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Thursday, April 1, 2010

VALUATION OF FRANCHISEE - IPL AND SACHIN TRIVIA

In Corporate World, being big alone does not guarantee permanence. Mergers and acquisitions are common aspects of Corporate strategy. An acquisition, also known as a takeover or a buyout or "merger", is the buying of one company (the ‘target’) by another. An acquisition may be friendly or hostile – resolved through negotiations or unwillingly bought. These need not be big buying small – control of larger units can even be obtained by small sharks. There is something known as reverse merger also. The acquisition process is very complex, with its multi dimensions not easily understood by common men, who eventually be affected by the outcome.

In simple parlance, acquisition is swallowing and merger is when two firms agree to go forward as a single new entity. For example Glaxo Wellcome & Smithkline Beecham merged into Glaxo Smithkline. One important aspect influencing merger is the valuation which can be market based, income based or asset based methods. There could be numerous elements which ascertain whom gets benefitted by which method. In whichever way you look at it, the financial steadiness of the Firm which is to be taken over and the standing of the one taking over have great bearing.

Well this certainly not aimed at any topical news on method of valuation or on a merger scenario but on the bizarre occurrence in IPL where the Mumbai Indians, a well managed, greatly performing franchise representing the commercial capital of India reportedly valued lower than Rajasthan Royals. IPL is more about money – whether making or losing depends on which side you are – the hype is getting louder and more stories rant the air as the tourney in the next year could be vastly different with induction of more teams. I had written earlier on the entry of two new franchisee Sahara Business Group buying Pune @ US$370 million, and the Rendezvous Sports World consortium bidding Kochi for US$333 million. Besides, there is news of IPL teams being allowed to spend up to US$7 million a year each to recruit players.

Thus next year there would money on direct hiring, retaining those contracted for the first 3 seasons. All these makes it more complex and not understood by common man who has been making beeline for seeing his favourite in action. A Cricinfo report has it that new teams could lost atleast Rs.100 crore (about US $ 22 M) each year for the next five years. This when the Franchises share the central boot in some manner. Will anybody continue if operational losses are guaranteed for a term ? Why do Companies put so much at stake in IPL – is it only their ego ; does it make any business sense ? Probably in a World where only elites exists, when fortunes decline, the owner sell it to another Crorepathi. The no. of franchises will be limited to ensure that there are always more to buy – whether loss making or profit churning. Probably if the hegemony of cricket gets diluted by sponsorship for more sports, there could be a different scenario.


On another entirely different angle, the Teams apart from chunks of money spent on brand building, need to shell out more on recruitment of players and support staff. In 2008 $ 1.5 M per season was the highest salary for the player. Next year Pietersen, Flintoff got more – this year Kieron Pollard and Shane Bone ripped the margins. In 2011, with two new bidders the war would rage more fierce. More vulnerable would be cricketers on twilight of their careers – some others who realised more in the initial auction stand exposed as IPL has changed the way they would be looked at. Whilst it could be a struggle for Jayasuriya, Kumble, Dravid, Laxman, Symonds and like, Sachin continues to be a glowing exception. His value would only go up as Sahara also would like to have him as Captain and could trigger a bidding war with MI.


Turning back to Sachin, a news item in todays Hindu – mentions of 87 year old Saraswathi Vaidyanathan reeling out all statistics of the little master, undisputedly the senior most member of his million + fan club. Here is a trivia on Sachin’s first international appearance ?
On record, Sachin made his debut on Test no.1127 at Karachi on 15th Nov 1989 against Pakistan and Krish Srikkanth was his captain. There is news report in Cricinfo that Sachin made his international appearance actually fielding for the Pakistan side at Brabourne stadium in 1987 – 88 when CCI side played against Pak XI led by Imran Khan. This was not an official international ODI and Sachin was 15 at that time. Youngsters do assist visiting sides and he was on field briefly as substitute. The match was held as part of CCI Golden jubilee celebrations and Sachin rubbed shoulders with Wasim Akram, Imran, Rameez Raja, Mudassar and like.

With regards – S Sampathkumar.

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