A RevSportz Exclusive
With the recent news that Saudi Arabia, which has invested billions of dollars into sports over the last few years, has shown an interest in the Indian Premier League (IPL), who better to talk to about the subject than Lalit Modi, whose brainchild the league was? Modi’s creation utterly transformed the cricket landscape. But what does the future hold, especially given the interest from Saudi, whose football league has already poached several stars from European leagues? In this in-depth conversation with Boria Majumdar, RevSportz editor-in-chief, Modi talks of this, how the IPL has grown and why he feels the 30-billion valuation may be a modest one.
Excerpts from the first part of the conversation:
Boria: Hello and welcome to a very special conversation with someone who created the IPL. And we’ve heard a lot in the last couple of days about the Saudi investment interest in the IPL. Will that make it bigger? What is the real deal? What does he think about the Saudi interest? Will it make the IPL a more lucrative property?
Joining me today for this very special conversation is Lalit Modi, from London. Thank you very much for your time. Would a collaboration with the Saudis make the IPL stronger? Playing one leg or even a third of the matches there? What are your first thoughts?
Lalit Modi: Thank you first for having me, Boria. My first thought is that it’s a great thing that somebody has shown interest out of the blue. Without the BCCI asking for investment, somebody has actually come forward and said they would like to make an investment. Whether the BCCI is open to it or not is the second issue. But for the IPL itself, it would be a very big move. It would put it into the global stratosphere, completely. Getting third-party investment puts you in a different league.
But what it would make it do is it will corporatise the IPL, which is going to be extremely important. And I hope that the corporate entity would have independent director, and would be able to have corporate governance. That would make it more professional in terms of dealing with the team owners as well. I think what it would look at is actually the structure I put together for the IPL way back in 2007 – the first draft of mine which was approved by the BCCI board at the time.
It was a separate entity with corporate governance, with an independent director, with the team owners also being directors. If I can find that draft, I’ll share it on my social media. It showed that the IPL should be governed in a particular manner because in the future, it would be good to look at listing it on markets around the world. I never thought about a foreign investment, but I thought even listing it in India would make it a very, very attractive proposition for the fans to have a stake in the whole league, because they are the ones actually who are making the IPL what it is. It isn’t the team owner, it isn’t the players. It’s the fans that are the catalyst, who take it to a different stratosphere.
Boria: You tweeted saying the valuations that are being bandied around aren’t perhaps what you wanted to see. Can you please explain the tweet of yours of yesterday?
Lalit Modi: Actually, because it’s an unsolicited bid and a 30-billion valuation, it felt that without going into a conversation, with the BCCI or the IPL – with the BCCI actually, nobody else – that there would be room for negotiation anyway. They have actually come up with this story on their own, and given a full pricing for the IPL. It can only go up, it can’t go down. The fact is that the last deal, that was close to $6 billion only on the media rights. If you look at that, you add on to that 20 percent of the revenue of the franchises, that comes to the BCCI. On top of that, you add all the other sponsorship revenues for the IPL that come into the BCCI. It takes the profit of the BCCI very high. Keep in mind, unlike any other league in the world, there is zero cost. And if you look at the return on investment today, the IPL got started at a zero cost. Okay, that’s given a value of 100 rupees. That was the cost of stamp paper.
That’s actually what it cost. There was no actual investment in the IPL over and above that, because when I made the IPL, I sold it on a basis that the cost would only come out if the revenue came in. So there was no payment to IMG or to the players or to anybody else as a matter of fact, if we didn’t have the teams sold and we didn’t have a television deal.
We got the cash in and didn’t have to pay it till later. So, effectively, I didn’t a requirement of capital injection. By the time we launched the IPL in April of 2008, we only had one employee. Everything was done from my office, and with the other members of the BCCI and the state associations. And there was no cost.
All the costs for the game day were borne by the team owners, which was capped at a 140 lakhs in those days. All IMG costs, which were the huge costs, were based upon our revenue. So if we got the revenue, they would get a faction of it. And so we actually went into the business without any costs. But coming back to today’s day, the BCCI today has zero cost. And that’s zero to negligible compared to the revenue – probably less than two percent. Everything else is a profit.
Unlike other ODIs and Test matches and international bilaterals, where they have a cost, in this case there is no cost. The game day cost is borne by the team. So if you look at the valuation as such, whatever valuation we come to, it will be a multiplier of the profitability. That’s how it’s calculated. And the trend right now is only going upwards. India has more household getting connected to television, and if you look at the new business of online and digital media, Reliance have shown with Jio that there’s more money online. I didn’t think that transition would be possible in India such a quick way. But what Jio has done is absolutely marvellous. And it hadn’t been done anywhere as in the world, what Jio has done online. That is why online rights are more expensive than TV.
But they’re also showing that they can garner the revenue. In most countries and most online start-ups, there are huge costs and no revenue. Everything is based on subscriber numbers and viewership numbers. They are all banking on that. But in the case of IPL, Jio has real numbers. And the numbers are very, very significant. It showed that it is a very profitable business and also the attraction rate is very high. And if you look generally around the world, majority of the people under the age of 25 don’t have TV sets. They only had the mobile phone and streaming.
And streaming for them become extremely valuable. And number two, they are working hard. They have multiple jobs. And so for them, they don’t have time to sit in front of the TV like retired old men. They actually want to watch it on the go. And for them, the laptop and the iPad are on their phones, whether it’s an iPhone, or a Samsung, whatever the phone may be. The quality of streaming in India is shockingly amazing compared to the rest of the world. And the cost is very important. But this puts in a different level and takes the valuation to a different stratosphere. Not only for the BCCI, but what does it do for the teams? That’s the separate issue, and I’ll come to that later.
Lalit Modi Exclusive🚨
Saudi investment in IPL. Why does Lalit Modi think 30 billion is less? Team valuation, future of ODIs and Test Cricket and more.
He says 50 over cricket won’t exist in 10 years. Test will be a 4 day affair with DN tests taking over and more.
Listen in 👇… pic.twitter.com/kQMhYULRTq
— RevSportz (@RevSportz) November 7, 2023
Boria: Okay. Very, very interesting. Only thing, Lalit and I, neither of us are retired…
Lalit Modi: I’ve going to be 60 in a few days, in a few weeks. In England, they’re called senior citizens!
Boria: Now, look, senior citizen…You know, it’s all in the mind. In my case, I’m still 47. Plenty of time. Anyway, you ever envisaged that it will come to this? That people will talk about acquiring? Saudi, for example… dilution of stake. When you started it, did you ever envisage this could happen with the IPL?
Lalit: I never thought that we would diverge, or that anybody internationally would be interested, to tell you the truth. I always thought that we could list it in the Indian stock market. If you do list it on the Indian stock market, it will be the number one gem trading on a daily basis. I guarantee it. There would be no other company that we traded more, even Reliance or Jio, than IPL. I can guarantee that. And then what we do is you got to look at the flip side of it. Not the flip side, the other side of it. If you look at it, BCCI retains, what, 50% of the revenue of all media rights. It retains 50% of the revenue of all sponsorship rights. But in addition, it gets 20% of the revenue of all the teams. Okay? So if you look at it, ideally, if there’s $200 coming in, in total revenue, IPL gets 100, the team owners get 100. All ten teams get 100. But then they have to shell out 20. So IPL gets 120, and they’re left with 80. So the differential of about 35% to 40%.
So if I look at the valuation even that is given by Saudi as an estimate, it would make each of the teams today, as we sit here today … not tomorrow, we’re talking about today, November 4. The value of each team would be close to 18,000 to 20,000 crores. That is 1.8 billion to $2 billion as we sit here today. Based upon that, if you take the valuation of $30 billion, you take out 40% even. I’m, being very luxurious, take out 40% even, you’re left with $18 billion, divided by ten teams, which is 1.8 billion. So that would be the valuation of the team as of today. But they also have added revenue of ticketing and licensing, plus branding, plus following. So the actual figure would only be higher. I’m saying on the lower level, the base will be 1.8 billion. Actually, it could be as high as 2.3-2.4 billion even.