IPL googly: Rebid on March 21, financial clauses diluted

Faced with a poor response from prospective bidders the governing council of the Indian Premier League (IPL) Twenty20 cricket tournament announced rebids for the two new franchises and significantly eased three critical financial conditions for prospective bidders.  

The council cited “discretionary” powers that allow it to cancel any bid but did not explain why it rejected offers from three companies that submitted bids for the two franchises for teams that are to participate in the tournament from 2011. In the first auction in IPL in 2008, 16 companies bid for eight teams. 

Insiders in the Board of Control for Cricket in India (BCCI), which oversees the IPL tournament, said Ahmedabad-based Adani Group and the Videcon Group submitted bids and Jaypee Group made a conditional offer but asked for more time to pay.

At a press conference in Mumbai today, a few hours after the winners for the bid were supposed to have been announced, IPL Commissioner Lalit Modi said the new tender documents will be up for sale on March 9 and bids will be accepted up to March 21 till 10 am, and the winners declared on the same day.

Strong opposition from prospective bidders also forced the governing council to whittle down three contentious clauses.

Under the new tender conditions the $100 million pre-bid performance guarantee has been cut to $10 million, the winning bidder’s bank guarantee has been made 10 per cent of the bid price instead of 100 per cent and the $1 billion net worth requirement has been scrapped.

The minimum base price, however, has been kept at $225 million, almost double what Mukesh Ambani paid ($111.9 million) for the Mumbai Indians. 

Some bidders think the base price is still too high. Videocon Chairman Venugopal Dhoot, however, said he would certainly bid under the new conditions. A spokesperson of Sahara India, which bought the forms but did not bid, said: “We will look into bidding if the terms are reasonable”.

The new rules could bring in more players especially celebrities like Salman Khan and Sanjay Dutt who were locked out because of the high net worth clause.

Insiders said despite the touch of glamour with film stars Kareena Kapoor and Saif Ali Khan attending the bid meeting with Dhoot at Mumbai’s Four Seasons hotel, BCCI members in the council made it clear to Modi that they were unhappy with the financial clauses and the fact that they had not been shown the bid documents before they were sold.

Companies involved in cricket sponsorship had complained that the documents gave IPL's management and Modi too much discretionary power. “There is no other example of a bid that is so non- transparent," said a senior executive of a leading corporate house.

Most prospective bidders who kept away said the bid terms ensured that there was no way of making money from the deal. “The return on investment after paying interest on the bank guarantee is not more than 0.5 per cent to 1 per cent; why should I get into such a business,” said one of them.

Srinivasa Aluri, managing director, private equity, Morgan Stanley India, which has closely followed IPL valuations from a private equity standpoint, said, “From a cash flow perspective you can never make any money at this high bid price because revenues won't go up that substantially."

He added, "Even existing teams don’t have the kind of valuations that IPL is asking for as base price for a new team. Only someone who wants it as a trophy and is not interested in the money he makes will bid.”