Business Model of T20 World Cup

Introduction

Hello, friends!

Did you know that despite India not being in the World Cup, the Indian Cricket team will get prize money of $120,000 from the ICC. Have you actually wondered, whenever this T20 World Cup takes place, 

who earns the most money? Does the winning team get the most profit? Or the organisers of the tournament? Or the country hosting the tournament? Or the International Cricket Council aka ICC? 

In today's article, let us understand the business model of this T20 World Cup. 

"It has been confirmed by the ICC now that the venue for the ICC Men's T20 World Cup 2021 has been shifted out of India to the UAE and Oman." "Because of Corona, the tournament has been shifted to the UAE." 

Prize Money 

Let's start with the most basic and the simplest thing that everyone knows about. The Prize Money.

 The team that will win this T20 World Cup will get a cash prize of $1.6 million. The losing finalist team will get a cash prize of $800,000. And the two semi-finalists, will get the prize money of $400,000. In addition to this, every team in the Super 12 stage,

 that wins any match, will get a prize of $40,000 for winning each match. This is the reason why despite India being out of the World Cup, since India won 3 matches, $40,000 per match, the Indian team will get a cash prize of $120,000. In total, the prize money amounts to $5.6 million that will be given in this tournament. 

And who will bear the cost of this prize money? 

ICC. The International Cricket Council. The international governing body of cricket. Apart from this, there will be several other expenses to be borne by the ICC. The salary of the umpire. The salary of the commentator. ICC has to pay for all of this. Because this entire tournament is organised by the ICC. ICC has formed an elite panel of Umpires and has classified the commentators into 3 categories. For example, the annual salary of an umpire can be in the range of $35,000 to $45,000. That is approximately ₹2.4 million to ₹3.1 million. In addition to it, for every match, the umpires get a fee. For a T20 match, the average salary of an umpire is about $1,000. 

How ICC earns money? 

But from where does ICC get funds for these expenses? What are the sources of revenue of the ICC when the World Cup is organised? 

 The primary source of income for them is broadcasting rights.

 That is sold to TV channels and streaming services. Basically, the permission to stream this match on their channels. Through which you can watch the match. In exchange, the TV channels and streaming services, pay the ICC. For example, nowadays you watch the matches on Star Sports because ICC has struck a deal with Star Sports that all the major tournaments of the ICC will be exclusively broadcast on the Star Sports channel. This deal will be in effect until 2023. As consideration, Star Sports paid ICC $1.98 Billion. Almost ₹140 Billion. Additionally,

 ICC gets money from their sponsors. Nissan, Oppo, MRF Tyres, Booking.com, Byju's and Emirates are the global partners of the T20 World Cup 2021. These are the top sponsoring companies. It is an ad for the company for this sponsorship, they pay the ICC. There are various types of sponsors and they are divided into categories as well. Like the Global partners, Category partners, and social media partners. The exact amount that ICC gets from these sponsorship, is not publicly available. But at the end of the article, I'd tell you a fair guess of the income from sponsorship. But everything I've told you till now, was from the perspective of the ICC. \

The Hosting Country 

Now, let's understand the things from the perspective of the host country. 

The country where the tournament is organised, what does the country get? What does the government of the country get? 

The answer to this isn't straightforward. There are many indirect benefits that are difficult to be calculated. Directly, obviously, the money from tourism. The country that hosts this World Cup, is visited by foreigners that want to watch the match in the stadium. And when there is an influx of tourists in the country, then obviously, tourism brings in money as well. In short term, a lot of employment is generated. Because of the huge influx of tourists in the country. Businesses around the stadium such as the restaurants, bars, hotels, see a lot of growth. The hotels get booked out. And you get to see 'full house' in all the restaurants. Obviously, the economy of the country, the GDP of the country, undergoes a potentially positive impact. In addition to it, if the country can prove to the rest of the world that it has successfully hosted the World Cup, it proves the stability of the country. The soft power of the country increases. Because of this, more people would want to invest in the country. Leading to a growth in foreign investments. And during the preparation for the World Cup, the infrastructure needs to be upgraded, Good roads need to be built. Cleanliness has to be maintained. Like the 2010 Commonwealth Games held in Delhi, saw a major change in the infrastructure of the entire city. But, in order to do this, to upgrade the infrastructure, to prepare for the tournament, the country has to bear huge expenses. 

Do you know what is the biggest expense for the country, apart from this? 

When a World Cup is hosted. Tax Exemptions. During the T20 World Cup, often the country hosting it, gives tax exemptions to the ICC. And it isn't for cricket only. It's the same during the FIFA World Cup as well. The hosting country for the FIFA World Cup, declares itself to be a Tax-Free Zone for FIFA. And millions of dollars are spent on tax exemptions. In fact, for the football World Cup, it is a given condition that the country with the winning bid to be the host, will have to grant tax exemption to FIFA. For example, the 2006 FIFA World Cup was held in Germany, it is estimated that around €250 million of tax exemptions were given then. By the German government to FIFA. But the benefit from the perspective of the government is that overall, the revenue from tourism is more than this. Like in the 2006 FIFA World Cup, the German government reported that the tourism revenue due to the World Cup, was around $400 million. This was a clear-cut profit for the government. Friends, every country isn't so fortunate.

Like in the 2014 FIFA World Cup in Brazil, there was a lot of unnecessary construction there were many protests and allegations of corruption. And it is said that Brazil had to bear an overall loss for hosting this World Cup. The expenses borne by the Brazilian government was of $15 billion. But the revenue was estimated at only $13.2 billion. Additionally, there were many protests in which the government was criticised questioning the government's rationale to waste money on stadiums, while education and healthcare desperately needed money in Brazil.

 A similar situation was seen in South Africa. When the FIFA World Cup was held in South Africa. Although, the government of both countries claim that when the World Cup took place in their country, it was a success. T20 World Cup Model The T20 World Cup taking place now, has an interesting story too. If you look at it from the perspective of the hosting country. It was originally planned that this World Cup will be held in Australia. But then the Covid-19 pandemic broke out. Because of it, the World Cup was initially postponed. It is taking place in 2021 instead of 2020 as planned. Then India offered to host this World Cup in India in 2021. But then there were some problems. Newspapers ran with reports that BCCI may have to pay taxes as much as ₹9.06 billion. If the Central Government refused to give complete tax exemptions to host the ICC World Cup. Even if the government gave partial tax exemption the BCCI would still have to pay ₹2.27 billion as taxes. For hosting this T20 World Cup. Interestingly friends, the Indian government has always been quite slow at such things. For offering tax exemptions. Even for the 2011 50-Over World Cup held in India,

 the Manmohan Singh government had not approved tax exemptions till the last moment. But at the very last minute, it was granted when the then Prime Minister Manmohan Singh intervened. After that, in 2016,

 when India hosted the T20 World Cup, the Narendra Modi government gave 10% tax exemptions only. Then, $23.75 million was withheld by ICC from the money that BCCI was supposed to get. And this issue between the two, between ICC and BCCI, that hasn't been resolved yet. As I told you about FIFA, it is the same with the ICC. ICC tries to secure the tax exemptions upfront in whichever country the World Cup is supposed to be hosted Only after that, the hosting rights are given to the country. But BCCI failed in securing tax exemption from the Indian government. Following this, it was decided to host this T20 World Cup in the United Arab Emirates and Oman. It is assumed. Officially though, BCCI has given only one reason, Covid security and safety concerns. Because of this, this World Cup didn't take place in India. Instead, it was held in the UAE and Oman. But several experts believe that the main purpose was securing tax exemptions. 

How BCCI earns money? 

Now, look at things from BCCI's perspective. BCCI is the Indian cricketing body. And distinct from ICC. BCCI has its own source of income. 

First, they get a broadcasting revenue share from ICC. ICC does so for every cricketing board. It appropriates a part of its revenue to the other cricketing boards. 

Second, But BCCI's main source of revenue is sponsorships. The main kit sponsor of BCCI, is MPL Sports. Their deal was made till 2023. BCCI gives them the right to sell merchandise. The base price of MPL for this is ₹6.5 million per match. And ₹30 million per year. That is paid to BCCI. The merchandise partner and the jersey sponsor aren't the same.

 The jersey sponsor is the one whose name is printed across the jerseys of the Indian Cricket Team. In this case, it is BYJU'S. There's an interesting history of the jersey sponsors of the Indian cricket team.

 The company that was the Indian cricket team's jersey sponsor for the longest time was Sahara. They started in 2003 and remained the jersey sponsor till 2013. Here comes the interesting fact. In the 2003 cricket World Cup,

 there was no jersey sponsor for the Indian cricket team then. This is because there is a rule by ICC, that the companies from which ICC gets sponsorships, the other cricket boards, cannot get sponsorships from any competitor company. The main sponsor of ICC at the time was South African Airlines. And the company Sahara was also involved in the airline business. This led to a conflict of interest. And so there was no sponsor on the jerseys of the Indian team.

 Sahara remained the sponsor till 2013. After that, Star India became the sponsor for 3 years. Then Oppo for 2 years. And now BYJU'S. Overall, according to the reports it is being estimated that from this T20 World Cup alone, the BCCI will earn around $12 million. 

How Broadcaster earns money? 

Till now you've looked at this business model

 from the perspectives of the ICC, the hosting country and the BCCI. 

Who remains? 

The Broadcaster. The TV channels that broadcast the matches. For us, the TV channel is Star Sports. As I told you at the beginning of the article, Star Sports has paid millions of dollars to ICC to get the broadcasting rights. 

What is Star Sports' source of income? 

The answer to this too, friends, are the sponsors. For this present T20 World Cup, the main sponsors of Star Sports are BYJU'S, Dream11, Vimal and Coca-Cola. An interesting thing here, 2,700 seconds of commercial airtime is allotted for one T20 World Cup cricket match. Meaning that for the one World Cup match that you watch, you watch 2,700 seconds of advertisements. But in IPL, this time is increased to 3,000 seconds. If you've noticed, there are more ads on TV channels in IPL, as compared to the T20 World Cup. 

What is the exact rate of sponsorships? 

It is reported that for this World Cup, it is around ₹1 million to ₹1.1 million for every 10 seconds of ad. If a company wants to play a 10-second ad. If a company had to co-present this tournament, it is estimated at ₹550 million to ₹600 million. And for associate sponsorships, it is estimated at ₹300 million to ₹400 million. It is estimated that in this case, the broadcaster can expect to earn ₹12 billion to ₹12.5 billion in ad revenue from this specific T20 World Cup. Since the TV channel is Star Sports, the rights for online broadcasting has been given to Disney+ Hotstar streaming app. Here, you can clearly see why IPL is more profitable. The simple reason is that for each match, more inventory is given to the ads. It means that IPL rakes in more sponsorship revenue. And the next time you're wondering why there is so much focus on IPL, the direct answer to this lies here. I hope you found this type of article. If you want to watch more such article on Business models, tell me by commenting below. Which other company's or event's business model would you like to watch? 

Thank you very much!