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MUMBAI:
The Indian Premier League (IPL) is entering a new cycle of
valuations. Just two bidders for a new IPL franchise and a
comparatively low bid of Rs 4.25 billion by Sun TV Network
for the Hyderabad team for five years doesn't augur well for
the world's richest cricket property.
Some
of the existing franchises wanting to exit or dilute stake
are fearing that they would have to wait longer. The low price
and absence of widespread interest in owning an IPL team has,
indeed, dampened the prospects of some of the existing franchises
selling stakes at higher valuations.
"If
only two parties wanted to bid for a new franchise, then where
will the interest in an existing franchise come from? If any
of the current franchise owners wanted to exit or sell a stake
at a high valuation, they should have done it earlier. That
ship has now sailed," Dabur India director and co-owner
of Kings XI Punjab IPL team Mohit Burman told Indiantelevision.com.
Incidentally,
Kings XI Punjab, Rajasthan Royals and Shah Rukh Khan's Kolkata
Knight Riders are looking to sell stakes.
The
IPL franchises were in general hoping to get good returns
on their investments after the Board of Control for Cricket
in India (BCCI) sold Pune and Kochi franchises at very high
prices. The Kochi team, which now does not exist, was won
with a bid of $333.3 million and the Pune team was bought
for $370 million by Sahara group in 2010.
Some
analysts had then pointed out that the winning bids for Kochi
and Pune teams had defied business logic as many existing
franchises were already finding it difficult to break-even
save for the ones that were bought at lower prices.
Sun
TV Network's winning bid is less than half of what PVP Ventures
had bid (Rs 9 billion) for Deccan Chargers just a month ago.
Its bid is 23 per cent higher than that of PVP Ventures' current
bid.
Sun
Group's S L Narayanan made this point loud and clear when
he said, "The price we have paid is attractive because
the last deal (for Pune team by Sahara) was almost at Rs 170
crore (Rs 1.7 billion) per annum. We have got it at about
50 per cent of that transaction."
Narayanan
also said that the company has done its math well before taking
the plunge in cricket business. "We have a fair understanding
of what are the inflows and what are the expenses," he
asserted.
Burman said the price paid for by Sun TV is good for them.
"The fact that a reputable media company has come in
will only help IPL grow. They are present in multiple media."
Brand
Finance India MD Unni Krishnan is not surprised at the difference
in price between what Sun TV paid now and what Sahara paid
in 2010.
"Brand
Finance is of the view that the IPL's ecosystem's long-term
value has been steadily coming under pressure and is tracking
back to its base value of $2 billion from the heights of $4
billion. Further the Deccan Chargers' team had come under
a cloud due to misconduct and poor governance, in a sense
mirroring a lot of ills which IPL as a whole faces! So the
valuation is very much in keeping with the trends we see,"
he avers.
Asked
if the price that Sun TV paid makes business sense, he said
that it depends on what view Sun TV is taking. "If they
believe, they can trade on this asset for a higher value in
2-3 years, they might be disappointed. If they are willing
to set the house in order and work on the long-term value
of the franchise it does make sense."
He,
however, is not surprised that only two companies Sun TV and
PVP Ventures bid. "Not surprising as stakeholders are
becoming wary of the IPL brand and business model. The waning
interest and valuation are strong signals that that the IPL
brand and its long-term value are being eroded."
According
to Group ESP Managing Partner Hiren Pandit, the fact that
only two bids were received goes on to show the wariness about
IPL as a business venture. "The fact that only two bids
were received shows that corporates are wary about owning
an IPL team," he says.
Pandit
pointed out that Sun TV was in a better positioned to extract
better sponsorship revenues by offering packaged deals that
would include the television network owned by the channels.
Sun would, however, have to deal with the challenge of gate
receipts since Hyderabad is not a great 'ticket-revenue' market
compared to Mumbai or Delhi.
BCCI
president N Srinivasan is undeterred. He contends that Sun
TV Network's bid must be compared to what was being paid by
Deccan Chronicle Holdings Limited (DCHL) for the Hyderabad
franchise.
"This
is twice the value of Deccan Chargers and if you take into
account the sharing of central rights compared to the expansion
of franchises (addition of Pune and Kochi) you will find that
it represents higher value and it's a very good value. More
importantly, it's a very credible franchise owner. I think
they will add value to the league."
Srinivasan
also said that the value of Hyderabad franchise shouldn't
be compared with the ones put in by Sahara Group for the Pune
team. Reason: Sahara by virtue of being a late entrant and
paying a higher franchise fee gets 80 per cent of revenue
share from the central pool as compared to other franchises
which get 60 per cent beginning with IPL season 5.
"The
original eight franchises had a 10 year period and now five
years are left. So after 10 years the arrangement is such
that you don't pay a franchise fee but you pay 20 per cent
of the income so that it's consistent for all. The Pune franchise
gets 80 per cent of the income whereas from year five onwards
other franchises get 60 per cent revenue. So there is difference
in the income," he explained.
Also Read: Sun TV bags IPL franchise for Rs 850.5 mn a year |
