How the IPL owners get return on investments....

This edition of the IPL has certainly enabled those with a fascination with numbers to receive an instant 'fix' as Lalit Modi and his band of brothers almost continuously release the latest eye-catching researched statistics.

Some make remarkable reading and need to be digested while others result in little more than a tease but unmistakably they all accentuate the success of this extraordinary commercial venture.

The previous two years have enabled a financial trend to be tabled and calculated and now that this event is a third of the way to completion, and importantly back in India, further predictions are being made with confidence.

The one difficult aspect to gauge from afar is what impact the IPL is having in India. As much as you might thoroughly embrace the enjoyment factor from your lounge chair, to be here witnessing it all first hand and being right in the mix is fascinating. To illustrate my point, it is remarkable to think that only about one per cent of the total revenue of the IPL originates from outside India!

The IPL is now the largest Indian global brand with a very recent independent evaluation set at US$4.5 billion. In the first season every single game was worth US$1 million in revenue and in the second season that doubled. This third edition has racked up numbers of US$3 million of revenue, each game confirming a progression of 100% each year. The projection models are even showing that next year's singular game revenue will jump to US$5.5 million and US$15 million to US$20 million within the sixth or seventh year. That sounds far fetched but such is the financial success so far that few would bet against it.

A true valuation is generally always reflected in any sales of shares and since the two new franchises were just bought at auction for US$333.33m and US$370m respectively, a market has been educated. It's astonishing to think that the combined cost of buying the two new franchises was greater than the cost of all eight franchises together in 2008. To further put the latest figures in perspective, the new franchise owners, Sahara ($370m), paid about 14% more than the current owners of Liverpool did for that football team in 2007.

So how do the team owners get returns on their financial outlay and how does this become a profitable business venture?

As mentioned above each game of the IPL represents a significant revenue stream. That revenue is made up of various rewarding components being media rights, central sponsorship, merchandise sales, ticket sales and hospitality. If I paint this with a broad brush the returns that flow back to the owners, who have each bought the franchises for ten years, are based on the following. The franchises get 72% of this revenue with an additional 8% distributed among them depending on their standing in the league. They benefit from 80% of the generated finances with the remaining 20% flowing into the BCCI (Indian Cricket Board) coffers.

This year, with 60 matches being played, that represents an average yield of US$18m per team. Next year, with 94 matches being played and if projections are accurate, it represents a return of US$41m per team. Each year from there the revenue return predictions escalate alarmingly as each games value leaps enormously. Remember, the Rajasthan Royals were bought for US$67m in total in 2008!

Qualified industry sources who have been continuously number crunching as new figures are announced are unanimous on one thing. Although there is an optimistic flavour currently engulfing the IPL, it certainly does not represent an unappetising nor unrealistic taste.