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Do New IPL Teams Make Business Sense?

Indian Premier League (IPL), an estimated $7 billion property, became richer by close to $1.5 billion as the bids for two new teams touched Rs 12,715 crore. Kolkata-based Sanjiv Goenka, who had owned the Pune IPL team for two years, bid a phenomenal Rs 7,090 crore and chose the AB Vajpayee stadium in Lucknow as his team’s base while CVC Capital, a US firm which was running Formula 1 racing till recently, got India’s biggest stadium in Ahmedabad. Annually, the new team bids would fetch an additional Rs 1,200 crore to BCCI for next 10 years. But does shelling out so much money as a team’s franchise fee make business sense? Goenka thinks so, though industry estimates put prospective losses at around Rs 350 crore per year for the Lucknow franchise even if the team gets Rs 350 crore from the IPL central pool. IPL figures show that teams are currently earning around Rs 200 crore a year from central pool, Rs 100 crore from gate collection besides sponsorship and merchandising. The profitability prospects for the teams are likely to brighten with the next IPL media rights auction – and they could be big winners in the valuation game with individual IP teams rated as high as $1 billion. But, experts hold that the new teams may have to withstand losses even if the future share of central pool revenues is higher when the new IPL bidding cycle for media rights kick in.