HNIs get sporty with their money

Invest in sports academies and local leagues for 20%-plus returns. The risks are high, though

The success of the Indian Premier League (IPL) seems to have created a new set of investors in India who are investing in sports academies and local leagues.

Consider the case of Shishir Kurup, who has invested in Sports Promotion Team or SPT Sports, a Bangalore-based company; or a Delhi-based entrepreneur, who has bought a stake in an internationally-promoted golf academy. The amount: anywhere between Rs 2 lakh and Rs 3 lakh in a local badminton or Rs 2-6 crore in a professional cricket, football or golf club.

“Investing in sports is a fresh and innovative business model. There are a few high net worth individual (HNI) families, who are evaluating options to invest in sports-related segments,” says Richa Karpe, director (investments), Altamount Capital, a family office which helps HNIs manage their assets.

However, investing in these projects has pitfalls as they might go completely wrong. But these are high-risk bets many are willing to take.

Rajeev Sharma, founder and managing director at Victory Inc, a boutique investment banking firm, says, “Usually ultra-high net worth individuals with a net worth of above Rs 200 to 300 crore tend to look at sports as a new investment avenue. Individual investors look at how many times their wealth can grow.”

“Since sports investment is still at a nascent stage, there is no track record of past returns. Such business models can take anywhere between five to eight years to breakeven and returns can be over 15-20 per cent,” says Karpe.

The break even period is longer in such businesses. But, how much and for how long can that business generate steady income?

Prateek Pant, director, products & services, RBS Private Banking, says it's difficult to predict for how long a business would give returns. “It depends on the reputation and goodwill of the institute. In addition, the high costs incurred to maintain the infrastructure (a piece of land to run a cricket institute) should also be considered.”

A sport academy has two revenue models. One includes schools and colleges, Many companies participate in these and pay such academies for carrying out multi-sports training for them. The second model is where a professional academy trains individuals/sportsmen, where their revenues come from the fees academies receive.

Some even invest in sports-theme bars. “Investing in a franchise of a reputed sports F&B outlet may have a faster payback period. In some cities, there could be an immediate connect with the brand, which can create good demand, resulting into greater footfalls,” adds Pant.

Another avenue is to invest in sports properties or merchandise such as T-shirts, key-chains, shoes, bags and others on which famous sports personalities are flashed. The investments required here might be small and seasonal, depending on the sports person you select to use on your properties.

Gaurav Mashruwala, a certified financial planner, says investing in these avenues seems very risky as the segment is not regulated. “One doesn't know if he's paying the right value, as arriving at valuations in such businesses is difficult. Selling the business can also be a problem.”

One could invest in sports through sports-related technology. This can include web portals for sports-related news/games and one can also look at investing in software tools used to train sportsmen.

Indians are also investing in training amateur kids who need funding to enhance their careers in sports. Apart from cricket, such investments also take place in golf, football, hockey, badminton and tennis.