Big bet. Will Sanjiv Goenka's billion-dollar IPL gamble work?

The Indian Premier League will be bigger from the next edition. Two new teams, Lucknow and Ahmedabad, have been added to the eight existing teams. While the additions are hardly a surprise, it’s the new owners and the price they have coughed up that has surprised many.

Going by media and social media speculation, the Adani group winning the bid for its home state team, Ahmedabad, was a foregone conclusion. But it was CVC, formerly the venture capital arm of Citigroup, and Sanjiv Goenka of the RPSG group, that beat big names including Kotak, Adani, Torrent Pharma and a clutch of other contestants to the finishing line.

Sanjiv Goenka pocketing the Lucknow franchise was the most interesting story of this round of big money bidding battle.

Sanjiv Goenka paid a whopping Rs 7,090 crore for Lucknow, which is widely regarded as the least attractive in commercial terms. The capital of UP has little cricketing pedigree. Kanpur has been the traditional international cricket venue in the state. Lucknow’s consumer market is much smaller than that of metro cities, and even Ahmedabad.

Undaunted, Sanjiv Goenka offered almost Rs 2,000 crore more than his closest bidder for Lucknow.

Predictably, Goenka’s big gamble raised the question if he could indeed make good on this massive investment considering his business empire and personal wealth is much smaller than say the Adanis or the Kotaks.

Even his elder brother Harsh Goenka had some free advice for Sanjiv Goenka. Or, was it a potshot packaged in the form of an explanation? We’ll leave that to you to decide.

Harsh Goenka took to Twitter and said: Why I’m not bidding for a new IPL team: 1. At the expected winning price of Rs 3,500-4,000 crore, return is poor 2. Consumer catchment lower in remaining cities 3. Too much of my personal time will be spent 4. Additional matches may lead to TRP fatigue 5. I don’t have the money!!!

The Rs 7,090-crore IPL investment is more than double the nearly Rs 2,373 crore net profit of all the Sanjiv Goenka companies put together in FY2020-21

Is there any method to what appears to be an expensive gamble?

Let's take a look at both Sanjiv Goenka’s businesses and how IPL’s business model works.

RPG enterprises, founded by industrialist Rama Prasad Goenka, was split up in 2010 between Harsh and Sanjiv Goenka, Reliance style. To be fair, it wasn’t anywhere near as acrimonious.

The Mumbai-based Harsh Goenka, who is one of India’s largest art collectors, and a notable dispenser of life hacks on Twitter, got control of Ceat Tyres, the engineering and construction firm KEC International, RPG Lifesciences and the IT firm Zensar.

The Kolkata-based Sanjiv Goenka, who has maintained a much lower public profile compared to his elder brother, was given control of the Kolkata power utility CESC, retail chain Spencer’s, the entertainment firm Saregama and Philips Carbon Black that makes ingredients for the tyre industry. Sanjiv Goenka is no stranger to consumer businesses, media and sports enterprises.

He owns Atletico de Kolkata, the city’s Indian Super League or ISL football team. For two years, his firm owned the Pune IPL team formed because of the suspension of Chennai Super Kings. Among other things, it resulted in the tackiest IPL branding. The team, which essentially consisted of all the CSK players, was called Rising Pune SuperGiants, to match the group’s acronym RPSG. Goenka also owns Open Magazine and Fortune India , the India licensee of the international magazine title.

Given the group’s interest in the consumer and media sectors, owning an IPL team may prove complementary.

Even then, does that justify an investment of almost a billion dollars.

Low-risk business

Believe it or not, IPL is a fairly low-risk business, if you manage to get in. Goenka only has to pay the franchise fee of Rs 7,090 crore in 10 annual instalments of Rs 709 crore.

All teams are guaranteed a 50 per cent share of the money from IPL’s central contract revenue pool. Last year, IPL raked in nearly Rs 4,000 crore from TV rights and sponsorships. So, each team is assured of an income of Rs 250 crore. Plus, the teams striketheir own sponsorship deals. When spectators are allowed, teams get to keep most of the gate receipts and money from instadia advertising in their home matches. For instance, the big teams like CSK and Mumbai Indians earn nearly Rs 70 crore from their advertisers. And every bit of a player’s equipment is valuable advertising real estate.

So, with a bigger IPL with more matches, the central revenue pool only gets bigger. Just as Sanjiv Goenka pays IPL Rs 710 crore every year, he gets nearly Rs 300-350 crore back. Lucknow would be the lone IPL team from UP, India’s most populous state and pretty much a virgin market for the commerce of cricket. Generating advertising income worth Rs 30-40 crore a year, is unlikely to be much of a problem.

More importantly, clever business houses such as India Cements and Reliance use their IPL teams as a marketing vehicle of their core business operations. The franchise fee and the assorted costs of running a team becomes chump change for the massive marketing benefits that a successful team and star players bring.

We don’t know if Lucknow will be luckier than Pune for Sanjiv Goenka, but there’s a good chance he’ll prove his brother Harsh’s predictions wrong.

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