IPL - A $4Bn Brand...

It is that time of the year again, referring to a season, not climactic though. The season that I am speaking about is the IPL season...

I wrote a post last year about a company named Brand Finance valuing IPL as a brand at $2Bn. This year they have come up with a new valuation, an even flashier $4Bn.

The reason why IPL would have requested for a fresh evaluation is fairly obvious, to know where to set the minimum bid price for the to be added franchises.

I am not an expert in matters of valuations, so I cannot comment on the appropriateness of the same, however some parts of the report do not make too much sense.

My limited understanding of valuations, at least in terms of equity markets is that, they are hugely dependent on future earning potential. Going by this logic, IPL franchises and the entity as a whole should rake in marginally more if not exponentially more revenues. The Brand Finance report forecasts that the revenues that IPL will generate in the coming years will at best plateau and in most likelihood dip. If valuation of a stock almost doubling when it's future revenue forecast is bleak, then it would be an ideal case of a bubble.

The report that I downloaded from Brand Finance's website states that, 'Commercial success of IPL will largely depend on the development of Brand Value Governance principles and policies governing the franchisees and aligning all the stakeholders towards long term IPL brand value creation.', which to me seems more like a disclaimer should things go awry...

A few interesting pointers that emerge when one studies the Brand Rating comparison between 2009 and 2010 are:

1. 6 of the 8 franchises improved their Brand Rating, the 2 exceptions being Knight Riders and Mumbai Indians
2. There does not seem to be too much correlation between performance and rating, Deccan Chargers despite winning the last edition have improved their rating only marginally and Knight Riders have experienced only a slight fall in rating despite finishing at the bottom of the table in the last edition
3. Mumbai Indians has experienced considerable dip in rating, from a respectable A to a cautious BB (A and BB are separated by A-, BBB+, BBB & BB+, technically a five rating drop)
4. Deccan Chargers has experienced the most spike in rating, from a dismal CCC to a sensible BB

A point of interest is that, the summation of the values of individual franchises is $300+Mn, a paltry 8% of the entire valuation, if franchises are not adding value to brand IPL, then wonder who are...

Signing off...