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Astronomically High Bids for Pune and Kochi Franchises Sets IPL Valuations on Fire !

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The buzz word on the street is that Indian Premier League (IPL) is turning out to be more than just sports and entertainment event. IPL is fast emerging as a leaping business proposition and an industry in itself.

IPLteams2010[1]

Grabbing the Eye Balls

It all settles down to the number of eye balls that an event can capture from the podium of world wide viewers. The more the event has the potential to offer entertainment and arouse interest among the viewers to catch the live action of the moment, the greater the prospects of grabbing the increasing number of eye ball and consequently money.

The final outcome of successfully organizing such events amounts to unusually highly profits and soaring valuations for the franchises and the organizers of the event.

Two New Franchises: Pune and Kochi

The premium sporting affair of IPL, which is getting bigger in size by every year of sporting the event, is now set to include 2 new franchises (Pune and Kochi) for the next season of IPL-4.

The Sahara Group has won the bid for Pune franchise with a record bid of $370 million, while the Kochi franchisee has been absorbed by Rendezvous Sports Group consortium at a whooping $333 million bid.

Until now, we had often heard of Corporate India cracking deals of the size of $300-500 million in their quench to go for ambitious expansion plans through inorganic route of acquisitions and mergers. But, here is an immaculate IPL sporting event which is turning out to be a no less an extravagant and ambitious in nature, as may be any other corporate take-over mania.

Sahara Adventure Sports of the Sahara Group clinched the Pune deal for Rs.1702 crore, while Rendezvous Group successfully bid for Kochi for Rs.1533 crore. The deal size of the two new franchises taken together at Rs.3235 crore is pegged at higher than the sum total of the bid size of Rs.2853 crore for the prevailing 8 IPL franchisees.

Surpassing Old Benchmarks

In the previous editions of bidding rounds, Mumbai was the franchise which was bought at the highest bid value of Rs.441 crore by Mukesh Ambani’s Reliance Industries Ltd., followed by Rs.440 crore bet on Royal Challengers and Rs.422 crore for Deccan Chargers.

Since then, the bid prices for two new franchisees for the next edition of 2011 IPL season have been clinched at an astronomically high valuations of about 4 times the size of highest bid offer for Mumbai franchise. Earlier, the base price for each these two new franchises were fixed at $225 million by IPL.

Creating New Benchmarks

The valuations obtained for the two new franchises have ensured a new benchmark for the older eight franchises, to set the valuation parameters for their own stakes to be hived-off, in future, if at all they feel the need to do so.

Take, for instance, Shilpa Shetty and Raj Kundra had picked up a 12% stake in Rajasthan Royals in early part of 2009. This stake buy-out reportedly valued the Rajasthan Royals franchisee at Rs.680 crore as against the Rs.440 crore that the franchise was originally valued at the time of the bidding.

But, now, going by the valuations obtained by two newer franchisees would mean a leap in the benchmark valuations for these older franchisee owners who may be interested to sell-off their stakes at a higher price as demarcated by the new valuations sought by Pune and Kochi franchises.

The business and prospects of IPL is expanding leaps and bounds with increased valuations. The increased valuations will make tougher for the new franchise owners to break even over the next few years. It needs to be determined as to how far the increased valuations can go on to justify itself in times to come.

Well, difficult to speculate about the implications on franchise costs, as of now. But, one thing for sure, IPL has gone for a six and nothing less than that. No need for any umpire’s decision as IPL has already pocketed Rs. 3235 crore by selling off 2 new franchises for IPL 2011 edition, even before the end of ongoing 2010 season.

Do you feel the valuation game has over-played itself? Are such astronomically high bids justified from the business perspective?

  1. Kiran says

    Valuation, eh?

    Wonder why noone’s talking about Operating losses. Not to have a shameless plug here, but I did talk about IPL economics on my blog the other day (http://kirandhanwada.com/2010/03/23/ipl-economics/).

    Are IPOs in the offing? Else, the valuation is just nuts.

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