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September 12, 2012
The bids for the IPL franchise Deccan Chargers, which has been put up for sale with its owners facing serious financial issues, will be opened in Chennai on Thursday. It is not yet known how many bidders have entered the fray with only Videocon, an Indian business conglomerate, coming on record with an expression of interest.
The bid amount itself will be deposited with one of the franchise's lenders, ICICI Bank, and the Bombay High Court has ruled that the money can't be utilised by the owners without its permission. The court has also appointed an officer to oversee the sale process.
Thursday's auction will have a lot more at stake, though, than the future of Chargers and the financial health of its owners Deccan Chronicle. On trial will be the ability of the IPL model, now in its fifth year, to attract interest from potential franchise owners. Deccan Chronicle's issues with their lenders will further complicate the matter.
This is the first time an entire IPL franchise has been put on the block by its owners, although Rajasthan Royals sold a small stake in 2009 to the actress Shilpa Shetty and her partner Raj Kundra. That gave Royals an effective valuation of $140 million, more than double the $67 million the owners, Emerging Media, paid for it in 2008.
Franchise valuations in the IPL have sky-rocketed in the short time the league has been in existence. Mumbai Indians were the costliest franchise at $111.9 million in the first team auction in 2008, with Chargers third at $107 million. Two years later, the Sahara group bid a staggering $370m for Pune Warriors while the now dissolved Kochi franchise was bought by a consortium for $333 million.
Two years later, the outlook is not remotely as rosy. Franchises have found it is not easy to make money in the IPL. Chargers and Royal Challengers Bangalore have delayed payments to their players; franchises with multiple owners, such as Royals and Kings XI Punjab, have reportedly been looking at selling stakes to raise funds.
The days of heady valuations seem to be over. Reports have put potential bids for Chargers in the range of Rs 800 to 1000 crores ($145m-182m). Going by the mounting woes of Deccan Chronicle in the past few days, potential bidders could still encounter several issues before a deal goes through.
Tim Wright, the former chief executive of Chargers, won a £10.5 million legal dispute against the franchise in London in July and is now seeking to enforce that judgment through a Secunderabad court.
That, though, is not the biggest of Deccan Chronicle's worries. They owe their lenders, including banks and other financial institutions, hundreds of millions of dollars and the franchise itself is mortgaged to some of them. Deccan Chronicle are looking to cut their debt with the proceeds from selling the franchise. How much money they can raise to that end will be known on Thursday.
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