reduction of around 1% to 3%, highlighting the disproportional growth rate of the IPL Media Rights compared to that of the Salary Cap.
The provided figure depicts the historical growth of IPL’s Media Rights compared to its Salary Cap. It is evident from the preceding figures that there exists a significant disparity between these two metrics. The accompanying bar graph further illustrates this disparity as the growth of the Salary Cap is approximately half of the growth observed in Media Rights. Furthermore, when examining the NBA and NFL, both leagues demonstrate a close correlation between the growth rates of their Media Rights and Salary Cap, with a ratio close to one-to-one. Specifically, the NBA exhibits a Salary Cap and Media Rights CAGR of 4.77% and 5.33%, respectively, while the NFL demonstrates a Salary Cap and Media Rights CAGR of 3.38% and 4.22%, respectively. This contrast highlights the peculiarity of IPL’s lagging Salary Cap growth in relation to its Media Rights.
5. Conclusion
The disparity between the overall salary cap of the IPL and the overall salary cap of leagues in the “Big 4” is evident. Furthermore, there’s a clear difference between the IPL salary cap growth and the IPL media rights growth. So why does this discrepancy exist? Some individuals may argue that the IPL, being a relatively young league compared to the NFL, NBA, or NHL, has a smaller salary cap. However, in just 15 years, the IPL has become the second richest league in the world regarding media rights, second only to the NFL. Therefore, the age of the league has little to do with its current salary cap situation.
The primary reason for the IPL’s comparatively smaller salary cap is that it is not an independent entity. The BCCI, which governs Indian cricket, founded and owns the IPL, unlike the Big Four leagues, which were founded and administered by individual people. These individual administrators have no involvement in the incoming revenue generated by The Big Four leagues. In contrast, the BCCI earns 60% of the IPL’s media rights and sponsorship revenue, while the remaining 40% goes to the franchises’ revenue and costs (as explained in the literature review).
Within this 40% of IPL revenue that franchises earn, a specific allocation is designated for the salary cap. However, the decision regarding its annual value rests with the BCCI. Consequently, regardless of the rate at which the overall IPL revenue and media rights expand, the salary cap will not grow proportionally as its growth is independent of the league’s success; instead, it is regulated by a governing board.
While some may argue that the BCCI’s 60–40 share and their ability to control the salary cap is excessive, it must be acknowledged that the BCCI’s support is crucial for maintaining the strength of Indian cricket, which in turn drives global viewership and funds the ICC. For instance, during the 2022 T20 World Cup held in Australia, India’s matches attracted an average of 53,800 spectators to the stadium, three times the average attendance of 17,400 for non-India games. This underscores the passion and enthusiasm that Indian cricket fans have for the sport and highlights the necessity of ensuring that Indian cricket remains robust and competitive in order to sustain this fervor.
