IPL 2012 February 16, 2012

Sale of Pune stake could be IPL's reality check

Controversies have adversely impacted the IPL's brand value. It's first reality check could be Sahara Pune Warriors having to settle for a strategic investor at a heavily discounted price

As part of the agreement that ended the BCCI's very public dispute with Sahara over the Pune Warriors' participation in the IPL, the board has said it would not object to Sahara finding a strategic partner to invest in the franchise. The larger question, though, is whether there is a strategic investor in the market for the Pune Warriors.

The answer is yes - but most likely at a heavily discounted price compared to what Sahara paid two years ago. And that is likely to be first reality check for the IPL, a reflection of the damage wrought to its image and brand value by the controversies it has faced in the past couple of seasons.

Sahara paid $370 million for the Pune franchise in 2010, more than three times the cost of any of the original eight teams. By asking the BCCI to reduce their franchise fee because only 74 matches were played in the 2011 season instead of 94 as originally planned, Sahara have already acknowledged that they paid too much. By their own calculations they bid "27% extra", so by that measure, any prospective investor will look at paying at least that much less to Sahara (the BCCI and Sahara have now agreed to refer the matter of the franchise fee to an arbitrator).

Add a slowing Indian (and world) economy to the mix and the appetite for the IPL may not be what it was. "I don't think there will be that much enthusiasm to gobble up a franchise," Samir Kale, the founder and president of SportzPR, a sports communications division of CMCG India, told ESPNcricinfo. "The issue is at what price will people be ready to take a risk given the issues [facing the IPL]?"

Kale believes there will be buyers at prices comparable to those of the original eight franchises. But that would mean Sahara accepting a reduction of almost 70% in the value of the team. In contrast, Rajasthan Royals sold a 11.7% stake in their franchise for approximately $15.4 million to Shilpa Shetty, the Bollywood actress, and Raj Kundra, a UK-based businessman, in 2009. That put the valuation of the Royals at around $140 million, more than double the $67 million Emerging Media paid for it in 2008.

Brand Finance, a firm that specialises in brand valuations, issues an annual report on the IPL. In April 2011, it pegged the value of the league at $3.67 billion, down from the $4.13 billion in 2010. Unni Krishnan, the firm's managing director, expects this year's report to show more erosion in the value of the league because of the deteriorating relationships between those involved.

"On a fairly regular basis, the relationships and the 'trust flows' between various stakeholders has been impaired," Krishnan told ESPNcricinfo. "Over a period of time, that dries up cash flows. Sahara further reinforces that those 'trust flows' are diminishing. When that happens, the whole value of the ecosystem and the values of the franchises comes under pressure."

That all was not well in Sahara's relationship with the BCCI was clear from the press release they issued on February 4, when they announced they were pulling out of the IPL and as sponsors of the Indian team. "It was an emotional decision for us to start this sponsorship," the statement read, "but our emotions were never appreciated and many genuine situations were not given due consideration at all."

While two sides have now resolved most of their differences, one of Sahara's key requests - that they be allowed to play five foreign players instead of the stipulated four to make up for the absence of Yuvraj Singh - requires the approval of the other eight franchises, which may not be forthcoming. The BCCI had said it would not be fair to the other franchises if they made such an exception, but Sahara claimed precedent for such a move had been set in the 2011 Champions League T20 (though it is a different tournament), when Mumbai Indians were allowed to play five foreign players because eight of their India players were injured. "We appreciated this natural justice," the statement said, indicating that Sahara was only asking for similar treatment.

According to Krishnan, the seemingly never ending stream of controversies that have affected the league is the result of a blinkered focus on the short term. "I think somewhere along the way, short-term results, short-term maximisation and instant gratification has taken over," Krishnan said. "It has reached a particular point where all the relationships that were based on a win-win architecture are increasingly turning to a win-lose architecture. It is short-term maximisation that has resulted in long-term value erosion on an epic scale."

At the same time, Krishnan believes it is not too late to fix the IPL's problems. The situation can be salvaged if all those involved in the league choose to work together in a mutually beneficial way. Shah Rukh Khan, a co-owner of Kolkata Knight Riders, recently said it would be constructive if the franchise owners also had a place on the IPL governing council. "Last year and this year there have been a lot of unforeseen issues in the IPL and they have been slowly rising," Shah Rukh said. "We franchise owners have to be active participants and it would be better to be on the board [governing council]."

Giving the owners the right to be part of the decision-making would require the BCCI to look past the immediate horizon towards a sustainable future for the tournament. For Sahara, though, should it decide to look for an investor, the question is much simpler: how much of a haircut are they willing to take?

16 Feb 2012, 18:15 GMT: This story has been updated to reflect the agreement reached by the BCCI and Sahara

Tariq Engineer is a senior sub-editor at ESPNcricinfo

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