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Should you bid for a cricket team?

Should you bid for a cricket team?
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First Published: Mon, Dec 24 2007. 01 15 AM IST

Updated: Mon, Dec 24 2007. 08 21 PM IST
Will Indian cricket fans, accused of discriminating against Australian players during a recent series, warm up to the likes of Ricky Ponting or Adam Gilchrist playing in an Indian league? Can a privately- owned cricket team have the freedom to list itself on a domestic stock exchange?
Consultants and wealth managers, the people who are likely to advise bidders of teams in the Indian Premier League (IPL), planned by the sport’s authorities here, are needled by questions such as these. Sure, it’s fashionable to own a sports team, but is it fiscally prudent?
Number crunching began last week when the Board of Control for Cricket in India (BCCI) released terms to invite companies and individuals to bid for eight city-based teams comprising top Indian and international cricketers in the IPL.
It is proposed that bidders would first bid for the cities, which would soon be disclosed, and the auction of players would follow immediately after franchises have been awarded.
Modelled on the lines of professional sporting leagues in Europe or the US, the IPL as a business venture has stumped Indian wealth managers and consultants, with many saying the concept is so new to India that it is not an easy call.
Valuation of the business will depend on IPL’s capability to draw spectators to matches, which are based on the fast-paced Twenty20 (T20) concept.
The three analysts Mint spoke to were united on one front, though: The business of franchised cricket teams could be profitable if the international model it follows is any indication. They, however, don’t expect the teams to break even from the first year.
Guru Malladi
Associate director,Ernst & Young Pvt. Ltd
As we are getting into the commercialization of sports, gains would be far higher than the tentative base price of $50 million (almost Rs200 crore) mentioned by Lalit Modi (IPL commissioner) in earlier interviews. Consider this: The total revenue of the National Football League of the US, which has 32 teams, was $6 billion in 2006-2007. It means each team earned around $150 million depending upon their revenue-sharing pattern.
No minimum bid price has been announced in the prospectus. Will the teams have enough power to get listed on the stock exchange, can it be set up as a company with a chief executive officer and board of directors?
We don’t know at this stage whether teams would function like (UK football club) Manchester United and other teams in the English Premier League that have full freedom to list on the stock exchange. Will there be an equal distribution of income among the franchises and players or will it be a performance-based sharing?
There can also be shift in revenue-pattern with a chunk of income coming from ticketing. Manchester United, the richest club in the world, earns 39% of its income from ticketing.
Tushar Chhabra
Head, advisory services, Elite Wealth Management Co.
Going by the rough estimates, I presume the annual cost of running a team, including an opportunity cost, would be around Rs70 crore. Opportunity cost is the inherent cost that the franchisee will have to discount before entering into an agreement, which requires him to pay Rs200 crore upfront for 10 years. Discounting 25% of the annual revenues that BCCI makes presently through sponsorship and media rights, each franchise would get Rs60 crore per year. This includes the central and local revenue model IPL is proposing to the franchisee.
There’s also the leverage the companies would get from sponsoring these matches with advertisements all around.
The venture won’t be a profitable one from the first year itself but the companies are not undertaking the franchise to make profiles alone. If the calculations of IPL are anything to go by, the franchises will make above-average profits.
The T20 concept can draw the fans.
Balu Nayar
Managing director of sports management firm International Management Group’s (IMG’s) India operations
Franchisees could run teams as a separate financial entity if they so choose as a company and these could be listed and traded publicly.
IPL is a division of BCCI, not a legal entity, but it has a governing council that includes Ravi Shastri, Sunil Gavaskar and Mansur Ali Khan Pataudi, and reports to the BCCI.
Performance-based incentives for players can be worked out by the franchisee, if they so choose, but currently we have not visualized it, we are only talking of players and teams.
Anik Basu contributed to this story. Write to us at businessoflife@livemint.com
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First Published: Mon, Dec 24 2007. 01 15 AM IST