This is not a Cricket Blog where we will discuss about the IPL Twenty-Twenty (20-20) Cricket Championship. But this is a Finance Blog so we will discuss about Financials of IPL (Indian Premier League) and How HNIs (High Net Worth Individuals) & Ultra-Rich (Billionaires) Invest in various IPL Teams also known as Franchisees.
Yes, IPL 20-20 Cricket Teams also known as Cricket Franchisees are a New Asset Class for Highly Qualified and High Net Worth Investors.
Investing in IPL 20-20 Cricket Team is the third stage of Personal Financial according to JD Roth of Get Rich Slowly Blog.
Brief Introduction about IPL -
Those who are Indian readers & Cricket Fans Must know everything about IPL. But if you are a foreign reader (outside India) & don’t know much about What is IPL than this brief intro will help you to understand What is IPL?
The Indian Premier League (also known as the "DLF Indian Premier League" and often abbreviated as IPL), is a Twenty20 cricket competition created by the Board of Control for Cricket in India (BCCI) and chaired by the Chairman & Commissioner IPL, BCCI Vice President Lalit Modi. The first season of the Indian Premier League commenced on 18 April 2008, and ended on 1 June 2008 with the victory of the Rajasthan Royals against Chennai Super Kings in the final at the DY Patil Stadium, Navi Mumbai.
Because the second season of the IPL coincided with multi-phase 2009 Indian general elections, India's ruling United Progressive Alliance (UPA) refused to commit security by Indian paramilitary forces. As a result, the BCCI decided to host the second season of the league outside India. According to Lalit Modi, all the 59 matches of the second season, abbreviated as IPL2, will take place per schedule and an IPL official said that England and South Africa were the front-runners to host the league. BCCI blamed the attitude of the UPA-led governments at the center and in Maharashtra and Andhara Pradesh for the decision. The second season begins on 10 April 2009.
IPL as an Investor’s Perspective -
Most of the people’s interest in IPL is cricket purpose because Its an amazing game. But common people don’t know that, its the New Asset class for Investors.
Yes, IPL 20-20 Cricket teams (Also known as Franchisees) are the New Asset Classes. It is like any other Asset class such as stocks, bonds, gold, real estate, Art, Businesses, Web properties, Royalties…etc….
Extremely Wealthy Individuals and Business Tycoons Invest in this new Asset class just like you Invest in Stocks, Bonds & Mutual Funds. This Asset class is open only for extremely wealthy Investors mainly Business Tycoons & HNIs.
So How IPL 20-20 Cricket Franchisees (Teams) are new Asset Classes?
Well, because it fulfills all the criterias of Asset. An Asset is something which is likely to appreciate (Capital Gains) in the future as well as it may (or may not) provide you Cash flow as long as you hold it.
So owning an IPL 20-20 Cricket Franchisee (Team) is just like owning a Rental Property or a stock of a Company or Mutual Fund Units.
Because as long as you will hold it, it will provide you a Cash flow and whenever you will sell it, it will provide you a huge profit in the form of Capital Gains. The only thing here is that, small Investors like you and me can not invest in it because the Minimum Investment amount is in Millions of Dollars.
Say for Example, if you have Invested $ 50 Millions (Rs.250 Crores) in buying a Cricket Franchisee (Team) today than as long as you hold it, you will be benefited by a huge cash flow and in the future you can sell it for a huge capital gains such as US $ 500 Millions, $ 800 Millions or may be in Billions.
There are basically 3 advantages of Investing in this Asset Class (IPL 20-20 Cricket Teams) -
01) One advantage is Ultra-Huge Profits. This types of Asset class sometimes appreciates up to 700-800% per Annum. So if today you invest US $ 100 Million in buying a Cricket Team (Franchisee) than it is quite possible that within next 5 years you can sell it for US $ 800 Million or even US $ 1.5 Billions.
And that is 8 to 15 times profit in less than 5 years. No other Asset class appreciates at this much faster rate.
02) The Second advantage is Unlimited Fame & Media Coverage. As long as you hold the Cricket team, you will be in the main focus of Media & public. So it will create a tremendous publicity for you at free of cost. This will also help to increase the Brand Value of the various Businesses of Business Tycoons.
03) The third advantage is Revenue. As long as you hold it you will be benefited by a huge Income such as Broadcasting Rights, Gate Receipts & Team Sponsors. This is a huge Income. This is the Return on your Investment (ROI). This is the return generated by your Asset (Cricket Team). It is just like a Rental Income. Means as long as you hold the Rental Property, you will be benefited by a good Rental Income.
Financials of IPL Cricket Franchisees -
The above was the understanding in the Layman’s language. Let us discuss something more serious about IPL Cricket franchisees as Investor's Perspective.
The winning bidders for the eight franchises were announced on 24 January 2008. While the total base price for auction was US $400 million, the auction fetched US $723.59 million. The official list of franchise owners announced and the winning bids were as follows.
Here are these 8 Franchisees and people who 84have invested in it & how much they have invested in it.
|Mumbai Indians|| |
Mukesh Ambani (Reliance Industries)
|US $ 111.9 M|
|Royal Challengers Bangalore||Vijay Mallya (UB Group)||US $ 111.6 M|
|Hyderabad Deccan Chargers|| |
Deccan Chargers Sporting Venture
|US $ 107.0 M|
|Chennai Super Kings||India Cements (N Srinivasan)||US $ 91.0 M|
|Delhi Daredevils||GMR Holdings (Grandhi Mallikarjuna Rao)||US $ 84.0 M|
|Kings XI Punjab|| |
Ness Wadia (Bombay Dyeing), Preity Zinta, Mohit Burman (Dabur)
|US $ 76.0 M|
|Kolkata Knight Riders|| |
Red Chillies Entertainment (Shah Rukh Khan, Gauri Khan, Juhi Chawla and J Mehta)
|US $ 75.1 M|
|Rajasthan Royals|| |
Emerging Media (Lachlan Murdoch, A.R Jha and Suresh Chellaram),
|US $ 67.0 M|
The letters in Bold,Italic are famous Actors & Actresses of India.
You can own a Cricket Franchisee in a partnership also. In this case you have to make a team of HNIs & Wealthy Investors and after that you can invest in a team. The last 3 teams are of this type.
After the success of the first session means first 8 teams, BCCI will expand the franchisees further. Means by the end of 2010-11, it will ad 2 more teams in the list. So after 2 years there will be 10 teams (Franchisees) for Investors.
Expansions- 2010-11 Season( 4 new teams)-
- IPL Ahmedabad (My City) – Likely to be owned by Anil Ambani, Chairman of Reliance ADA Group
- IPL Kanpur – Likely to be owned by Sahara Group
Rules of Investing in an IPL 20-20 Cricket Franchisee (Team) -
There are five ways that a franchise can acquire or trade a player.
01) In the annual auction,
02) Buying domestic players,
03) Signing uncapped players through trading and
04) Buying replacements.
05) Franchisee can also trade player in exchange of other player without involving Money Say for Example, In the 2008-2009 transfer window, Mumbai Indians conducted two straight swap deals, with no money exchanged. Ashish Nehra was swapped with Shikhar Dhawan of Delhi Daredevils and on the last day of the transfer window, Robin Uthappa was swapped with Zaheer Khan of Royal Challengers Bangalore, who plays for Mumbai in the Ranji Trophy.
In the trading window the player can only be traded with his consent. The franchise will have to pay the difference between the old contract price and the new contract price. If the new contract is worth more than the older one then the difference will be shared between the player and the franchise selling the player.
Some of the Team composition rules are:
- Minimum squad strength of 16 players plus one physio and a coach.
- No more than 8 foreign players in the squad and at most 4 in the playing XI.For the 2009 edition franchises are allowed 10 foreign players in the squad. The number allowed in the playing XI remains unchanged at 4.
- A minimum of 8 local players must be included in each team.
- A minimum of 2 players from the BCCI under-22 pool in each team.
The players accorded "icon" status are: Sachin Tendulkar, Rahul Dravid, Sourav Ganguly, Yuvraj Singh and Virender Sehwag . The total spending cap for a franchisee in the first player auction was US $5m. Under-22 players are to be remunerated with a minimum annual salary of US $20,000 while for others it is US $50,000. Icon players are to be paid 15% more than the highest paid player in their respective teams.
Franchise Earnings -
The main 3 Revenue (Income) of any Franchisee (Team) is,
01) Broadcasting Rights
02) Team Sponsors &
03) Gate Receipt
The main 3 Expenses of any Franchisee (Team) is,
01) Franchisee Fee
02) Team Expenses
03) Advertising & Admin
|Franchise (Team)||Revenues (Income)||Expense||Profit/Loss (Rupees Crores)|
|Mumbai Indians||69||85||Net Loss - 16|
|Royal Challengers Bangalore||45||88||Net Loss – 43|
|Hyderabad Deccan Chargers||64||82||Net Loss – 18|
|Chennai Super Kings||72.8||73||Net Loss – 0.2|
|Delhi Daredevils||70.4||77||Net Loss – 6.6|
|Kings XI Punjab||66||68.4||Net Loss – 2.4|
|Kolkata Knight Riders||89||76||Net Profit – 13|
|Hyderabad Deccan Chargers||59||53||Net Profit – 6|
Rs.1 Crore = 1,00,00,000 & Rs. 1 Crore = US $ 2,00,000 (1 USD = Rs.50)
The above table shows that from the first year, 2 franchisees have started making a profit. While rest of the Assets (Teams) are making a loss. But again, this is a game of Rich people and the various Expenses that are done by a franchisee is highly non-transparent.
Say for Example, Team Expenses. Team expenses can also include owners’ travelling and entertainment expenses. So this loss is a real loss or artificially made loss by intelligent Franchisee owners to save Taxes that can’t be proved.
IPL (Indian Premier League) Financials -
The IPL is predicted to bring the BCCI income of approximately US$1 billion, over a period of five to ten years. All of these revenues are directed to a central pool, 40% of which will go to IPL itself, 54% to franchisees and 6% as prize money. The money will be distributed in these proportions until 2017, after which the share of IPL will be 50%, franchisees 45% and prize money 5%.
The money would be distributed in these proportions until 2012, after which the IPL would go public and list its shares.
Yes, This is true. IPL will go Public in 2012 and list its shares. Cricket teams make profits or not but the IPL will definitely make its Money.
All of the Investors in IPL Cricket Franchisees will definitely become more richer than before once IPL will be listed publically.
Right now is the opportunity to Invest in IPL Cricket teams at lower prices and selling at a huge profit in future. But once the growth of this assets will be stabilized it will go public and the securities (Stocks) of this Company will be open for Investors like you and me. And people like you and me will buy it , hold it for long time and pray to the god that hope the price will go up…..!!!! Not only this but after going public, mutual funds will buy these securities for you and because it will be no longer remain an exciting investment for qualified intelligent investors. It will be a safe and secure investment for general public which will appreciate at 10-15% per annum only. Right now it is growing at 300-700% per Annum…!!!
After 5 years or so, these Franchisee owners may sell their franchisees to new buyers for a 8X-20X profit also. After all this is the Asset for Rich Investors.
There are so many these types of Assets are in this world and will be born. But to Invest in these Asset classes, you should be in the third stage of Personal Finance or in other words you should be Qualified High Net worth Investor.
Investing in these Asset Classes is exciting & Fun….!!!! But for that you MUST be a qualified high net worth Investor……!!!!!