Whistle podu!

In cricket, batsmen normally use the reverse-sweep shot to disrupt the line and length of bowlers. Probably taking a cue from this, the Chennai Super Kings (CSK) franchise has used the reverse-sweep against the Board of Control for Cricket in India (BCCI). The owners of the team, India Cements Limited, have proposed to transfer control of Chennai Super Kings to a trust, at a nominal value of ₹5 lakh as part of the process to delink the former BCCI president from the franchise to comply with Supreme Court orders.

CSK and their owners have been under the scanner ever since the 2013 IPL match fixing scandal broke out. A Supreme Court panel has indicted the team owner. In January, the court brought charges of conflict of interest against the top boss at India Cements and former president of the BCCI.

Acting on the court order, India Cements, the original owners of the CSK, transferred shares to Chennai Super Kings Cricket Ltd. The board of India Cements decided that the subsidiary will be owned by existing shareholders on a proportionate basis. While 70 per cent of India Cements shares are held by the public, promoters hold 28 per cent and the former BCCI president holds 0.14 per cent of the shares.

According to the IPL franchise agreement, the board is entitled to receive 5 per cent of the sale price for the proposed transfer. It is this payout that appears to have prompted the CSK management to decide that the BCCI deserves to receive no more than ₹25,000. In 2008, CSK was sold to India Cements for ₹364 crore. In 2014, CSK was valued at around ₹450 crore. The governing council of the BCCI is expected to pooh-pooh this valuation and call for a reassessment.

Like all valuations, brand valuation is extremely subjective and judgmental. The most popular model of brand valuation is the economic income approach where a brand is valued using one or more valuation methods that convert anticipated economic benefits into a present single amount; for example, the relief-from-royalty brand valuation model using discounted cash flow (DCF) analysis.

Another model is the market comparable approach, where a brand is valued using one or more valuation methods by comparison with similar assets which have been sold; for example, using price equity ratios or turnover multiples. The cost approach is used where a brand is valued using the sum of the individual costs or values of the brand assets and liabilities.

Though the match-fixing and other charges have dented the value of the CSK brand, none of the valuation models would have impaired the brand by ₹449.95 crore in one year.

Every IPL season has to have its ‘fizz’ moment. In this edition, till now, the bowlers have bowled balls that don’t carry a monetary value to fixers and batsmen are not getting out when others want them to. This could well be the fizz moment. This episode leaves us a note of caution and also confirms a valuation theory.

India is moving over to Ind-AS — a local version of IFRS. These standards permit fair valuation of assets and liabilities though India has been cautious not to permit fair valuation for properties held as investment. There is a possibility that some balance sheets could be decorated with fancy fair values just to make them look good.

The valuation theory that the CSK episode confirms is that the final value arrived at depends on the purpose of valuation — whether it is to simply comply with regulations or for a genuine business purpose. Had CSK been sold to the Perth Scorchers, they would not have valued the franchise at ₹5 lakh.

The writer is a chartered accountant

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