UP521: Inside Edge - 'American money is IPL curious'

0:00Hello there, welcome to Unofficial Partner, the sports business podcast. I'm Richard Gillis. Today we're talking cricket with Mike Jakeman, who is my co-host for the series of Inside Edge. And we have invited Venkat Ananth, who is a really, really interesting writer on the business of Indian sport. I would strongly recommend you check out his State of Play newsletter and blog on the financial picture around the IPL franchises. And that's what we talk about today. This episode of the Unofficial Partner Podcast is brought to you by Sid Lee Sport. Sid Lee Sport is the fame-making creative and sponsorship agency for brands in sport.

0:39Through exceptional creativity, deep sponsorship expertise and flawless on-site delivery, they help brands, sponsors and rights holders unlock their full potential in sport. most recently picking up a Leaders Sports Award for their work with Lidl at UEFA Euro 2024. Everything they do is driven by a culture of effectiveness because in sport performance matters, not just on the pitch but in the work too. So whether you want to build buzz, connect with audiences or do something that actually cuts through, Sidley Sport knows how. Visit sidleysport.com where brands become champions.

1:25Mike Jakeman, we should say hello to you from sunny Portugal. Off the back of a sort of classic Test match. Five days in Perth. Oh no, only two days in Perth. Well, there is some genuine, recognisable Test cricket happening in India at the moment. Mike, sorry, I think I just have to intervene here and say it's an absolute nightmare watching that game right now. We should say hello to Venkat. Venker, hello. Hey, hi. Hi, thanks for having me, guys. We had Phil Weston on recently, who is obviously a cricket agent too, a whole load of England cricketers. And we were quite excited in the run-up to the Perth game.

2:03And then it was just, it was absolute chaos, wasn't it? On the BBC, likened it to a sort of fever dream. And that was exactly right. It was, and it'd be very interesting to see whether or not, you know, we've seen some one-off crazy Test matches at the start of Test Series in recent years. And if I'm trying to apply some logic to this, I'd say that's probably because, or possibly because teams have largely done away with warm-up matches for Test Series now, which means that they may not be as grooved. And even having that sort of the sense of, right, we're playing Test Cricket, we've got time here.

2:39So it could be some of that. I mean, I'm interested to see how the rest of the series goes. I don't for a minute think that we're going to see England start grinding batting out. That's not in their philosophy. And it was very interesting that in Stokes' post-match interview, he talked about that he felt that the reason the batting was struggling was because they weren't taking the brave option. There's no hint from him that England are going to change any sort of strategy. I don't think we'll see 20 wickets in a day every day for the rest of the series. I mean, this being a business conversation, I was trying to work out, well, I wasn't trying to work out, but I was wondering what the impact was, because they're going to have to pay back those tickets and two days is a nightmare for the administrators.

3:23Not that that's significant in the scheme of things, but it's pretty big, isn't it? It will be notable in Cricket Australia's accounts at the end of the financial year that they've played fewer days than they would have been budgeting for. Obviously, one of the great things about England's series against India in the summer of this year is that every day went the distance, which is a boon for the ECB. And this is now obviously working the opposite way for Cricket Australia. Yeah, if I could just add, I think they're staring at about 3 million Aussie. That's about$2 million. Yeah, it's quite sizable.

4:00I mean, we don't see a lot of two-day finishes, even by the rather exciting standards that that basketball sets so-called basketball sets these days uh I think two days nobody saw that coming it's quite interesting how angry people get about basketball and you know in terms of it's created this sort of sub-brand in English cricket I think it's really interesting and you know as a philosophy if you look back about where they where they came in when McCollum and Stokes took over England were in a real state so it's been a ride and it is frustrating watching them throw games away but then in the in the sort of entirety of it I'm I think I'm in favor but I do think it's quite interesting because it really does trigger people because it seems to go against everything they believe test cricket should be about I don't know and then and you can easily wheel out they've been very provocative about ex-player comments and you know talking about has-beens and that that riles up the sort of commentary class doesn't it and people immediately get a bit annoyed by that sort of stuff but it's good you know I quite like it but I don't want two-day test cricket but it's it's quite an interesting addition to the to the landscape.

5:13I think it's about whether it's possible to play this way with the flexibility that you need because ultimately what you want test cricket to do is is give players the opportunity to demonstrate their talent and I will defend Baz Ball to the hilt as a strategy for winning series such as when England played Pakistan away not long after Stokes and McCollum came to the fore and they decided that the way, very shrewdly, to get results on flat Pakistani pitches was to go at five and over and force the amount of, effectively increase the amount of time in the game. And that series was brilliantly. And it's fair to say, I don't think there would be many England sides that would have won that series previously.

6:00but that may end up being the high point because Brook's second innings where he flashed the ball twice and is out for a duck everybody has brain fades and I get the point about risk-reward but that was not the right way to play that situation but I don't know if it's possible to switch from one to another very easily but it felt like the game wasn't filling the promise of the former here is here is a sort of right i'm gonna here is a bridge then from harry brooks innings to what we're going to talk about today because obviously you've got this that we're talking about today 2020 cricket and we're talking about the ipl and we're going to be talking about a specific exclusive that venkat has uh put on his uh state of play website which is excellent i'll push everyone towards that in due course but there is the incentive in the market basball has emerged from 2020.

6:57It's the 2020 era and just the mental approach to it, but also the technique, all of those things is wrapped up in this. So we need to sort of talk about the influence of the IPL and of 2020 cricket, first of all, but let's just talk about the story. So Venkat set this up for us because the headline is Lucknow Super Giants closing on$200 million fundraise, UK-based investor group negotiating a minority stake in the IPL franchise in one of the league's largest recent equity deals. This is a really lovely story. I want you to just say, give us a bit of context to it, because I think there's a load of things in it that we, myself and Mike, and then across Unofficial Partner, we talk about the investment marketplace for sport and all of these things.

7:45And this is a story which encapsulates a lot of those threads. But just set up for us what's going on? I mean, we've been hearing about these deals for a while. I mean, for the last six months or so. And we had this thunderbolt of a story that the Royal Challengers Bangalore, which is the original eight franchise, was looking to sell. It had a price tag of about$2 billion, which these are unheard of numbers in the IPL. And there's been a frenzy of activity right now because a lot of these IPL franchises are also expanding to other markets, including the UK. For example, I think the Lucknow Super Giants, the owners actually have invested in the 100 with the Manchester Originals.

8:21So there's obviously a lot of cross-border interest that's sort of emerging right now. But critically, I think with the Lucknow guys, they were among the new franchises who came into the IPL fold in 2022. They were sold in 2021, but they start playing in 2022. They had a hefty franchise fee. I mean, it's an annual fee of 709 crores in a year, a substantial amount. And I think for them, the plan was simple. I mean, they had to find a way of augmenting it. So I think they, as the story mentions, they did that with a lot of operational income, which is what they received from the BCCI as part of the central pool, and they took some debt.

9:00So now they're raising this 200 million from a very curious investor called Jordan Associates, who had links to F1, which is Eddie Jordan. So it's the late Eddie Jordan's son, isn't it? Kyle? Yeah, that's Kyle Jordan. Yeah, Kyle Jordan's basically running the fund. They are keen to take a 15 % interest in the Lucknow Super Giants at a$1.3 billion valuation, which is quite interesting because last year we also had the Gujarat deal, I think where CVC actually sold about 67 % of the franchise to the Torrent Group here. And I think the overall value of the franchise is somewhere around maybe$1.35 billion.

9:40So it gives them valuation parity with the Gujarat Titans, which is something they've been looking for. And also help them service the debt while also putting some expansion money into the operations. So that's pretty much the story with the Lucknow Supergiants. I do expect more such deals to happen in the coming months. It speaks to where the IPL is today. I met a banker last week. I was in Mumbai, which is my hometown. And I think one of the standout lines was there is no sports fund in the world that is not IPL Curious right now. That is not, that has not looked at, looked at wanting to get into the IPL.

10:18It may not happen immediately, but they have, they are obviously evaluating these franchises. And it's one of a kind in terms of a tournament, in terms of a league. But at the same time that you're talking about these large family offices, not just India, I mean, the redbirds the world are invested in. I mean, we just had Sigula Guff, which is an American and a private equity giant, if you want to call them, which has acquired 5 % of the Rajasthan Royals in September. So there is a lot of private market activity that's happening in the IPL right now. And should RCB sell at a fair price, and I don't take that to be$2 billion because that's way too realistic, there will be a flurry of activities in the argument.

11:02So let's talk about that one in a little bit more detail as well. And then we can consider the two potential moves kind of together and what that says about the IPL. So as well as Lucknow seeking some external investment, there's also been a fair amount of speculation that Diageo, which is the parent company that owns Royal Challengers Bangalore, want to sell the whole thing. Yes, that's correct. So could you explain some of the dynamics as to why they want, they think now is a good selling time? because we've heard a lot of positive stuff about the IPL's future growth prospects and the fact that each time there is a chance to get into the IPL, there are lots of sports funds that want to and the prices for the expansion franchises in 2022 were very high.

11:48Obviously, you talked about a pretty optimistic price that they're asking for RCV. Why now? I'll just break this down into what we're hearing in India is they've had they've had multiple issues in the aftermath of RCB winning their first IPL league which was a remarkable moment how to put it in words I mean I'm in this city uh so it meant a lot I mean it's the first IPL win they won a WPL last year uh which is the women's premier league so I mean the the narrative here is more about oh it's a non-core asset we need to get out of this it has done its job but now it's a time to sort of re-evaluate the portfolio and see which way this is going of course there are issues regarding oh you know so virat kohli is aging and he underpins the brand and he's not a shoo-in for the next cycle of contracts all of those are not material to why diageo is selling rcb exploring a sale i think that's that's the more accurate way of putting it their net debt rose from i mean from 19.6 billion in 2024 to 21.5 billion by mid 2025.

12:55It's sort of interesting that they own it in the first place isn't it Diageo getting to them as an IPL owner I'm I don't know if I knew that or not whether or not they were an owner and I'm wondering why obviously it's you know we know the arguments about the IPL and asset appreciation over time and all those things but it's a peculiar thing for them I mean why did they do it in the first place I guess is the question. So they inherited the IPL the franchise after Vijay Malia, the original owner of the Bengaluru franchise, he had to sell the company. And I think they acquired a majority stake in the company and they sort of inherited the franchise.

13:34And there was enough chatter at that time that, you know, what will they do? I mean, do they really want to do it? These are, it's actually a London listed alcohol giant. Where does the IPL and especially the RCB fit into their thesis? But at the time, I think they just want to take a fresh look at the franchise, see what they could do with it. And I think what they have done with it is to stick around and invest time, effort, energy into it. And they've reaped the rewards of that by these successive titles. But at the same time, it was absolutely non-core. I mean, they are in the business of selling Bombay Sapphires and Johnny Walkers.

14:14And India is also a big market for them. I mean, obviously, India is one of the largest if not the largest consumer of of spirits by volume by taking rcb off their books they could they could definitely double down on on this market which is now moving towards more premiumization as we call it where we are sort of preferring the the more expensive booze to you know to the cheaper ones uh local ones here they put a lot of money into the women's team for example i mean second highest if i'm not mistaken after after the adanis so to that extent i would say they have done a very good job with the franchise and i think they've taken it to the level they could and especially with the conditions that they face back home with shareholders not very happy i mean they i think they last week i i read somewhere that their shares sunk to a 10-year low it was inevitable that that that rcb would be looked at among many other assets i mean there was some story i read during research for this particular story that uh that that they were looking to sell guinness and i i'm like come on man you can't i mean you can't be serious about it i mean and especially because they sold the brewery in africa guinness is more core than to the agio than a cricket team okay so we've got this situation where there's a lot of money in various funds around the world in american private equity we're seeing this almost on a weekly basis a new fund appearing and it's looking at sport and IPL is looked on very favorably and I like the phrase IPL curious I'm going to steal that you've got these eight the first eight franchises and you've got these two new ones yeah of which luck now is one so if we look at the the sort of rationale behind selling a 15 % I think is is it 15 or 20 % that they're looking to sell yeah and you've got this Kyle Jordan family office who are looking at bringing together a consortium of investors that are then going to look to buy it.

16:12So you've got a lot of moving parts there. And you can sort of see, actually, I understand why you would want an IPL franchise and why you would then, you know, try and raise money in that way. You start to then say, right, okay, why are they selling at this point? So when you look at, is it RPSG? And is that Sanjeev Gunkar? How do I pronounce that? Yeah, Sanjeev Gunkar. That's Sanjeev Gunkar, yeah. They bought the franchise in 2021. They were the first buyers of it, presumably. That was the initial, because they were the sort of additional franchise. So they got it for 930 million. Now in that, obviously, they are then borrowing money to get that.

16:54So they're under the sort of cosh. They've got a big upfront fee to the BCCI initially. You've got an annual franchise fee of, I think, it's about 85 million a year. and then you've got to run the thing the operating costs are running the team so you've got this yeah um uh and that's debt financed and at some point they want to relieve the debt and this is what this is about so they're going to sort of say right okay here's 20 of the franchise that we can then offload and get new money in essentially that's what's happening that's absolutely correct so nailed on what is it i'm just trying to sort and and then you flip over to the Jordan group so again I didn't really they were sort of I obviously knew who Eddie Jordan was but they bought London Irish rugby club in 2025 which is dropped out of the rugby premiership they've got a right a French rugby club AS Bezier my French is terrible AS Bezier Herro in 2024 and now they're looking for a piece of an IPL franchise so let's talk about them for a minute And they are going to run this as a sort of fund, it seems to me.

18:02It does. And I've sort of tried to connect the dots about what they try and do. It's a great entry point for them. I mean, if this deal gets finalised, it's a phenomenal entry point for a little known British family office or investment vehicle, as it's officially called, into the glitz and the glamour of the IPL. It's literally a seat at the table. you get to mix around with some of India's most influential business leaders, sports leaders, maybe politicians, since most of them held the BCCI as well. So it's a fascinating entry point. And I think maybe picking a franchise like Lucknow, which is still at its nascency, I would say, smart idea.

18:48There's an expansion franchise, it gives them visibility into the league, into how it works and probably sets them up for something more in the future presumably it gives it i mean it's a it's a nice it's not like a european football club where you've got promotion relegation you've got huge risk you are you are guaranteed you know how much money you're going to make at the beginning of every year you've got a cut of the central revenues you've got a sort of local market to then go and attack so there's a lot to like about it from an investment perspective yeah oh there's i think the fact that it's a stable league it's not a dynamic i guess what you guys call a static league and not dynamically with no relegation and promotion means you get a fixed revenue a percentage of the cent you know of the overall bccs revenue every year and i think that is very encouraging for any investor to come in i mean there are no uh no issues like you know what happens with say parachute payments with the premier league and all of those so i think those are fairly important factors for anyone looking to bind an IPL team or into an IPL team.

19:55Player wages are at a relatively predictable and much lower level than you find in lots of British and European sports. That's correct absolutely so that's that said your revenue is set I think it's just a great entry into into this country and I think it's a it's an important But it will grow over a period of time as an important market. So the money, if you are sitting on tens of millions of dollars and you want into the, you know, who doesn't want into an IPL franchise? Because as we say, all the story of it is very positive. I think there's a challenge in terms of the way in which it's being financed and how they're choosing to finance that money.

20:41You would think that an IPL franchise would go like that because of all the stories and the reasons that we've discussed across a very varied sports investment landscape. The IPL is always held up as one of these, you know, it's a sort of Pacific Ocean property. There's only 10 of them. And, you know, that the value is going to continue to rise because of all the optics that we've talked about a lot. So I think there's something going on there about how they're raising the money. Look, I think, Richard, I don't think it should be that hard to get the money in. I mean, it's not, it's, I was told about how easy this is going to be for RCB.

21:18I mean, you just do this, this, this, and then, I mean, we'll get to that. maybe like four or five investors willing to put in oh here take my money 400 million here that's not how it works but at a quantum that Lucknow is raising I don't think it should be that difficult for backfilling should be quite easy and even the leverage should not be that heavy so I think with RCB the challenge is a lot more but with Jordan and Lucknow I think they're okay I mean what my sources told me was that they have about 100 million in commitment already, the Jordan guys, and then the rest will be backfilling.

21:56So, which I think is interesting. It's, I think it's very similar to a traditional fund, which is where you have LPs and GPs and, you know, and the operating partners and it's the price you pay to enter this league. So I wonder if these two deals together kind of represent the end of one trend and the start of another one. So the trend that's ending is perhaps, I think, something that's lasted a decade or so, basically since the Loader Commission required the VCCI to impose a lot of reforms to basically improve the standards of governance and financial reporting and the way that the IPL is conducted to lift it to kind of an equivalent standard to other leagues around the world that are comparable in size.

22:40And these deals, together with the success of the expansion franchises in 2022, feels to me like, yes, this league is, this is the real deal. this is attractive this is built on genuine financial performance and uh it's credible and now we're kind of open to institutional capital from around the world in the way people would like to invest in the nba or the other thing mike though is to so if you're looking at the key point is 2027 because the media rights come up for renewal in 2027 and if you look at there's two things, two sort of red flags. There's very few red flags around the IPL as an investment, as we've said.

23:20But if you are looking at this and saying, okay, well, why would you just pause a moment on this? And one is the Geostar deal, because I think Geostar, what that's done is taken out a sort of bidder in the marketplace. So the worry, if I'm a franchise owner, is that actually there is less competitive tension in the domestic Indian rights market for these rights. Absolutely. And as we know, the domestic rights are pretty much all of it, because I think it's only 2 % is overseas rights. So the Indian domestic rights deal is the absolute cake of this. Everything else is a cherry. But if you look at the number that, so Lucknow was bought for 9.30 in 2021.

24:02It's now valued at 1.3 billion, which is a sort of equivalent with the Gujarat number, the CVC sale. So they're saying, well, it's worth that now. but that is predicated on a 40 % markup and look and is basically saying yeah but 2027 is coming and you're going to get a massive uptick in the media rights and the only thing I can think that actually that would make me pause is yeah but is the media rights market still going to deliver in the same way yeah so that's the that's a 10 billion dollar question if I could frame it that way nobody knows I mean obviously there is there are options at play and various forces at play here right now.

24:42You saw this deal. The last right cycle was, I think,$5.8 billion. It was predicated on three seasons of 74 matches, one season of 84 matches, and the last season being 94 matches. We're still stuck in the 74 matches phase right now. The word I'm getting is that maybe this year there'll be a 84 match season, which I think will be interesting. I mean, it follows the schedule, but at the same time, I think what is of more concern to all of us and I think should be of concern to folks watching the sport and the business of the IPL rather is the fact that I think the consolidation has taken off a competitor from the market.

25:32So you're not going to see somebody who's willing to pay very cookie dollars to sort of, you know, get the valuation up. But hey, at the same time, I think if you look at the other side, I mean, what is stopping newer entrants from entering the field? For example, what if an Apple wants to, you know, wants to get in? What if an Amazon wants to get in? What if a Netflix, which is rather high on sports now, you know, wants to get in? I mean, there are, I mean, India is a ready made market uh india is a very ready market for these i mean for these companies to just come in and or hey what about youtube i mean we are a you know we have 450 500 million users uh you know they're not big on rights rights fees youtube yeah but but it's a trade-off right it's a it's no it's a bit of a trade-off i mean what they get from here or or they could just upset yeah no absolutely the biggest concern for these franchise owners is i think at the very least it should not get devalued 5.8 billion uh anything is an improvement uh but they wouldn't mind something of a 10 20 upside on the existing price that that would that would be a massive number and the second part that you said the second headwind that you highlighted which is advertising i think that is a bit of a bummer right now because uh it's you know one categories of the market these guys were spending close to i don't know 400 million 500 million dollars uh every year on sport in general, not just cricket, about, say, 3 ,000 crores.

27:02So the RCB, the Royal Challengers Bangalore, what's their valuation at the moment? So they're looking at about a 2 billion. I'm trying to sort of get to the total number. And then there's another question about what the addition of the 100 franchises means in terms of the total valuation of everything and whether that's about the same thing. But anyway, I'm trying to get to a league table of value within the IPL. So you've only got 10 franchises and we know, you know, we only know what's real when some estate gets sold. So this is why this is an interesting story. I think we don't know the real valuations of these franchises.

27:38I mean, we just we just use markers, whether it is DCF, EBITDA, all of those usual, usual valuation techniques. Look, I think with RCB, I read a Jefferies report, which I've referenced in my story, which assumes a certain percentage of USL shares or the share price for RCB. And it sort of assigns that share value about 132 rupees per share in somewhere in September. That gives us a valuation of what$1.2 billion. That's at the lower end, I would say. I mean, for me, if you look at all of those scarcity premium, you add all of those usual markers in Virat Kohli, you're looking at about 1.3, 1.4 billion as a fair price.

28:23I would be very surprised if RCP sells for certainly the$2 billion. But my number, and I've wagered a few bucks on this, would be somewhere around 1.5 to 1.7. I think that reflects them as a franchise, their 20 years of just building brand, of just building an audience, just building a proper team. I mean, that was not winning matches, but was constantly in the news. I mean, it's such a meme franchise, RCB. It's amazing. I mean, I guess you've got to be here to know what it is like. uh i think it it is a fair price that reflects who they are it has to certainly be about expansion franchises so it cannot be 1.3 or it cannot be 1.2 so i'm looking at a number of around 1.5 to 1.7 that that that i think it will go for uh which is which which i think is a comfort fry sort of uh maybe a comfort price for most folks.

29:30I don't know about Diageo, but at least the chatter I've been picking around is around this number, is around this 1.5 to 1.7. I think it's a hard stop anyway. I mean, it could go... I mean, we'd love to see it go for 2.5 billion because that puts it among other leagues. But to your question about a league table, it's hard to look past the Chennai Super Kings and the Mumbai Indians as probably table toppers there. But all we know is that the valuation of these franchises has compounded, expanded subsequently and sequentially with media rights. I mean, no disrespect to those two franchises, but just the fact that they are the extent, the two later franchises, they're not of the eight originals.

30:17You would imagine that those brands have been able to solidify in terms of the market. And my assumption is that their value would be higher. than the two that have, you know, Gujarat and Lucknow. Yes. But what Gujarat has in its kitty is an IPL win in its debut season. It played the finals in the following year. It is a high-profile franchise in the sense that it represents the seat of power now in India, which is Gujarat. So I think that, and it also has access to the largest stadium in the world, which is the Narendra Modi Stadium. So to that extent, it has a lot of interesting pull factors.

31:00But obviously, it is also, I mean, the halo in that sense is also stripped because it's not the original 8th franchise, right? I mean, that will always be part of it. But it's an interesting franchise. And I think they are now building a brand around the Indian captain, which is Shubman Gale, Indian ODI and our test captain, certainly Shubman Gale. So I think there are opportunities there. I mean, but at this point of time, it's nowhere close to the original, at least the original top two, three, four franchises. I mean, Rajasthan, Kings 11, Punjab, some of those are not exactly high value in that sense.

31:45But they are very important in terms of the fact that, again, it's an entry point into the IPL. And hopefully you'll read more about them in the coming days on the state of the way. So the Lucknow deal and the fact that we're selling off a small stake, when sports franchises tend to cross the billion dollar mark, this is now serious money. and inevitably in the US, for example, now we're seeing a relatively high volume of minority stakes in NBA, NFL, MLB teams now. And that's partly because the rules are changing to permit more foreign investment. But it's also because these things are now so expensive that it's the number of potential buyers of an entire franchise is really small.