After see-sawing precariously over the last year or so, the stage is now set for IPL IV. The two-day auction jamboree has resulted in revised market values for a few players, new franchisees for many cricketers and impairment of some veterans. Graft charges against the former chairman and ownership issues with a few teams are yet to find final resolution and would take time.

But IPL being a multi-million dollar brand, the show must go on. Two teams were barred from participating in the fourth edition on charges of transgression of share-holding and ownership norms till the courts and arbitrators brought peace. With the starting hurdles removed, the franchisees can utilise the time till the event begins to attempt being transparent in their finances and governance.

Working of IPL

The finances of the IPL are a maze of percentages and agreements. From what can be gathered, it appears that the mega bucks to the Board of Control for Cricket (BCCI) come from sale of media rights and sponsorship of IPL.

The media rights were sold by BCCI for $ 1.02 billion for 10 years; the broadcaster has to spend $ 108 million to promote the event over the decade. The media-rights agreement worked out a fixed payment for the first five years – based on television rating points (TRPs) and an accelerated payment over the next five, if the format is remunerative.

The media rights are distributed equally amongst the franchisees after the BCCI retains its pound of flesh while 60 per cent of the sponsorship rights are distributed to the franchisees. At the franchisee level, team sponsorships, gate collections, merchandise sale and other match day receipts provide additional revenue streams while the main outgos are on team franchise costs, player costs, marketing costs and stadium expenses. Depending on now hard a franchisee sells its brand, IPL can be a profitable venture.

Manchester United

Having been inspired by the English Premier League, IPL franchisees can get further inspiration by following accounting and finance practices that some clubs in England follow. The financial statements of Manchester United (ManU) — owned by private limited company Red Football - are filed with the Companies House every year and a recent Note Offering provided further details of its accounting policies.

The lukewarm response to the Notes Offering could be attributed to disclosures on risks made — the primary risk being the significant amount of debt that ManU carried on its books - £512 million including the Notes which would have increased considering creditor and hedging obligations. ManU clocked in revenues of about £278 million in 2009. It reported earnings before tax (EBT) of £48 million in 2009 as compared to losses in the previous years. The bloated debt took its toll on the profits too — EBT would have been £90 million if not for a charge of £42 million for net interest payable.

The balance-sheet of ManU doesn't look highly leveraged due to its use of International Accounting Standard 38 on Intangible Assets — £386 million as Goodwill and £113 million as player registrations add muscle to the Assets on the Balance-Sheet. In respect of player registrations, a further impairment review trigger event would occur when the player is excluded from income generation, for example as a result of a career-ending injury.

The Statements also include data on the management, owners and related parties something that our IPL franchisees can adapt.

The accounting policies provide further guidance on what constitutes a liability or provision — under the terms of certain contracts with other football clubs in respect of player transfers, additional amounts would be payable by ManU if certain conditions are met where a part of the consideration payable on acquiring a player's registration is contingent on a future event; this amount is recognised once it is probable, rather than possible, that the event will occur and is amortised from the date at which the contingent payment becomes probable. The Club has all the ingredients of a modern corporation — intellectual property, permanent employees and litigation too.

Transfers

The recent auctions were a part of the IPL Rules and Regulations initially framed — the first bids for players were for a three-year time-frame as the present bids will be too. In future, the format could permit transfer of players temporarily or permanently during seasons.

ManU states that where a sale transaction for a players' registration is in progress at the balance sheet date, but completed by the date the accounts are approved and the amount of net proceeds is less than the carrying value of that registration, a provision for the loss on disposal is included in the financial statements.

An assessment is made of directly attributable disposal costs and related onerous contract costs, such amounts are provided and included within the disposal of player's category in the profit and loss account. Proceeds from the temporary transfer of players' registrations to other clubs are offset against their respective staff costs.

IPL franchisees could do well to publish their Annual Report every year, though not mandated by law.

The sheer size of the event, the ever-increasing quantum of funds required and keeping an exit option open for the owners could tempt some to access the capital market — when they would have to be more forthcoming in their accounting and governance policies and disclosures.