Prospective bidders for the two franchises that would be in action in the Indian Premier League (IPL) Twenty20 cricket events from 2011 are up in arms due to stiff conditions imposed by the game managers. They say the new norms will make owning a team financially unviable. With the two proposed teams in place, IPL will be played among 10 teams and the number of days of the tournament will also be extended to accommodate more matches.
At the centre of the storm are the stiff financing terms, under which a bidder has to provide two bank guarantees, including a performance bank guarantee of $100 million (Rs 463.5 crore) before the bidding date on March 6. The money will be returned only a month after the auction, if the prospective bidder is not successful. In contrast, during the first auction, bidders had to give only Rs 20 crore.
However, if a team is won, the winning bidder has to shell out another annual bank guarantee for the entire amount of the winning bid (the franchise rights are for 10 years) within seven days. In the earlier auction, the winners had to give a bank guarantee that was around 10 per cent, or a fraction, of the total bid.
The minimum bid price has been fixed at a staggering $225 million (Rs 1,042 crore), compared to $50 million (over Rs 230 crore) that was the base price when the first auctions were held in 2008. According to sources, companies like Sahara, Adani Exports, ICICI Venture and Jaiprakash Associates have already bought the required documents to bid for the teams up for sale. The cities that have been offered as the home location for the franchises are Pune, Ahmedabad, Nagpur, Kanpur, Dharamsala, Vizag, Rajkot, Cuttack, Baroda, Cochin, Indore and Gwalior.
In order to ensure that only the big boys enter the space, IPL – in its bid document – has said prospective bidders will need to have a minimum net worth of $1 billion (Rs 4,635 crore) to be eligible. This virtually rules out smaller players as well as celebrities, until they join a consortium.
Many celebrities like Salman Khan and Sanjay Dutt had made public their intention to bid for the two teams. Most of the prospective bidders refuse to come on record, but say the conditions are too stiff to make money.
A senior executive of one of the prospective bidders said: “With these guarantees, your return on investment will not be more than 0.5-1 per cent. The most financially successful IPL franchises are making a maximum profit of Rs 5 crore annually. Considering that you bid Rs 1,000 crore, the interest cost on the bank guarantee will be Rs 120 crore every year, and for a ten-year period, it will be Rs 1,200 crore, which means you are effectively paying Rs 2,200 crore for a team. There is no way you can make money.”
A leading equity fund, which is also looking at bidding for a team as a business venture, says the returns on investment are not attractive enough, as most of them look at an exit route and high returns of around at least 15 per cent before getting into a business.
“The cost of acquiring a team is working out be too expensive, as the investment of Rs 1,550 crore for buying a team does not look attractive,” said an executive of a corporate house that has picked up an ITT (invitation to tender) document.
However, a senior BCCI functionary, while confirming that new conditions have been put in place, maintained they were getting substantial number of enquiries.
Companies can bid for all or as many of the twelve cities for which franchises are being offered. But, for each city, there has to be a separate bid price. However, only the top two bids will be chosen.
| A TOUGH PITCH |
| # Net worth of bidder to be $1 billion (Rs 4,635 crore). This rules out small and medium players, as well as celebrities |
| # Bidder has to give a bank guarantee of $100 million (Rs 463.5 crore) before the bid, compared to the Rs 20-crore deposit required in the earlier auction |
| # Winning bidders have to give a bank guarantee equivalent to the entire amount they bid for 10 years. In the earlier auction, it was a fraction of the total bid price |
