Wherever there’s a whiff of money, they are likely to be the first ones on the spot. No surprise then that financial whizkids – whether from private equity (PE), investment banking or even conventional banking – are keeping close tabs on IPL. With IPL already worth close to $2 billion and teams needing to fork out close to Rs 600 crore every year combined, they are restless for a piece of the action.
Most PE funds target 25-30% annual returns, irrespective of which way the market goes. Given the fanatical following cricket gets in India and the possibility that the league will be even bigger next year, the game, they believe, offers as a good an opportunity as the corporate world. While they’re proceeding with caution, they’re clear it is important to open their account in this game early. Arun Natarajan of Venture Intelligence, a private equity research firm, believes the IPL is a good fit for PE firms given that they tend to favour businesses that cater to a large mass of consumers.
Says Mr Natarajan, “IPL matches, with their huge eyeball count, will surely encourage private equity investors to invest in its clubs. We could see some action in the next season itself as most promoters (of IPL clubs) are not really against divesting a portion of equity stake in their teams.”
Also, given the huge sums they are forking out for licences, players’ salaries and the marketing blitzkrieg, many of the eight franchisees could end up requiring large amounts of capital. While some of the biggies like Mukesh Ambani and Vijay Mallya could fund the teams they own through their listed entities, the others could end up taking the private equity route. As per reports, the UK-based early stage investor Blenheim Chalcot has already invested in the Jaipur-based Rajasthan Royals.
A private equity investor normally invests in pre-IPO companies, tending to them for two to 10 years, before cashing out when the company goes public.
According to Mahesh Chhabria, director at private equity firm 3i, while interest is high, PE firms are still figuring out how to structure an exit route. Says Mr Chabbria, “The most important aspect, however, would be locating the exit route for PE investors. It will be some time before we get clarity on issues like making placements or floating public issues on behalf of clubs.”
Bankers are coming up with their own ideas on how they can get business from the league. Yes Bank is one of the more aggressive in this space, and is already in talks with a couple of teams. According to Karan Ahluwalia, head, media and entertainment at Yes Bank: “We are interested in the sports banking business and the IPL format, which has been well orchestrated by the BCCI, is indeed a business opportunity.”
With listed entities getting into the business of cricket, analysts tracking them are being forced to keep an eye on the sports investments of these entities as well. India Cements, Deccan Chronicle, United Breweries and Reliance Industries are all listed entities. Alchemy, a broking outfit, has already valued the Chennai Super Kings separately, from its listed parent India Cements. They estimate that the Super Kings are worth Rs 20 per share, giving it a valuation of around Rs 600 crore.
Globally, football clubs like Manchester United have listed on the stock exchange, but it seems at least in the IPL case, listing is not a near-term possibility. “Listing an IPL team on the bourses (like some English Premier League clubs) is a long call; one should not forget, the IPL is not a continuous business, and lasts for only 44 days every year,” says Collins Stewart Inga’s president GS Ganesh.
Mr Ganesh also believes it is unlikely that teams would enter into any debt deals, the prime reason being the lack of security and accountability associated with the IPL business model. If at all any debt deals take place, they will be at the promoter level, wherein the parent business would be involved, and not the IPL team.
Source: Economic Times