IPL fever is on! How many of you thought that you should also get a chance to invest into this mega sporting event of India?
Yes, IPL is not just a sports league, it is India’s decacorn! After Flipkart, Swiggy, PhonePe & Nykaa, it is IPL that has crossed the magic $10 billion mark in valuation.
BCCI and 9 IPL teams are all unavailable for investment, meaning you can not invest in them as a retail investor. BCCI in fact, is registered as a charitable institution. Only CSK shares are available in the grey market. Apart from that, we can take proxy exposure, by investing in stocks that will likely benefit from the IPL boom.
So, we decided to look into this from a long term perspective. What if more teams come out and ask for funding via IPO? We have never seen such a business in India, right?
Every team in the IPL is unique in a way. Their revenue streams are, however, similar. The IPL started in 2008 & the first team to become profitable was RR. (Rajasthan Royals) The second & consistent profit machine was KKR. (Kolkata Knight Riders)
But, since the sports franchise business model has very few precedences, deciding whether to invest in such a business or not should be thought over carefully- keeping aside the euphoria of cricket.
So, let us first see what is the evidence from abroad. More than 40 football clubs in Europe have IPOed since the 1980s. However, there are only 3-4 prominent clubs that continue to list on the various exchanges.
Interested to know which are those? First and foremost, Manchester United. Well – they had a sort of love-hate relationship with the stock market. The club delisted itself in 2005 and again listed in 2012!
Other clubs that still trade on the exchanges are Juventus in Italy (going down and down and down…), Borussia Dortmund in Germany (doing Okay-ish) & Galatasaray /Fenerbahce in Turkey.
Arsenal, another popular club, is a unique case where the company is public but shares are not listed on any exchange. The shares are pricey & pass hands mostly based on fandom (much similar to NFTs in that sense)
Honestly, we found that there are way more clubs that decided against participating in the market frenzy for various reasons. Case in point: Tottenham hotspur. The club is amongst the highest earners, but is not public.
Some prominent reasons for not going public or delisting are as follows:
- Performance on the field is something which is not exactly comparable to corporate performance. Players can’t be “run machines” all the time. There can be wide variations in profits. [Just check the case of RCB in the infographic] Not all investors can digest such a volatility.
- It is a sport after all, and although profits matter to the clubs, they found it hard to be totally profit driven. Pursuit of profit meant extracting more revenue from your fans, which they may not like/ may not be able to afford as well at times. Let us not forget here that fans are the ultimate asset for any club.
- Managing a sports club is a rare skill. Management debacles can easily ruin the stock price.
- Also, lately, Russian, Chinese and Arabs are buying out these clubs at handsome price tags. When the money is coming in anyways, why bother to go to the market?
Also read: Vodafone Idea FPO announced, will investors be interested in this mega offer?
In the light of above, we tried to size up the IPL & IPL teams. IPL today commands 2nd largest broadcasting fees in the world, ahead of ICC itself. Peak viewership in 2023 season was over 6 crore on TV and over 3 crore on the OTT platform.
Why does the viewership matter? Because teams earn big-time through these rights sales. Other revenue generating opportunities include:
- sponsorship,
- royalty,
- sale of merchandise,
- Licensing fees,
- sale of tickets for matches held at their home ground,
- sports education (RR has started this) and
- fees collected through the transfer of their players to other franchise teams.
As we can see, all of these are highly volatile kinds of revenue streams. Only KKR was able to deliver somewhat stable profits since 2011, but other teams are yet to establish a clear track record.
We must also take into account that the game is still young here and like every other facet of life, covid disrupted IPL too. So, while we highlight the pain points in owning shares of an IPL team, let us not forget that the potential is huge, for those who are ready to risk it.
Today, every IPL team has a valuation above $40 mn. (over 300 crore) Since Jio decided to stream IPL for free, it has cured IPL fatigue to a great extent. Those aged 14 and below, basically the future IPL fans, are growing at an astounding rate of 63%.
If we decide to look at the evidence that CSK shares bring to the table – the shares have grown 10x since their launch in 2018. Their debt levels are high too, which must be noted.
IPL has become so ingrained in the Indian culture that people are almost forgetting the classic test cricket. Iconic images of Shah rukh khan, Virat Kohli & MS Dhoni are lifting valuations of their respective teams like no other.
Additionally, now the team owners are looking abroad to expand their game. KKR, MI, CSK & Delhi Capitals have made their moves to own sporting teams in South Africa, the US and Dubai.
This means, if in the future the teams try to list, they won’t have IPL as their only source of revenue. Talk about global diversification!
Overall, this space is getting more and more interesting as the time passes and seasons get concluded. Like we always say, a portion of our risk capital may sit in the form of these shares in the future. But let us not forget the classic stock market rule: Risk and return go hand in hand.
Hence for us mere mortals, only that money, which we are okay to go vanish into thin air, probably deserves to chase the IPL teams. Else, we are all set with our good-old and now-getting-popular index investing!
Disclaimer: This article is for informational purposes only. Not advice. Please consult a SEBI registered investment advisor before making any investment decision.
