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$225 million fixed by the IPL for bids to own two new teams.
For the Indian Premier League (IPL) team owners, the stage is set for higher valuations, fatter revenues and attractive equity deals.

The cause for all this: a $225 million floor price fixed by the IPL for bids to own two new teams.

In 2008, Mukesh Ambani's Reliance had forked out $111.9 million to get Mumbai Indians. In 2010, the bidder for a team franchisee will have to cough out more than double of what was paid by the most expensive winner two years back.

"The benchmark is being set by the recently announced floor price. For the existing team owners, there will be a huge upside in valuations," says the head of a IPL franchisee.

A big gainer would be Emerging Media that had paid $67 million, the lowest among the existing eight team owners, for Rajasthan Royals.

Revenues for the team franchisees will also see an upside as the number of matches scale up to 94 in 2011. "We will gain as the format becomes longer," the senior executive says on request of anonymity.

So could it be fertile ground for equity deals? "Absolutely. Valuations can look attractive," says an investment banker.

Not everybody, however, is ready to cash in at this stage. "The valuation, undoubtedly, goes up. But we are not looking at diluting stake," says Deccan Chronicle Holdings managing director PK Iyer.

India Cements, the owner of Chennai Super Kings, is also not willing to hive off its IPL property from the listed company. "We prefer to capture value of the IPL property inside India Cements. We are not going to move it outside," says a source in the company.

But will there be takers at $225 million upwards? Many find the price within 'right range.'

Says Percept Joint MD Shailendra Singh, "The IPL is seen as a solid investment proposition by those who have deep pockets. While the breakeven period might be extended, the IPL has to be seen as a long term activity. The interest in this format is rapidly growing. Going forward, you will see a solid business plan being activated as more innovations come in."

According to Relay Worldwide India GM Mahesh Ranka, the base price is on par with what was expected. "Companies are encouraged by what the IPL has delivered and what it promises. What the base price will do, though, is keep out people who are not serious. It will also keep out people whose funding is not strong."

Besides corporates and private equity funds, consortiums could be formed. Agrees Singh, "This could be the best way to go about as there would be pressure on any single entity to raise hundreds of millions of dollars. If the current franchises are taking three to four years to breakeven, then I would expect the new franchises to achieve this status in six to seven years."

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