Sun TV has bought the Deccan Charges franchise for Rs 85.05 crore a year, by out bidding PVP Ventures which placed it's bid at Rs 69.03 crore. Sun TV's price represents a 100 per cent premium over what was paid by Deccan Chronicle.
Being a shareholder I didn't liked this decision for couple of reasons. The number one being it's not an asset but a recurring cost which wipes out more than 10% of what the company could deliver in terms of profit for fiscal year 2013. Above that there is the recurring cost of acquiring players and coaches and maintenance of the team which could take away another 25 crores per annum.
So this IPL franchise could hit the bottom line of the company by 13-14 percent. Off course there would be some income from the franchise but the track record of existing franchise holders is not too encouraging. Those who have acquired their franchise at much lower cost as compared to Sun TV, even they have not yet been able to recover their money even after over five years in existence. Their brands have been valued at a fraction of their cost of acquisition, indicating that they have not been able to generate the desired results.
Second I believe owning a team is unlucky for business houses. Take the case of Kingfisher which is almost on the verge of closure, same also goes for erstwhile owners of Hyderabad franchise, Deccan Chronicle. Reliance Industries has not made great strides since its acquisition, Sahara owners of Pune Franchise has been in the midst of controversy. India Cements, owner of Chennai Franchise has not been affected at the corporate level but the promoter has been received bad press on personal grounds.
Third I think there should be shareholders consensus in doing such investments (sorry expenses), as it's not the promoter's money that they are taking such decisions and making company pay to fulfill their own desires. The company has unnecessarily diversified into sports which I think was not required at this point of time.
These factors have not gone well with the investors and the stock saw quite a bit of beating in today's trading and closed down 3.5%.