SUN TV buys IPL franchise -- is it time to sell the stock?

At Rs 85 cr, Sun has paid twice as much as Deccan Chronicle to buy the franchise for the Hyderabad team

Call it the jinx associated with owning an IPL team; the market has started selling Sun TV on news of it acquiring the IPL franchise for the Hyderabad team. Reports say that Sun TV Network has bought the franchise for Rs 85.05 crore a year which represents a 100 per cent premium over what was paid by Deccan Chronicle. Sun TV’s bid was substantially higher than PVP Ventures which was at Rs 69.03 crore.

Shares of Sun TV were trading at Rs 342.75, down 3.75 per cent over previous close at 2.30 p.m. 

It is not Sun TV cannot absorb the cost of Rs 85.05 crore for the franchise that the market should be worried about. The company posted a consolidated net profit of Rs 692.9 crore for the year ended March 2012.

However, the cost of Rs 85.05 crore is only for the franchise, the recurring cost of acquiring players and coaches and maintenance of the team is what perhaps is spooking the market.

Track record of existing franchise holders is not too encouraging. Have acquired their franchise are much lower cost as compared to Sun TV, they have not yet been able to recover their money even after over five years in existence. Even their brands have been valued at a fraction of their cost of acquisition, indicating that they have not been able to generate the desired results.

Market has been talking of the jinx of IPL teams on its owners. Business houses have been trouble since the time they have acquired these teams. Take the case of Kingfisher which is almost on the verge of closure, same also goes for erstwhile owners of Hyderabad franchise, Deccan Chronicle. Reliance Industries has not made great strides since its acquisition, Sahara owners of Pune Franchise has been in the midst of controversy. India Cements, owner of Chennai Franchise has not been affected at the corporate level but the promoter has been received bad press on personal grounds.

There might or might not be much to the jinx of IPL, but two things that drive the markets are perceptions and numbers. Perception on Sun TV, even before it acquired the IPL franchise has been negative thanks to the political linkage of the promoters and their name being dragged in the 2G scam. Bagging the IPL franchise is unlikely to improve the perception. As for the numbers, track record of other franchise does not give confidence that Sun TV will be able to buck the trend.