Thread by @KShriniwasRao

#Thread #RPSG #Lucknow #IPL

Hello! So much talk about RP-Sanjiv Goenka (RP-SG) Group’s IPL bid of Rs 7,090 cr for Lucknow. People extremely worried if they'll make money, like they’ve spent personal pocket-money on it. : )
But the question is an absolutely valid one... (1/24)

In this thread, we’ll try and see if we can find some answers. Rs 7,090 cr is indeed a huge number and what will it take for RP-SG to recover this, and by when. First of all: RP-SG will have to pay this amount to BCCI over 10 years in equal instalments. (2/24)

So, that’s Rs 709 cr per year. They will have to submit a bank guarantee to BCCI of Rs 709 cr which the cricket board will keep with themselves until the end of all 10 instalments. The instalments begin with the 2022 edition of the IPL, until 2031. (3/24)

The 2022 edition of IPL will be played under the existing broadcast rights contract (the Rs 16,347 cr value that Star is paying BCCI for the 2018-2022 cycle). The new rights will come into effect from 2023 and a tender to sell those rights is coming out this week. (4/24)

So, let’s stick to 2022 first. As I explained in the previous thread, franchises get 50% of central revenue that IPL generates. Rs 9,750 cr (50% of IPL’s total central revenue) was earlier being distributed among eight teams. In 2022, it’ll be distributed among 10 teams. (5/24)

Number of matches will go up by 14 in 2022. Until now, 60 matches were played. In 2022, 74 matches will be played (2011 format – read it up, it’s there on Google). BCCI can’t have more than 74 because that’s the contract with Star & there’s no window available. (6/24)

Star pays BCCI Rs 54.5 cr per match under current contract (totalling up to Rs 16,347 cr for 8 teams for 5 yrs). That goes up slightly. Star will pay BCCI (54.5 x 74) Rs 4,033 cr in 2022. 50% of it will go to BCCI (Rs 2016.5 cr). Remaining 50% (Rs 2016.5) to franchises. (7/24)

Add to this, revenues from title sponsor (Vivo Rs 440 per year) & official sponsors (approx. Rs 200 per year) – 50% of this amount (around Rs 320 cr) will get added to the broadcast revenue of Rs 2016.5 cr. That’s a total of Rs 233.65 cr to be divided among 10 franchises. (8/24)

So, RP-SG, like every franchise, will get approx. Rs 233.65 cr in 2022. Now, look at local revenues. If all goes well, fans return to stadiums next year. Lucknow has 50k-capacity. Let’s say they earn Rs 3 cr per game from ticket sales & do a good job with sponsorships… (9/24)

Rs 21 cr in ticket sales. Rs 40 cr jersey sponsorships, Rs 10 cr in hospitality & branding (all approx. figures) – a total of Rs 71 cr in local revenue. Add that to the central revenue of Rs 233.65 cr – their total approx. revenue for 2022 works out to Rs 304.65 cr. (10/24)

Now, let’s look at expenses. Salary purse to buy players is Rs 95 cr & RP-SG will have to spend heavy because they’re starting from scratch to build team. Approx Rs 50 cr will be spent on operations – hotels, flights, branding, etc. + Rs 3.5 cr to state assn as host fee. (11/24)

That’s an outgo of Rs 148.5 cr. Now… how much instalment they pay BCCI in year one? Rs 709 cr. So, what’s the delta? Rs 404.35 cr. Add Rs 148.5 cr to it + 20% of the top-line (approx. Rs 15 cr let’s say in this year). Around Rs 567.85 cr is total spending in 2022. (12/24)

From 2023, new broadcast rights deal, new title rights, new official partners will come into effect (they’ll be tendered this year itself). Now, how much will the new broadcast deal and title rights fetch? In that lies the whole story to RP-SG’s survival and sustenance. (13/24)

Assume broadcast rights go for approx. Rs 35,000 cr for 5 years (I’m taking low value here). Title rights suffer because nobody pays what Vivo’s paying (Rs 440 cr per year), but assume it goes at Rs 2000 cr; 5 official partners at Rs 50 cr each, for 5 yrs, is Rs 1,250 cr. (14/24)

Add that up, total central rights kitty stands at Rs 38,250 cr approx. 50% of that goes to 10 franchises over 5 years – that’s Rs 19,125 cr; which is Rs 1,912.5 cr per franchise for 5 years; Rs 382.5 cr per year per franchise (all approx). (15/24)

Local revenue stays at approx. Rs 71 cr. But, outgo increases to around Rs 150 cr (player purse hike + operations). That's 382.5 + 71 minus outgo of Rs 150 cr. So gross revenue is approx. Rs 303.5 cr. This is before EBITDA. Post taxes, 20% of top-line goes to BCCI. (16/24)

RP-SG can pocket around Rs 280 crore net-net each season between 2023 and 2027 – and probably around Rs 300 crore between 2028 and 2031 – which marks the end of 10 instalments. This is, bearing in mind, if they’re not doing any other activity to market themselves. (17/24)

So, the delta in the first year (2022) was Rs 567.85 cr. Between 2023 and 2030 it will be like this: Rs 429 cr between 2023-27 cycle and Rs 409 cr between 2028 and 2031. So, RP-SG’s total approx. outgo between 2023 and 2030 will be around Rs 3,781. (18/24)

Add 3781 and 567.85, RP-SG will spend a total Rs 4,348.85 cr between 2022 and 2031 (including BCCI instalments) before they finish all their 10 instalments. Earnings don’t matter here. They will still have to figure by when they can break even. (19/24)

After 2031, RP-SG don’t have to pay franchise fee. That means, they save on Rs 709 cr every year. That’s huge reduction. But remember they still have to recover Rs 4,348.85 cr from market. Even if central revenues go up post 2031, how long will it take? (20/24)

Assume RP-SG doesn’t indulge in any other brand activity and even if IPL numbers don’t increase so heavily post 2031, franchise will take 12 years post 2031 to make up for the whole investment. That means an approx. of 22 years from now to see full ROI. (21/24)

That’s quite a punt. But by then, who knows, the value of an IPL franchise could rise to US$2billion. And RP-SG will own the property for perpetuity. The coming generations can bear the fruit of an investment made today. (22/24)

And then, we’ve got to see, how RP-SG will utilize its presence in a huge state like Uttar Pradesh to monetize these investments elsewhere. They have interests in retail, power, service. Can IPL help them make money in their other businesses? That’s for another day. (23/24)

Let me know what you think of this thread. Feedback welcome. Remember, the approx figures I've used are bare minimal. Haven't exaggerated. Who knows -- RP-SG may be seeing something in the market that we aren't. Let's wait and watch. (24/24 -- ends)

Have taken absolutely conservative figures. Matches will go up to 94 from 2023 onwards. Digital revenue included. At best, IPL revenues will be higher by 3k cr in 2027-32 rights cycle. Have taken minimalistic figures into consideration. If it's relatively higher, good for RP-SG.