New IPL valuation set by Sun TV to deter deals

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