The Sensex swings up and down but cricket’s economy is rock solid. It has no turbulence, never tanks and moves only in one direction—always north. The valuation numbers of IPL teams, expected to be high, have caught industry experts by surprise. Seems the ball hit the bat higher than expected, and trade pundits misread the bounce on cricket’s financial pitch. Media reports suggest RCB is valued above $2 billion, RR in excess of $1.5.
Before trying to figure out these numbers, best to pull back to look at how valuation works. There is an accepted formula, to zero in on the right value. Experts look at revenue, profitability, future projections, quality of governance, brand value, fan base, supply side scarcity, barriers to entry, asset prestige—the works.
That’s normal, but here is the catch, the intriguing twist. Indian cricket is a cocktail of rational economics and raw emotion. The IPL has defied, demolished, destroyed every accepted principle of economics in its 18-year-old commercials flight. With every financial indicator showing growth, IPL has had an incredibly smooth ride.
Sceptics warned about IPL losing freshness but that didn’t happen. Some mentioned spectator fatigue but television viewership remains high. And fan frenzy is such that all matches across India are sold out. IPL economics must factor in India’s unique love for cricket and its economics defying nature. Cricket, especially IPL team ownership, is a golden social visa, a powerful passport that unlocks commercial opportunities. It is a priceless credit card that delivers multiple ‘money can’t buy benefits’ such as having having Virat Kohli on speed dial. Also, in today’s media dominated world, IPL is the ultimate instrument to build image and race up the social ladder.
Just as the upwardly mobile businessman in Ludhiana is happy to pay a fortune for securing a preferred number for his shiny Ferrari, loaded industrialists and alert/private equity funds find investing in an IPL team a profitable deal. Eyebrows were raised when LSG paid a fortune a few years back—today the same deal is described as a steal, a clever buy.
One reason IPL teams are attractive assets is the league is risk free business with guaranteed profits. Team owners sit pretty because they are chased by partners and sponsors and business is on auto pilot with no or little challenge. They splurge on players (Cameron Green @ 25 !!)— ₹25.20 crore—engage social media armies for publicity and self-promotion and still make a cool packet. There is practically no business downside.
All this raises the intriguing question: why are teams selling? With RCB, it’s understandable. They explained pulling out saying the group wanted to focus on ‘core business’. Another likely reason to exit could be all that happened at KSCA last season after their title win.
Compared to RCB, RR is more difficult to understand. The team has been struggling, Rahul Dravid and Sanju Samson have left, but that can’t be a reason to sell. Things at Jaipur are messy with RCA suspended and dysfunctional, but this also couldn’t be the cause to pull the plug. Trade pundits are of the view that it is the right time to sell because valuations currently are high and IPL’s growth trajectory, consistently up till now, could soon flatten out.
The elephant in IPL team’s dressing room, and the owners’ board room, is the uncertainty surrounding the next media rights sale, the five-year cycle that kicks in from 2027. Last time the rights shot up close to 3x, from ₹18,000 crore to almost ₹48,000 crore, and the astonishing surge resulted in IPL—and the 10 teams—making massive profits.
Now, caution those who read the tea leaves, the market is thanda. Growth? Certainly, but only modest, incremental rise, with value going likely up 30-50% max. So, best to sell and cash out when the going is good, before correction sets in. This sounds plausible but cricket is known to throw up googlies and it’s not easy to make out which way the ball is turning.
PS: RCB commands a premium largely because of the fan base built around Kohli’s appeal. If he adds half a billion to team valuation, how is that game, within the larger game, playing out?
