Funding the annual franchise fee of Rs 85 crore a year for purchase of the IPL team may not prove a big strain for Sun TV Network, which carried cash and cash equivalents of Rs 307 crore in its balance sheet as of March this year. The broadcaster also enjoyed a zero debt status and generated cash flows from operations of about Rs 932 crore that year.

Corporate groups who bid for IPL franchises usually justify the buy in terms of the visibility it brings to their brand and firm. But it can take a while for the venture itself to turn a money-spinner.

Revenues for the team owners in the IPL may flow in from several sources — stadium revenues, team endorsements and sale of merchandise, apart from revenue from media rights and so on, which are earned and shared by BCCI from the entire event.

Against this, the key expenses incurred by franchise owners are the sums paid annually to BCCI towards owning the team, the sums bid to acquire and retain players and the coaching, travel and other expenses of the players.

A rough estimation suggests that Sun TV Network, apart from shelling out Rs 85 crore a year towards team ownership may also shell out roughly Rs 70-80 crore a year on acquiring and retaining a team of good players. This would total to expenses of about Rs 155-160 crore a year on a conservative basis. Whether revenues from the venture will match this in the near term is open to question.

India Cements’ 2011-12 annual report shows it earned Rs 137 crore in revenues from the Chennai Super Kings franchise that year. As one of the early team owners in IPL, India Cements managed to purchase its Chennai Super Kings franchise at about Rs 42 crore a year, roughly half of what Sun TV Network has now bid for the Hyderabad team.

Given this backdrop, investors are likely to worry if Sun TV would be better off deploying this capital in its core broadcasting business, where it would require larger capital outlays to protect its turf at home.

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