September 14, 2012 5:44 pm

Economy shows boundaries of IPL’s success

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Since its foundation in 2008, the Indian Premier League has upended the traditionally stuffy game of cricket, attracting star international players and global advertisers alike to a sporting extravaganza with a brand valued at about $3bn.

However, attempts this week to sell off one of the IPL’s teams have cast the world’s most lucrative cricket tournament in a less flattering light – one in which lossmaking franchises are offloaded by cash-strapped tycoons, whose wider business empires are struggling against the backdrop of India’s slowing economy.

Indian cricket

Indian cricket

With hopes of a bidding contest dashed due to lack of interest, on Thursday the owners of the Hyderabad-based Deccan Chargers rejected a sole offer of Rs9bn ($156m), citing disappointment over financial terms for a team they are being forced to sell to clear mounting debts.

Both the sale and the opaque finances of the team’s parent media group, Deccan Chronicle Holdings, have been watched closely by worried fans and players, the latter having yet to be paid in full for their efforts in this year’s contest.

India’s banks have taken an interest too: 28 of them, including ICICI and Axis, the nation’s two largest private banking groups by lending, are attempting to reclaim Rs30bn ($551m) that has been lent to the troubled group.

Tim Wright is one further interested party. The British former chief executive of the Deccan Chargers has fought a lengthy legal battle against his former employers since quitting the team in 2009. In July he won more than £10.5m in the London High Court for breach of contract but, having yet to receive any payment, he launched an unsuccessful legal challenge to stop the team’s sale on Wednesday.

This week’s events are the latest in a series of management disputes and corruption investigations that have dogged the glamorous annual two-month tournament, whose shorter three-hour cricket format has won huge audiences among India’s cricket-crazed populace.

The league has nonetheless been viewed as a financial success, bolstered with teams owned by prominent business figures, including billionaire industrialist Mukesh Ambani and brewer and airline owner Vijay Mallya. Multinationals have flocked in too. Sony paid about $1bn for 10-year television rights, Google signed up for online coverage, while advertisers such as Vodafone and Coca-Cola use the event to reach India’s flourishing middle classes.

This success was seemingly confirmed in 2010, when the IPL raised more than $700m by creating two new teams, a significantly higher valuation than had been paid by the owners of the original eight, who paid between $60m and $112m each.

However, since then the finances of the IPL’s teams have come under greater scrutiny, not least when one was ejected for not paying its bills. The franchises’ frequently colourful owners have found themselves in difficulty too, with India’s tougher macroeconomic situation stretching their finances.

Mr Mallya, owner of Kingfisher Airlines, is trying to sell a stake in his Bangalore-based team as part of attempts to rescue his floundering business empire. GMR, an indebted infrastructure group that owns Delhi airport, is also understood to be considering selling a stake in its Delhi Daredevils cricket franchise.

“These businesses probably looked good back in 2008 when markets were high,” says Mr Wright, who was a senior sports business executive prior to taking over at the Deccan Chargers. “Many bought them when their stock was inflated . . . and thought they could keep their franchise for a few years and watch them treble in value. They were wrong.”

Following this week’s unsuccessful sale, the fate of the Deccan Chargers will be decided at a meeting on Saturday, which could see the team’s contract cancelled, or handed over to creditors. Mr Wright will be watching closely too and says he will renew his legal attempts to stop the process next week, unless he is paid damages.

Such legal wranglings are hardly likely to please cricket’s traditionalists, many of whom have criticised the IPL for bringing glitz and greed into this most gentlemanly of sports. But analysts say that even with its troubles, the IPL will continue to attract business interest when the tournament begins again early next year

“Advertisers and investors know more than 300m follow the IPL each season, which is a number to salivate over – nearly twice as many as the NFL for American football,” says Praveen Chakravarthy, a Mumbai-based investment banker who has advised IPL franchises. “If more of the teams are run as proper businesses in future, the league still has a bright future.”

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