IPL valuation grows by 6% to ₹92,500 crore says study
The two new teams that together splurged ₹12,715 crore in 2021 look good to recover costs as per the assessment report.
The ₹7,090 crore that was poured to buy Lucknow Super Giants and the ₹5,625 crore which Gujarat Titans spent to acquire the franchise already look like fair valuations, two years into their entry in the Indian Premier League (IPL). That’s the inference drawn by D & P Advisory in their IPL valuation report, 2023.
The report finds IPL value to have risen by a modest 6.3% from last year, ₹87,000 to ₹92,500 crore ($10.9 bln-$11.2bln), with this being the first year after the big media rights revision for five years; the report estimates average valuation per team to fall roughly $390-450 million ( ₹3,244 crore- ₹3,743 crore).
Considering LSG’s and GT’s franchise acquisition costs are spread over 10 years, “these NPV (net payable value) figures are closer in alignment with our derived intrinsic values from the ecosystem allocation analysis”, the report says.
Mumbai Indians at $410-450 million ( ₹ 3,411- ₹ 3,743) are estimated to be the most valuable franchise, followed by Chennai Super Kings and Royal Challengers Bangalore.
“At current valuations, there is still room for growth. But if someone were to buy a team at 1 billion dollars today, they may not make any serious money,” said N Santosh, a key architect of the report.
There are stories of Chennai Super Kings’ valuation in the grey market suggesting it to be around $1billion. Santosh calls it ‘frothy numbers’.
That 70-75% of franchise revenue comes from the central pool (share from broadcast and sponsorship) win or lose and all franchises’ intrinsic valuation remains closely aligned.
CENTRAL POOL OVER-RELIANCE
“Brand has a value only if it adds value,” said Santosh. “Today, the fact that you own a team gets you a share of central pool - guaranteed in the range of ₹500 crore a year.
So, brand has only 20% role in the franchise value. Brand would be $ 30-40 million for a franchise that has $ 400 million valuation.”
In comparison, in global competitions like European football leagues and American leagues, the central pool contribution in franchise revenue is only 40-50%. A big revenue generator for franchises globally is merchandising. The IPL, only 16 years old, finds teams making very little revenue from merchandising.
“In our talks with franchise owners, they speak of big merchandising plans but none of them have been able to crack it. So, we have become a lot more conservative in our valuation assessment of merchandising revenue to what we would do, 5-10 years ago.
“We were making assumptions that if in Europe it’s a 30% revenue contributor, it would be 10% in India. Now, we realize it’s not even 2-3%. At best it will improve to 5%. For it to go to even 10% requires sweeping changes in statutes like check on counterfeits and government push which is not simple,” said Santosh.