IPL ahead of curve

NEWS ANALYSIS

MLB, NBA, NFL, EPL and now IPL

New Delhi: Now that price discovery through the fresh team auction hasbeen completed, existing franchise owners are sitting pretty. WhenBritish businessman Raj Kundra bought 12 percent equity in EmergingMedia for $15 million and change, the valuation of the franchisepractically doubled from its purchase cost of $67 million to $140million. Deutsche Bank's Anshu Jain also reportedly picked up 15percent stake in Mukesh Ambani's Mumbai Indians, but this was neverconfirmed or denied. But at $333 and $370 million respectively, thebar has been raised substantially for new investors wanting to bitethe bait. Venugopal Dhoot whose V C Digital lost out in the biddingsweepstakes with a bid of $320 million is now keen to partner one ofthe existing franchises. Dhoot says that he is disappointed at theoutcome - twobids of $310 million and $320 million in the aborted and fresh auctionrespectively have come to nought. So, next move is clearly to partnerone of the existing franchises.
Expect a lot of activity in the coming months leading up to the freshplayer auction in September-October. Not only will the player caps behiked, but investor activity will peak. So, expect a Pawan Munjal forinstance to pick up a stake in Kings XI Punjab or a Videocon to pickup a stake in another one of the franchises. Adar Poonawala who waskeen on picking up stake in a consortium backed out last minutebecause he wanted 30 to 35 percent in the franchise and not a muchsmaller 10 to 15 per cent stake. As he told me, "It is pointlesstaking equity in a fragmented shareholding. One needs to have somesort of management control and management say if one is making asubstantive investment, otherwise what is the point? You cannot exertcontrol or exercise influence?"
While this sentiment will be a determining factor going forward, thereis another facet to the valuation game. At the end of three years,franchise owners can exit from their franchise. This will open aPandora's box. If say hypothetically a franchise owner wants to exit(perhaps not after these rich valuations) and a buyer emerges, then asale can well be consummated. Phase two of this valuation game willsee either partnerships as people who did not get a chance to grab afranchise seek to make their tryst with the IPL tamasha or if a sellerarrives in the market, an outright sale also cannot be ruled out. Ofcourse, pricing now will be a big issue.
Phase three will see the public listing of IPL franchises. First offthe blocks will be Indian cements owned Chennai Super Kings which islooking at an IPO in 2011. Other franchises who are reportedlythinking on these lines are Vijay Mallya owned Royal Challengers, TVenkat Ram Reddy owned Deccan Chargers and Mukesh Ambani owned MumbaiIndians. This will be the last price discovery exercise. Last yearForbes ranked the top soccer clubs on valuations. And boy were theyrich - Manchester United $1.87 billion, Real Madrid at $1.35 billion,Arsenal $1.2 billion, Bayern Munich $1.11 billion, Liverpool $1.01billion, A C Milan $990 million, Barcelona $960 million, Chelsea $800million, Juventus $600 million and Schalke 04 $510 million.Interestingly Inter Milan ranked 14th on the list was valued at $370million, the same as Sahara's bid for Pune. Hamburg SV was ranked 15that $330 million less than what the relatively unknown consortium forKochi has bid.
Lalit Modi modelled his league on the lines of top city and statebased franchises around the world. Namely EPL, NFL, NBA and MLB. Thatis where he got the inspiration from, he claims. Though SubhashChandra showed the way to the BCII and Modi really. Now let us compareour IPL valuations to the highly popular NFL in the US. Dallas Cowboyswho were ranked number one in the Forbes valuation list was worth $1.65 billion followed by Washington Redskins at $1.55 billion whileNew England Patriots came in third at $1.36 billion. Let us alsounderstand that these leagues have been around forever, while the IPLis only two and a half seasons old. The big buck NBA has Los AngelesLakers valued again by Forbes at $607 million, followed by ChicagoBulls at $511 million and Detroit Pistons at $479 million. Which meansour IPL compares more than favourably with the NBA. Finally, let uslook at Major League Baseball franchises - New York Yankees are valuedat $1.5 billion, New York Mets at $912 million, Boston Red Sox at $833million, Los Angeles Dodgers at $ 722 million followed by Chicago Cubsat $700 million.
Bottomline, all these sporting leagues have been around forever andfor a nascent IPL to rig up such valuations in a short span of threeyears is extremely creditable.