If you’re an Indian or a cricket enthusiast, you have probably heard of BCCI. BCCI is the world’s richest cricket board. It is also India's richest sporting body. But it may come as surprise to you to know that BCCI does not depend on the Government of India for its revenues. BCCI has 3 revenue streams – ICC income share, media rights, and sponsorship rights. Media rights form a lion’s share of the revenue and no one needs a financial management course to understand that most of it basically comes from one place – the IPL! The Indian Premier League or ‘IPL’ is widely considered as the cash cow of the BCCI, and for good reason.
Brand values of the teams involved in the IPL and the value of the IPL franchise itself are a much-debated topic in the country. As per the latest Duff and Phelps report, IPL’s brand value has increased to Rs.47,500 crores from Rs.41,800 crores in the last season (2018 to 2019). This translates to roughly $6 billion – higher than some of our stock market listed MNCs! The top valued team however was Mumbai Indians, valued at a whopping Rs.809 crores followed closely by Chennai Super Kings, valued at Rs.732 crores.
The Mumbai Indians franchise is owned by IndiaWin Sports Private Limited – which is owned by Reliance Industries. The team has had a stellar track record in the IPL – winning the tournament 4 times, and the Champions’ League – which they’ve won twice. They have signed or retained big names in cricket like Hardik Pandya and Rohit Sharma year after year, making them the invincible team that they are today.
But let’s back up for a bit and understand why and how cricket teams are valued. Now in its 12th season, IPL has delivered financially for all of its stakeholders from players, franchisees to sponsors from across the world, and this prompts a desire to appropriately value it. As for the how, the team value is calculated using the Relief from Royalty method (RRM) combined with the Discounted Cash Flow (DCF) method, with the final value of the entire ecosystem being calculated using a sum-of-the-parts method by adding up the values of the different teams, media rights, income shares, etc.
For an IPL team, revenue comes from advertising, among other things. The continued support from advertisers, broadcasters, sponsors, affiliates, partners and the viewing public’s interest are all financing sources for the franchise. For DCF, revenues from these are projected over a period of time and then discounted back to present to arrive at the value of the team. Similarly for RRM, the estimated royalty rate from the intangible assets are projected over the useful life of the asset and then discounted. The resulting present value from these methods is then added up. For an approximation of how much is spent on brand advertising, take a look at the average spending by corporates on IPL below:
- Average 10-second ad slot rates for television and digital advertising: between Rs.8-10 lacs
- Average spend on team sponsorship's: Rs.30-50 crores
- Merchandising advertisement spending: Rs.30-100 lacs
- On-field advertising (ground painting): greater than Rs.1 crore
- Stadium advertising: greater than Rs.50 lacs
The team spent a staggering Rs.80 crores on its players which is one of its biggest cost centers. However, MI boasts a glittering roster of sponsors and advertisers ranging from Marriott to Samsung to Adidas who are willing to advertise with them, literally at all costs. So it is little wonder that the team was valued at Rs.809 crores in 2019. This year, the franchise added 6 new players to the team, paying Rs. 8 crores for Nathan Coulter-Nile (one of the highest amounts paid for a player this year). In comparison, CSK is worth Rs.732 crore and rivals MI in almost all aspects. It boasts of a solid team that delivers on the ground and brands lining up to buy advertising space. The recent player auction where it paid Rs.12.25 crore for 2 players seems to suggest it’s betting big on this tournament. The only thing explaining the valuation gap seems to be its success in tournaments, which seconds only that of MI, but its upcoming stock market listing looks set to change all of that.
Valuing cricket teams can seem like a pretty daunting task for novices or beginners in stock market. However, some finance courses or training in the right direction will make you realise how important correct valuations are – especially when there’s so much money at stake. This is why this year, Duff & Phelps said that the IPL stands to lose almost 5% of its valuation if it cancels the tournament or plays a truncated version of it. Like all major sporting brands across the world, it is imperative for the franchises to keep engaging the fans to be able to monetize their brand more effectively