Two new franchises to be unveiled on Sunday

The IPL will unveil its two new franchises on Sunday in what is expected to be the latest indication of the league's financial strength and marketing savvy. The bidders' identities have not been made public but Cricinfo understands there are between eight and 12 investors who have met the various conditions and are prepared to start bidding at $225 million, with the bids expected to touch $300 million.

That base price is more than four times the value set in January 2008, when the original eight franchises were auctioned, and reflects the IPL's appeal to business investors. Other terms and conditions are similarly stringent - all bidders have to stump up a returnable deposit of $100 million before the bid, as against the $5 million (approximately) stipulated in 2008.

That is intended to keep out frivolous bidding, Lalit Modi, the IPL's chairman, said. "We put a high-end clause for entry to people, asking them to give $100 million guarantee in advance because we need to get solid companies," Modi told Cricinfo. "This business requires a long gestation period and that is the reason we want to secure ourselves. The BCCI always secures itself."

Less clear at this stage is the procedure once the bid is won. In 2008, the eight new franchise owners had to pay 10% of the winning bid amount up front; reports suggest those successful on Sunday will have to produce a bank guarantee for the entire bid amount within seven days. "That's speculation," Modi said. "That is not the case. There are numerous conditions and you can qualify under any conditions."

Another reported condition became the subject of controversy on Friday when Priyadarshan, an award-winning film director, claimed bidders had been asked to furnish a bank guarantee of $1 billion.

The IPL has softened its stance a little by retaining the discretion to change the bank guarantee amount for the winning bidder. But people already in the IPL business back the organisers' decision to set steep conditions. "It is a stiff condition and may be the intention is to get only a certain number of bids since only two franchises are up for stake," an official of an existing franchise said.

The willingness of investors to invest big money, especially in the current economic climate, is all the more surprising given that, as franchise owners, they get no fixed assets. The costs are high, as one cricket-related businessman explained. "On annual basis the winning bidder would have to spend to the tune of about 200 crore (US$44m), considering the base price is itself $225m for 10 years which works out to a minimum of $22.5m annually, which is about 100 crores. If the bid is won at a higher amount, say about $300m then the annual payment climbs up by 30-40 crores. You then add the various costs of running the team you will need to spend about 200 crores," he said.

Also, the franchises will almost certainly be based in relatively small markets - the metros and bigger cities already have teams. The favourites to be host cities for the two new franchises are Ahmedabad, Lucknow, Pune and Nagpur.

Signs of the IPL's growing net worth were evident in February 2009 when Rajasthan Royals, the then IPL champions, sold a 11.7% stake in their franchise for approximately US$15.4 million. That put the valuation of the franchise at around $140m, more than double the $67m paid for it a year previously.