2020 IPL: How will Vivo's absence and IPL's move to UAE hurt the franchises?

Kolkata Knight Riders co-owners Juhi Chawla and Shah Rukh Khan watch from the stands BCCI

Political tensions between India and China recently led to BCCI and Vivo pressing the pause button on the IPL title rights which the Chinese mobile handset manufacturer had bought for a record sum in 2017 for five years. Apart from that, the IPL is moving to the UAE, which could add to the franchises' expenses. We find out how these developments affect the franchises and IPL.

Why is Vivo's exit as title sponsor a big deal?

In 2017, Vivo won the bid for IPL title rights paying INR 2199 crore (approx. US $341 million at the time) for a five-year period, which is nearly INR 440 crore (approx. $68 million) a year. The title sponsorship forms a key part in the IPL's revenue sharing agreement with the franchises, majority of which is covered by the media rights income. The biggest challenge for the BCCI is to find a replacement sponsor for Vivo with the tournament starting on September 19, which could cough up enough money to cover up for the massive hole the Chinese company's exit has left in the IPL finances.

The Covid-19 pandemic has severely affected the Indian economy and the BCCI already suffered the consequences of that even before Vivo. Nike, the Indian team's kit sponsor, had maintained a 14-year relationship with the BCCI, but could not negotiate an extension owing to the weakening economy.

How does it affect the franchises?

It has a direct impact. The IPL shares 50% of the title sponsorship money with the eight franchises. It is understood each franchise earns over INR 20 crore (approx. $2.7 million) from the title sponsorship. That is a big chunk for franchises in a season where they already will lose out on gate money considering the tournament is being played outside India and behind closed doors.

Why are the franchises not protesting?

Mainly because of the revenue-sharing model which got enhanced by the media rights package, which the IPL sold for a record sum of INR 16,347.5 crore (US$ 2.55 billion) to Star India in 2017. The deal, which extends until the 2022 IPL, is the biggest media rights deal in cricket and directly doubled the franchises' income to the tune of INR 150 crore (approx. $23.4 million). Each franchise, as a result, was estimated to have a profit of about INR 50 crore (approx. $7.8 million) per season due to the media-rights deal.

What is the revenue-sharing agreement?

A revenue-sharing agreement was central to the original contracts signed between the BCCI and IPL franchise owners for the first 10 years. The franchises were assured a percentage share of the income from central rights, after deduction of franchise fees. Between 2008 and 2012, franchises got 80% of the income from central rights and from 2013 to 2017 it was reduced to 60%.

From the 2018 season onwards, under the new rights deals, franchises started to receive 50% share of the central-rights income, which amounts to about INR 1750 crore (approx. $273 million) which is split across the eight franchises - that is, about INR 218 crore (approx. $34 million) per team. Of this, 45% is the standard franchise share while the remaining 5% is variable based on where each franchise finishes at the end of the season.

Also, since the 2018 season, the old franchise fee has been redefined. Previously the owners paid 10% of the amount they had originally paid to procure the franchise in 2008 as an annual fee. From 2018, the BCCI will charge a 20% levy on the franchise's overall revenue.

What about other sponsorships?

Kit and jersey sponsorship also earn franchises a huge sum. One of the franchises earned INR 33 crore (approx. $4.4 million) last season only from their principal sponsor. Some sponsors have entered into renegotiations with their respective teams over the contractual amount, and a similar amount "isn't feasible this time" under current market scenario. Teams also have sponsors behind their jerseys, on their kits and helmets, which earn them a small chunk. In all, this is estimated to be around INR 45-50 crore ($6-6.7 million) per season. Renegotiation of these deals could mean a lesser earning from apparel and kit sponsorship.

Teams also set up kiosks at venues and hotels for sale of merchandise and tickets. With the 2020 IPL to be played behind closed doors, potential for sale is hugely negated. A number of franchises have renegotiated deals with their jersey manufacturer to cut inventory costs.

Who will bear the travel costs in the 2020 IPL?

From a safety perspective, franchises have to charter flights to the UAE. Normally, franchises enter into an agreement with hospitality partners to guarantee them a fixed number of room nights during the season. One of the franchises confirmed this amount to be around INR 4000 per room per day. The cost of booking an entire hotel or a section of the hotel in the UAE - keeping in mind the biosecure requirements - could "double at the very least," according to a franchise representative. It is estimated that franchises could spend around INR 10-12 crore (approx. $1.3-1.6 million)on travel and stay for a 40-member contingent this time, which is estimated to be a 50-60% jump from what they usually spend when the IPL is held in India.