RP-Sanjiv Goenka Group (RPSG) wins the bid to buy the Lucknow team in the Indian Premier League. Moneycontrol’s Nisha Poddar caught up with owner Sanjiv Goenka on the win and return proposition from the investment of Rs 7000 crore.

Q: How do you feel about this particular acquisition and what is the vision with which you have bought into the IPL team?

A:  So the first reaction is, it feels good to be back in IPL. Yeah, this is just the beginning. Now it's about getting to build a team and performing well on the ground.

Q: What’s the payout mechanism for the Rs 7000 crore buy?

A: Rs 7,000 crore is the enterprise value to be paid over in 10 years, the first-year payout is Rs 700 crore. In the same period, I expect to get over Rs 3,500 crore from the Cricket Board.

Q: Is over 3500 crore an assumption, or is there any agreement on the payout to RPSG as a team owner?

A: No, this estimate is based on their broadcast rights, which they have said will be between Rs 32,000 crore and Rs 35,000 crore for five years and thereafter higher. So, it can be even Rs 4,000 crore as per our research but to be on the cautious side we estimate Rs 3,500 crore in over 10 years. So the net present value of that is Rs 2,600 crore.

Q: While your payment every year is fixed at Rs 700 crore, is the amount you receive will be equal or will vary year on year?

A: No, in this first year what we receive of the Rs 3,500 crore will be less than the next five years, say about Rs 90 crore is what we expect over the next five years; thereafter, it should be between Rs 500 crore and Rs 550 crore every year.

Q: Which entity of the group will own the IPL team?

A: It will be owned by closely held group entities. Companies such as CECS, FirstSource, Saregama, and Philip Carbon Black will have no involvement in this business. This is largely going to be held personally and partially by RPSG Ventures.

Q: What are the return propositions from this investment?

A: In five years I expect it to be worth Rs 10,000 crore. The Rs 7000 crore valuation is to go up to Rs 10,000 crore. So, if I'm investing Rs 2,500 crore and in five years it becomes worth Rs 10,000 crore, that's a pretty good investment.

Q: What is the value unlocking proposition expected?

A: If we did a public issue or divested a minority stake at a higher valuation, we will make good returns on this investment in future.

Q: Besides the acquisition cost, what are the other expenses and investments required in the IPL team?

A: There are other expenses and also other revenue streams. We'll have to see how it works out. On sponsorship numbers, we won't be anywhere near the other larger franchise in the country. There is around Rs 90 crore reserve capital for the player acquisition cost. In other revenue streams, there is advertising, stadium revenues, sponsorships and jersey receipts.

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