Empty romanticism coming true

BEHIND THE NEWS

Lalit Modi is a dreamer. In the prospectus of the originalauction in 2008, Modi dreamt his dream big. He promised that the firstlot of owners would be “regarded as pioneers in the greatest nationalsporting and entertainment adventure ever undertaken.” Over the lastthree years, he seems to have kept his word, the odd hiccoughnotwithstanding. Prospective bidders were inundated with data thatclearly underlined that the franchises would soar in capital value andmake handsome profits. As the London Times reported, "The salesbrochure referenced the world’s most valuable sports teams. Onetypical allusion was to how George Steinbrenner bought the New YorkYankees in 1973 for $10 million, and has seen the baseball team’svalue balloon to more than $1 billion in Major League Baseball. Whatseemed like empty romanticism is proving to be a darling of investors,corporates, advertisers, sponsors and essentially the bulge bracketmoney frat. If you want to be seen, then you have to be on IPL is thenew chant.
IIFL or India Infoline which has been tracking the IPL expects season3 also to make money hand over fist for all its stakeholders. A newreport by the brokerage reckons that since ratings and revenues aresoaring, correspondingly the stakeholders will be awash with cash.This new kind of R & R is good news for Modi and his franchise owners.IIFL expects most franchises to likely make an improvement in profitsfrom 2009 driven by higher ticket and merchandising sales and loweradministration costs. The tournament's return to India has galvanisedactivity in and around the brand, adding ballast to its salience. Assportzpower has been prognisticating, Rajasthan Royals, on the back ofits low franchisee fees and player fees looks to be the mostprofitable franchise.
The report states, "Kolkata, Chennai, Delhi and Punjab would alsobenefit from their lower franchise fees (Rs35-42 crore) while the highfranchise fees for Mumbai and Deccan is likely to be a minor drag onprofits (Rs49-52 crore). Deccan is likely to see a spurt inmerchandising sales on the back of its victory last year, while thestar quotient of owner Shahrukh Khan will benefit Kolkata. In a normalyear we see profitability of the teams ranging from ~Rs19 cr to Rs43cr."
"We expect overall ad-spend on the telecast of the IPL to increasefrom an ~Rs500 crore in 2009 to Rs700 crore in 2010. This year's eventis also witnessing some firsts in terms of live online and theatricaltelecast, which is likely to further boost the revenue streams. IPLfranchisee owners are set to make impressive profits in 2010 - weestimate EBIDTA of the teams to range in ~Rs19 crore-Rs43 crore.Building on the increasing popularity of the event after two years ofsuccess, IPL teams have become hugely valuable to their franchiseeowners. Franchisee level stake sale and aggressive bids for two newteams suggest valuation for franchisees are ~$140-250mn, which is2-3.5x the original bid amount," the report added.
Emerging Media owners of Rajasthan Royals hawked 12% of their stake ata valuation of $140m against an original bid of $67 million. On a baseprice of $400 million, a sum total of $700 million was generated. Thistime two franchise brought in more at $703 million. The base price forthe new IPL teams at $225mn was 2-3.5x of the original bid amounts ofthe existing e ight teams. And the purchase prices of $333.33 millionand $370 million throw into stark relief further buoyancy, at 3 to 6xof the original pricing in season 1. IPL teams are likely tocontribute 5-10% of EBIDTA for the owner and ~30% of marketcapitalisation. The sharp Year on year jump in valuations of thefranchises and the increasing popularity of the blue riband propertyaugur well for the owners. But only the early bids who caught theworm. Higher entry costs will mean debilitating figures and break evenfor them coming after year 3.