BREAKINGVIEWS-Indian cricket deal tests rich boundaries

By Shritama Bose

MUMBAI, March 25 (Reuters Breakingviews) - India's cricket mania may be hitting its limits. The $1.8 billion purchase of Royal Challengers Bengaluru by the Aditya Birla Group, David Blitzer's Bolt Ventures and Blackstone BX.N confirms Indian Premier League franchise valuations are rising faster than expectations for media rights. That's great for seller Diageo DGE.L. For the new owners, that leaves a lot riding on the league’s global ambitions.

The global distiller and beer giant inherited the team when it acquired control of United Spirits over a decade ago from beer baron Vijay Mallya, the poster child of India’s bad debt crisis. The deal values the Challengers at just under one-fifth of the listed Indian parent's market value. That's nearly three times what CVC Capital Partners CVC.AS paid to acquire a new team, the Gujarat Titans, in 2021, and more than double the mooted 75 billion rupee ($800 million) valuation the buyout fund secured last year when it sold a majority stake in the Titans to Torrent, an Indian conglomerate.

With team salary caps and absence of relegation risk, each of the league's 10 franchises theoretically have equal and fairly solid earnings power. That has attracted investors, like Blitzer who also owns stakes in teams in major U.S. sports leagues including the National Football League.

Merchandise sales are limited in India, however, so most IPL franchises generate roughly 70% of their revenue from media rights. That tightly ties the franchises' worth to the outcome of these auctions. Yet competition for streaming rights has shrunk after Mukesh Ambani's Reliance Industries RELI.NS, also the owner of the Mumbai Indians, bought a chunk of Walt Disney's DIS.N Indian business.

The value of media rights doubled from $3 billion to $6 billion between the 2018-2022 and 2023-2027 auctions. Media Partners Asia, a consultancy, estimates the value for the next five-year period will plateau in nominal terms at about $5.4 billion and represent a 13% decline on a per-match basis as the number of games played in the IPL's short season expands from 410 to 470 matches.

Blackstone and its partners will hope the Indian Premier League can build a bigger global audience in richer markets like the U.S. and United Arab Emirates. If the IPL's next media rights auction disappoints, however, cricket mania may well have hit a new unwelcome boundary.

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CONTEXT NEWS

A consortium comprising Aditya Birla Group, Times Internet, Bolt Ventures, and Blackstone will acquire Indian Premier League franchise Royal Challengers Bengaluru for 166.6 billion rupees ($1.77 billion), United Spirits said on March 24. United Spirits is a unit of global drinks giant Diageo. It launched a strategic review of its 100% holding of the franchise in November, labelling the team "non-core" to its primary alcohol business.