Mumbai: Raj Kundra, who bought a 12% stake in the Rajasthan Royals, the winner of the inaugural edition of the Indian Premier League or IPL’s Twenty20 tournament, speaks on why he and partner Shilpa Shetty paid $16.38 million (Rs79.77 crore) to jump on board the hottest property in cricket. He also sheds light on the team’s strategy for season 2 of the Indian Premier League and how he may bet on Bollywood to make stars out of the team members. Edited excerpts:
Why did you and Shilpa choose to invest in the Rajasthan Royals? How was the property valued and were you not concerned about paying too much?
When IPL was launched last year, I was quite keen to get a slice of the cake because I could see it was going to be a very successful business model. I’m born and brought up in London…we watch football day in and day out and it’s (the decision to buy into the Rajasthan Royals) pretty much copied off that concept of football leagues, in that it is not (about) quick returns, but the appreciation, the fan following, the numbers that make this team get a better valuation in the long run.
As for the valuation, we sat with some top financial people. We had the likes of KPMG, JPMorgan who had done their studies and reports. JPMorgan had estimated it (the overall value of the team) at around $180 million.
In the field: London-based businessman Raj Kundra, along with partner Shilpa Shetty, has a 12% stake in IPL’s Rajasthan Royals.
We took a more conservative approach, and told Manoj (Badale, chairman, Jaipur IPL Cricket Pvt. Ltd): “You are a no-frills team, but you have no entertainment value. How are you going to take it the next level? You’ve already won, you can’t do better than winning, how are you going to take it one step further?”
We started haggling; I aimed at $100 million. There should be a huge discount when they’re going to get a huge brand ambassador and a huge investor on board. Last year, all the other teams were valued around $100 million. (We decided to) give them the benefit of doubt, they’ve performed, won on field, have a strong team. Seeing the fan following...took it (the overall value) to $140 million. It wasn’t a figure that came out of nowhere.
What is the exact break-up? How much do each of you bring to the table?
It’s close to about Rs75 crore and it’s one part directly invested from Shilpa and I, through our company. It’s an offshore company; off shore because the team ownership is through a Mauritius company for tax benefits. The name is confidential. We’ve invested together basically. The payment was made in one shot, on the signing last week.
Rajasthan Royals is in talks with Bobby Bedi to produce a film with the team. Would you and Shilpa be involved? Would you consider funding the movie?
When I got into this, I knew there would be a lot of sub- projects happening around this. And since I’m saying this is our forte right here (entertainment), Manoj told me “there is an offer and would you like to consider it”. I first said, “let’s look at the script, we’ve seen Victory (a movie about cricket starring a bunch of international cricketing stars) come out and it hasn’t fared as well as we thought it would”. We want to build the story around one of our cricketers, who won this cricket competition. This rags to riches story, come up in the slum… it’s great! Won’t tell you who, but he’s a new find and is playing remarkably well for us. We’ve considered the option and will look at the script to see if it will work as a commercial film. We’ve a lot of offers from various film producers saying can we have Rajasthan Royals appear in our movie. So we’re going to look at different options and see what we can do with it. As far as filming is concerned, if the project is something that we think is viable and commercially successful, then yes, we would look at investing in it.
Rajasthan Royals is more about strong team dynamics than it is about superstars. Would the film be one way to increase the brand image of your cricketers?
Definitely. The idea is how do you make valuations, how do you make successful teams. It’s not about getting the best players, it is about making the weakest players stronger. If we can turn our weakest players into bigger stars and clearly it turns out to become merchandising, branding, endorsements, it helps bring the valuation up. So, Shilpa will be the stepping stone, in the sense that next year we’re planning this calendar, merchandising, and memberships (to the fan club). But, the idea is to give the newcomers a chance to succeed.
And in the world of cricket business, when they become famous and they become successful, you have opportunities to exchange and sell your players. And this is where you find you are only taking Rs100,000 to a Rs7-8 crore business. That’s all part of the business module in cricket. It’s not just about building the RR brand, but also building individual brands that will bring value for the team.
You and Shilpa invested together in a spa; now, cricket. What’s next?
The spa is Shilpa’s baby and will be announced in March. This year Shilpa and I have decided to focus on our charity and I think we’re very happy with what we have achieved and this year we want to give something back…
Isn’t this a good time to buy assets if you have money?
The problem is that we don’t know where the bottom is… and I think the markets are still going to go fall by another 20-30%. Today, you can’t bet on property, keeping money in banks isn’t safe, you never know where the bottom is and you never know when it’s going to turn…it’s one vicious circle. And I like to believe we’ve seen the worst of it…but they say it will get worse. I’ve invested in a couple of properties in Dubai against the market crash, we bought an apartment together in the tallest building in the world and yeah, we’ll take advantage of the fact that it is an investment we can use and a luxury we can enjoy. But other than that, I don’t think it’s a good time to invest.
What’s the expected return on investment (RoI) on Rajasthan Royals?
The long-term RoI is only going to come out of valuation so maybe in two years time, when we decide to launch it (list) on the stock market that will show us the real fruit of what we’ve invested in. But if you look at a yearly investment, for example, a $3-4 million profit does not justify a $75 million investment.
What we have taken is a long-term view, and how do you get to that valuation? One I feel, with the valuation today, with Shilpa on board and the team winning it’s, as JPMorgan said, already $180million approximately. So, I’ve bought into something where I know that I’m making a profit. So, as far as the RoI is concerned, I should be able to walk out with double… I’m very confident of that.
What alternative revenue streams will you look at?
The added revenue flow, like I said there, is going to be merchandising, there’s the music CD with different versions of Halla Bol, a Rajasthani version, a Punjabi version …there’s the music video. Beyond that, as I said then we are definitely looking at buying into other Twenty20 teams. Rajasthan Royals would look at buying stake in local clubs in Australia, Africa or New Zealand.
We are in talks and probably one of the first teams to extend our brand globally. From 2010, there’s the calendar with Shilpa and the players, then the fan club—it’s probably the British style of being a hardcore fan—our membership starts at Rs1,500 (and goes up) to Rs150,000 for the elite membership, depending on how many matches you want to go to, if you want to go to the opening party, etc.
Since Shilpa has come on board it has also helped us push up interest and rates with sponsors. If Rajasthan Royals were only getting Rs10 crore from a sponsor on a contract, now they’ve started getting up to Rs30 crore.
Shilpa is a global brand: We all recognize that. After her Big Brother (a television reality show) success and the controversy queen (she was involved in a spat that she alleged had racial overtones on Big Brother; and she offended the moral police in India when she exchanged an extended hug and kiss with Richard Gere at an AIDS charity show) that she has become, she’s a household name. It’s not just the Rajasthan Royals or just Shilpa Shetty; when they come together more doors are open for you.
We’ve had some offers (sponsorship offers for Rajasthan Royals) already to be honest, where they’ve offered huge sums of money. Reebok offered to do a yoga line with Shilpa, but we’re going to try and focus on cricket. Puma have come on board now and offered huge sums of money and said that they are more of a fashion sports brand rather than a sports brand, but would like to sign on and endorse the team as T- shirt sponsors.
They are looking at doing a new fashion line, with those bling bling tees with Rajasthan Royals. So, last year was Reebok, this year we’ve had offers from Puma...I think we’ll leave the professionals to decide.