Many investors, including Warren Buffet, emphasize investing in companies that will generate cash indefinitely. For example, Coca Cola will continue to sell regardless of war, inflation, market crashes, or unemployment.
A similar trend is seen in sports, especially cricket in India. No matter the situation, an India vs. Pakistan match will always have TVs on, stadiums packed, and families on the edge of their seats. Such is the power of cricket.
But how do you invest in it? Can you actually invest in sports as a retail investor? Isn't it supposed to be for the wealthy like the Ambanis, Mallyas, and Goenkas, or maybe film stars who invest in IPL teams? And why do rich people buy sports teams? Is it really that lucrative? These are many questions to consider.
In today's piece, we will answer all these questions**. We will dive into the economics of our beloved "India Ka Tyohaar" and explore what it is about the IPL that attracts such high-profile investors.** We will then talk about Chennai Super Kings (CSK) as an unlisted share opportunity.
IPL Profit And Loss Structure
Before getting into why CSK may be a good opportunity for you to invest in, let’s understand a bit about the operations of Indian Premier League (IPL)
Revenue
BCCI is the largest cricket board in the world by almost every metric. It is the highest earner by a significant margin. Why is that the case? Well it’s mainly due to IPL income that is broadly divided into 3 sections:
Media Rights: IPL earns about 70% of its revenue from the sale of media rights, making this the most crucial factor for the league's sustainability. BCCI launches the bidding process every 5 years, allowing top media companies to submit bids for different categories like Digital, TV, Indian Subcontinent, and International.
Sponsorship Income: Another 15% of the revenue comes from sponsorships. Until 2022, the title sponsor covered the entire bill. BCCI only sold the title sponsor spot, while other spots like associate partner, strategic timeout, and catch of the match were monetized by the media rights holder.
Franchise Fees: The last major item in which teams pay to participate in the league. It makes up roughly 10% of the overall revenue. This income varies because the Women's league is just in the nascent stage, and the men's teams have different obligations to the board based on their revenue.
Expenses
Around 45% of IPL revenue earned via the 3 categories mentioned above is distributed equally among the teams, with another 5% based on their performance during the league. The remaining 50% is used to run the day-to-day IPL operations and anything left over is used to increase BCCI's reserves. The profit margin for BCCI is quite high. Every year, the board takes home 40% of IPL revenue as surplus! Its fair to say that IPL is the cash cow for BCCI.
Revenue Projections For IPL
Predicting IPL's revenue is quite straightforward since media rights and title sponsorships are sold for a period of 5 years. This means that almost 80-85% of the revenue is fixed for that period. Let's look at some numbers from 2024 to 2027.
Media Rights Revenue
This time, Viacom-18 secured the digital rights for IPL for the next 5 years (2023-2027) at ₹23,750 crore. Viacom-18, part of the Network 18 group, is owned by Reliance. This means Jio will be streaming IPL for the next 4 years. On the television side, Star India obtained the rights for ₹23,600 crore.
Essentially, BCCI will earn a fixed sum of ₹48,390 crore for 5 years up to 2027 (₹9,500 crore annually). This number may not seem significant on its own, but compared to the media rights sold in 2017, it's enormous!
In 2017, Star India won the consolidated bid for digital and TV rights for ₹16,300 crore for 5 years. BCCI earned roughly ₹3,200 crore annually for the past 5 years, but this figure is set to triple by the 2027 season. This means the earnings for IPL teams will also significantly increase.
Source: JM Financial
Sponsorship Revenue
The sponsorship revenue is also set, with TATA purchasing the title sponsorship for ₹2,500 crore for the next 5 years (until 2027). This means BCCI will earn a fixed sum of ₹500 crore per year until 2027. In 2021, the title sponsor was the only source of sponsorship income. However, in 2022, BCCI sold 3 more spots for 'associate sponsors'. So, this revenue is expected to increase significantly from previous levels.
(Title and associate sponsors - 4 years deal, Media Partner - 5 years deal)
All of this means the FY24 revenue from IPL will be around ₹11,000 crore. Hypothetically, if the proportion of central grants given to IPL teams remains the same, their share will be around ₹4,700 crore, up from ₹1,800 crore in 2021!
How IPL Teams Earn and Spend Money?
When reviewing BCCI's annual budget, we noticed the large amount it transfers to IPL teams each season. This transfer is the biggest source of income for the teams.
About 80% of each team's revenue comes from BCCI's central pool, which includes media rights and title and associate sponsors.
The next major source is sponsorship income, which makes up 10-15% of each team's revenue.
The remaining 5-10% comes from ticket sales, merchandise, man of the match awards, and other sources.
Source: CSK Annual Report 2024
On the expense side, there are generally three major expense items: salaries, franchise fees, and logistics.
Roughly 35-40% of the revenue is spent on players and support staff compensation. This may seem high in isolation, but compared to major football leagues that spend 65-80% of their revenue on players, it's much lower.
30% of the gross revenue goes to BCCI as fixed franchise fees every year for participating in the IPL season. This gross revenue figure also includes the central rights received from BCCI.
20% of the revenue goes towards logistical expenses such as hotels, air travel, buses, security, etc.
Another 10% goes towards miscellaneous expenses such as equipment fees, coaches, marketing, etc.
Source: CSK Annual Report 2024
In 2024, CSK increased its Total Revenue by 122% but only increased expenses by 51%. As a result the PAT for FY24 was approx 28% as compared to 5% last year. A massive increase.
The 'Whistle Podu' Story 📢
Chennai Super Kings (CSK) is one of the most successful IPL franchises with 5 trophies and 5 runner-up finishes in 17 seasons. Now, passionate fans and selective investors can own a part of this legacy through unlisted markets. The IPL's popularity is evident from high franchise purchase prices, like the RPSG group's ₹7090 Cr for Lucknow and CVC group's ₹5625 Cr for Gujarat in 2021.
CSK also has a very loyal fan following and has the highest reach when compared to all other IPL teams.
CSK naturally presents a unique investment opportunity, but the key question is whether it offers good long-term financial returns or just seasonal fame.
CSK Income Structure
Naturally to assess any investing opportunity in a company, you should evaluate it's book of accounts. The income and expense structure for CSK is similar to other teams. Here is a summary of the team's finances over the past few years.
Source: CSK Annual Report 2024
CSK also has an additional source of income when compared to other teams, in the form of Training Academy. As of today (FY24), the revenue from the academy is very miniscule at ₹3 Cr, which is less than 0.01% of overall revenue. However CSK is interested in scaling this segment; between 2023 and 2024, CSK has opened 3 state-of-art international training centers in USA (Dallas), UK (Readings) and Australia (Sydney).
CSK expects the academy revenues to make a larger chunk of the overall earnings, and these centers also allow them to scout players and source talented players for their teams, if they decide to franchise in other international leagues.
What is CSK's Future?
Past Finances
If you look at past finances, you might avoid this investment. Why? The revenues, PAT, and EPS have all been dropping from FY20 to FY23. And only this year in FY24, they recorded a bumper profit. We need to understand the reasons behind this decreasing trend in order to judge today’s numbers.
In FY19, when the new media rights deal was signed, BCCI's income in the first year was ₹1000 Cr more than in the following four years (FY20-FY23). We don't know the exact arrangements between media houses and the board, but because of this extra cash, the revenue figures for all IPL teams look comparatively higher in FY2019, which is often used as a base year for many analyses. We need to understand that this was a one-time event.
In FY21, which was also the Covid-19 year, CSK performed poorly, ending up 7th on the table. This led to a further decline in revenue as they had little to no share in performance-linked incentives from BCCI.
In FY23, BCCI introduced two more teams, increasing the total franchises to 10. This meant that the share of existing teams decreased from the overall Central Revenue Pool.
And finally, the losses from subsidiaries. One of CSK's foreign subsidiaries made a loss of ₹33 Crore and another Indian subsidiary made a loss of ₹6cr, this brought the PAT down from ₹52cr to ₹13cr.
What The Future Holds?
The future looks quite promising. Remember we calculated the exponential increase in FY24 revenue for BCCI, thanks to the new media rights deal and various sponsorship agreements. Well the effect of those numbers are finally visible in FY24 figures.
BCCI's revenue from IPL is expected to jump from ₹4120 Cr (estimated) in FY23 to a staggering ₹10,750 Cr in FY24. This 2.5x increase in revenue will greatly benefit the teams, as their share in the pool will grow. And figures of FY24 revenue of CSK reveal that the benefits are exponential.
CSK’s revenue jumped from ₹300Cr to ₹700Cr in one year, with profits rising from ₹14Cr to ₹201Cr. This exceeded expectations, partly due to CSK finishing 2nd in 2023, earning a performance bonus. Subsidiary losses also decreased from ₹40Cr to ₹27Cr.
Looking ahead, revenues and PAT will likely stay steady for the next 4 years, as BCCI's revenue is fixed until the end of the current media rights and sponsorship deals. Any increase in CSK's revenue will come from higher sponsorship income. Foreign subsidiaries won't yield significant returns soon, but academies may start contributing, though their impact will be minor.
Lastly, profits might dip slightly in the coming years as CSK expands its academy network and possibly invests in WPL or another international league. Short-term profits maybe affected, but these investments will diversify revenue streams and provide growth opportunities during the 5-year period when BCCI's media income is fixed.
CSK Expansion Plans
Is media income the only factor that decides team revenues? For now, yes. This means team revenues are reassessed every 5 years.
Teams are expanding to other leagues to diversify revenue. IPL teams now own franchises in international leagues. CSK has two other franchises besides the IPL and is investing in these projects.
In India, the BCCI launched the Women's Premier League (WPL), similar to the IPL. IPL promoters are bidding for WPL franchises.
Currently, these leagues generate minimal profits or losses. However, they have the potential to grow and generate substantial returns, much like the IPL did.
Source: Reuters
Risks Of Investing In CSK?
Overdependence on one source of income: In FY24, more than 90% of IPL revenue for BCCI is generated from media rights deals. Looking at RCB’s financials from FY24, roughly 70% of its revenue comes from BCCI grants.
This means that IPL teams’ revenue comes mainly from media rights deals, showing overdependence on one source of income.
Reduction in Marketing Expenses: Media right income is essentially what advertisers pay to media houses like Jio and Hotstar. If the economy slows down, consumer spending decreases, or startup funding dries up, many sponsors and advertisers can reduce their marketing expenses. A lackluster media auction means lackluster revenues for the next 5 years.
Another risk is the investment in foreign leagues. Indian franchises are heavily investing in international T20 leagues, hoping that the IPL-like concept will soon turn a profit. But if these leagues don't do well, teams will have to write off their franchise assets, incurring huge losses.
Lastly, the sport itself poses a risk. Even though cricket is like a festival in India, there are hardly 10 international teams that actively take part in the sport with a large profitable viewer base. Thus, there is a small probability that the sport itself loses its charm in a few years. Companies like United Spirits (RCB parent company) amortize their franchise assets over a 50-year period.
Conclusion
IPL investing is more complex than it seems. Companies like CSK don't show high yearly profit growth. Their revenues and profits stay stable for about 5 years, relying heavily on the Media Rights deal. So, why do wealthy individuals and major institutions invest billions in these teams?
The answer is cash flow. The net operating cash flow has never been negative. IPL teams generate a lot of cash. While they may offer long-term capital appreciation, they provide medium-term returns through cash flow. For instance, CSK has over ₹200 crore in liquid/cash equivalent reserves.
If not for expansion, these cash reserves are used for buybacks and dividends, providing good returns to existing investors.
To many, this may sound like a boring and mature investment opportunity, but to some, it may seem like an interesting business model that will generate cash indefinitely.
If you are fascinated by the sports industry and want to explore CSK, you can check out InCred Money. If you are not aware of how unlisted shares work, you can check out our first article in the ALTShares series here. In this article, we have tried to provide detailed research on how the IPL industry works and Chennai Super Kings as an investment option. However, personal research is absolutely essential before investing in such stocks.
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