India's 24th richest man, with an estimated wealth of $2.8 billion (Rs 15,064 crore) is expanding his business beyond media and airlines. On October 25, Chennai-based Kalanidhi Maran, 48, entered the business of sports when he bought Indian Premier League's (IPL's) Hyderabad franchise that was up for auction after previous owner T. Venkattram Reddy failed to fulfil his financial commitments. Reddy's Deccan Chronicle group is struggling to repay its debts. Maran's Sun TV Network produced the winning bid by committing to pay Rs 85.05 crore a year over the next five years, substantially higher than the Rs 42 crore that Reddy's Deccan Chargers paid. It is, however, only half of the Rs 170 crore paid by Sahara Pune Warriors when they joined IPL in 2010.
Former IPL chairman Lalit Modi smelt a rat in the deal. He accused BCCI President N. Srinivasan of 'gifting' the franchise to his friend. "So, finally Sun TV has got an IPL franchise. I had predicted three months ago it will be Sun, as BCCI president wanted it that way. Can't be a bigger scam than this. Someone should see Srinivasan and India Cements' relationships with Sun TV. Don't forget Kalaignar TV scam," tweeted Modi. "While Sahara pays $370 million (Rs 1,990.6 crore) for its team, this one goes for pennies. How and why?" he asked in another tweet.
Srinivasan rejected suggestions of favouritism. "We cannot compare the two bids, as the Sahara bid was for a new team, while the Sun bid was for a replacement team. Sahara is entitled to 80 per cent central sponsorship. Sun will get only 60 per cent," he said.
The only other bidder for the Hyderabad franchise, PVP Ventures, offered Rs 69.03 crore for the ipl team. "No worries, the better guys won," said PVP owner Potluri Vara Prasad. This was not PVP's first bid for the team. On September 13, Prasad tried to buy Deccan Chargers (DC) for Rs 900 crore, but at that time, promoter T. Venkattram Reddy backed off without any explanation. "When we offered Rs 900 crore to DC, we were looking to buy a well-established brand. While bidding for a new franchise, we decided to offer less, excluding the brand and marketing cost," said Prasad.
Less than 24 hours after BCCI and Sun TV signed the deal, the media conglomerate's stock slipped by 10 per cent in two trading sessions. Citigroup, as well as other brokerage firms, pointed out that while the acquisition of the IPL Hyderabad franchise would have limited short-term earning impact, the long-term value accretion opportunity could be attractive. Citi, in fact, expects this venture to make a loss in the first year, which would explain the immediate stock market reaction.
The track record of none of the existing ipl franchise holders is encouraging. Having acquired their franchise at much lower cost compared to Sun TV, they have not been able to recover their money after five years. Sun TV is optimistic about bucking the trend. "Cricket is possibly the biggest entertainment in the country. An ipl team contributes to growth and synergy," says Sun's Chief Financial Officer V.C. Unnikrishnan. He says buying the Hyderabad franchise contributes to Sun's brand image, because of the presence of the network's Gemini TV in Andhra Pradesh.
Sun Group, which has business interests in media and aviation, has had a phenomenal rise since Maran's return from the US, beginning with the launch of the video magazine Poomalai (Garland) in 1990. His first foray out of the core media business was in June 2010, when, in his individual capacity, through an entity called KLA Airways, he bought 37.7 per cent stake in SpiceJet for Rs 750 crore. Maran, an mba from University of Scranton, Pennsylvania, and his wife Kaveri, joint managing director, Sun TV Network, were the second highest paid CEOs in India, with a pay package of Rs 57.01 crore each for fiscal 2011-12. For the year ending March 31, 2012, Sun's profit, after tax, was Rs 692.2 crore. It is from these internal accruals, rather than borrowings, that it has acquired the Hyderabad IPL team.
The IPL team will serve as a pan peninsular platform for Sun Group's 32 TV channels, 46 FM radio stations, three dailies and six magazines, which cater mostly to audiences in the southern states. It now expects an increase in advertising revenue and further consolidation of its leadership position in Tamil Nadu, Karnataka and Andhra Pradesh and second position in Kerala. Unlike its peers in the Hindi general entertainment space, regional players such as Sun TV do not face any pressure from loss of advertising revenue.
Sun Group also stands to gain from the digitisation of cable TV services in the four big metros from November 1, as it will boost subscription revenues from its DTH service Sun Direct, launched in January 2008. Sun TV also stands to benefit from overseas subscription revenues due to the appreciation of the dollar.
Sun TV's content sharing agreement with state-owned multiple system operator Arasu Cable TV Corporation, Tamil Nadu's largest, will also add about Rs 30 crore to annual subscription revenues. But this co-existence may not last long. Arasu, instituted during DMK rule in 2007 to provide high quality cable signals at affordable cost to viewers, is being used by Chief Minister J. Jayalalitha to end the monopoly of Maran's Sumangali Cable Vision (SCV). Cable operators attached to scv are offering subscribers set-top boxes at cut prices. SpiceJet, the budget airlines owned by Maran, is offering discounts to new subscribers of Sun DTH.
The challenge now is to sustain SpiceJet, which registered a Rs 600-crore loss in 2011-12. With the Government allowing international investors to buy up to 49 per cent stake in Indian carriers, SpiceJet, which has an 18 per cent market share, third behind Indigo and Jet Airways, may consider raising funds through private equity investors to dilute stake.
Critics say Maran's growth is a classic example of crony capitalism. CBI is probing whether Maran's brother Dayanidhi may have used his position as telecom minister between 2004 and 2007 in UPA-1, to win favours for Maran's business. Whatever the outcome of the probe, the buying of an IPL team gives Sun a chance to promote its TV business and ensure brand recall of SpiceJet across India.