Watershed moment in Indian Premier League

We as a team in D and P Advisory have been analysing IPL and valuing the brand IPL and the brands of the franchisees for the last eight years.
IPL is one of the fastest growing sports leagues (not just cricket league) in the world, if not the fastest. 
IPL is one of the fastest growing sports leagues (not just cricket league) in the world, if not the fastest. 

What we saw with the bidding for the two new Indian Premier League (IPL) teams is something which would be etched in the history of Indian sports and world cricket for the next few decades. The amount being paid is astronomical and the fact that one of the winning bidders is a global private equity firm with immense experience and knowledge in investing and owning sports assets is just confirming the fact that IPL is one of the fastest growing sports leagues (not just cricket league) in the world, if not the fastest. 

We as a team in D and P Advisory have been analysing IPL and valuing the brand IPL and the brands of the franchisees for the last eight years. Post-2020 IPL season, our assessment of the value of an IPL franchisee was anywhere between USD 250 million to USD 450 million depending on which team you are talking about (with the top teams being closer to USD 450 million and the ones at the bottom of the table being closer to USD 250 million). This was validated by the RedBird and Rajasthan Royals transaction.

RPSG Group’s bid of circa USD 1 billion was an outlier when compared to other bids as it was higher by almost 30 per cent than the second highest bid. However, CVC Capital’s bid of USD 750 million was much closer to all other losing bids, making it more reasonable to use as a benchmark. This new benchmark or USD 750 million is almost 65% higher compared to the USD 450 million value. 

Any asset that is not easily available (supply constraint, etc.) could always have a significant premium attached when compared to value based on cashflows or any other traditional valuation methodologies. The 65% up mark is still significantly high even after considering any such premium. This new benchmark, hence, comes with an expectation that the cashflows available to the teams would increase significantly going forward. The biggest contributor being central pool that is distributed by BCCI from its earnings from IPL (broadcast revenue, title sponsorship fees, etc).

Hence, the new valuation benchmark could suggest the following — a) higher broadcasting rights fees on a per match basis, b) higher title sponsorship fees on a per match basis, c) number of matches per team being more than 14 per season in the future, d) franchisees’ ability to earn higher sponsorship fees and e) franchisees’ ability to crack the crystal maze called ‘merchandising’ 

While the first three are something under the BCCI control, the last two are something the franchisees should work on to justify the new benchmark. While BCCI has done its job with aplomb, it will be interesting to see how the franchisees do their bit. The third point in the list above will be very critical to take the league to the next level and put our very own IPL right next to the biggest sporting leagues in the world. However, this is not easy as this depends on availability of larger window to host matches, availability of foreign players, etc.

Now if you look at the broadcasting rights, which is the biggest contributor to the IPL value and the franchisees, IPL at USD 9 million per match (based on 2017 bid) is right up there when compared to other sporting leagues. It is just behind English Premier League (which is almost 30% higher compared to IPL) and a fair distance behind National Football League (IPL is almost half of NFL). But with advertisement revenue growing at a very healthy rate (over the last five years) and new age media companies’ (the OTT platforms) hunger for good content, the broadcasting rights when it comes for renewal next year could see a huge jump. This could very well take IPL ahead of EPL on a per match basis.

But some points that we should keep in mind when comparing IPL with other global sports league is that IPL is a two-month affair right now where as other large leagues play throughout the year and have overcome the challenges of viewer fatigue, etc. Other leagues host multiple matches simultaneously (resulting in split viewership) whereas IPL is largely one match at a time. If IPL overcomes these challenges, it will be a feast to a cricket fan and will be a cash cow to the investors and other stakeholders of IPL. 

Santosh N

Managing Partner with D and P Advisory

This is definitely a watershed moment in IPL!!  

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