Alchemy released a report on the economics involved for teams participating in the IPL (here). I have heard a lot about franchisees overpaying for teams, players, rights ... and blaming BCCI for being non-transparent. Incidentally BCCI has itself called on franchisees to be patient and enjoy the fruits of their investment (read : ROI) after 3-4 years. Alchemy's report paints an optimist picture of the T20 cricket league and explains how much BCCI, the franchisees and supporting institutions (like Sony for media rights) tend to gain from the venture.
Surprisingly, the report claims that an individual franchisee will be profitable from year 1 onwards (page 7), scoring an EBIT of Rs. 4 crores. A bulk of the revenue (Rs. 90.2 crores) will come from global media rights (Rs. 25 crores), supported by ticket sales (15 crs), lead sponsor (15 crs) and in-stadia advertising (10 crs). From the cost angle, the franchisee cost takes the wind out of the financials with a Rs. 40 crs charge followed by player acquisition cost (Rs. 24 crs). The assumptions (on page 8) have not factored a number of things like cost of capital, or financing of the acquisition cost, or trading of players etc. These things happen a lot in soccer leagues around the world (Real Madrid finds it hard to survive until they have purchased the most expensive player in the world; am not sure where Jose Mourinho is headed but expect some big signings there too)
The report has drawn a number of parallels between the English Premier League (with two clubs - Tottenham Hotspurs and Arsenal) and the IPL. Not to mention, a number of these EPL teams are also listed on the stock exchange. Manchester United was listed in the London Stock Exchange (1992) at GBP 47 million. In 2005, American businessman Malcolm Glazer acquired a controlling interest in the club in a takeover valuing the club at approximately £800 million (approx. $1.5 billion) (here).
Perhaps, IPL is the alchemist's secret portion afterall !
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Thursday, April 24, 2008
Indian Premier League : A financial perspective
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4 comments:
From some reports I've read the franchisees have already made profits in just 11 days!
Hi Adit,
Franchisees making profits in 11 days is music to Lalit Modi's ears.
Seems the fever has caught up everywhere ... Pakistan, England and Australia are going to adopt the franchise format from next year on.
Warm Regards
Shankar
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