United Spirits earns over 10% of operating profit from cricket in FY19
Royal Challengers Bangalore rakes in moolah for United Spirits despite a poor IPL.
RCB’s revenues more than doubled to Rs 313 crore in the year ended March 2019 while its earnings before interest, tax, depreciation and amortisation (Ebitda) increased 431% on year to Rs 146 crore, the Indian unit of the world's largest distiller Diageo said. However, last fiscal's numbers included part of revenues and profitability for this year’s IPL season 12 as well because the tournament kickstarted early, on March 23, this year. Excluding the latest season of IPL, RCB had revenue of Rs 260 crore and an EBITDA of Rs 123 crore.
Sanjeev Churiwala, chief financial officer at USL, said RCB made a few strategic shifts which helped RCB boost the revenues. It recorded “exponential growth in commercial partnership revenue due to a strategic shift from just monetising jersey real estate to player time cost, and moving from just ticket revenue to match-day income with initiatives aimed at increasing gross margin per seat”, he told ET. Vijay Mallya, erstwhile owner of USL, had bought RCB for $111.6 million in 2008 and made it a subsidiary of the company.
RCB, one of the less successful teams having failed to make it to the play-off stages of IPL seven times, posted its maiden profit in FY17 with revenues of Rs 162 crore. A year ago, RCB had contributed just 3% to USL's operating profit.
Experts said RCB’s contribution to United Spirits is significant at a time when liquor business is facing margin pressure due to high raw material costs. “Apart from high profit, RCB also helps in getting intangible benefits in terms of advertising USL brands,” said Abneesh Roy, senior vice-president at Edelweiss Securities. “However, it is still a non-core asset and the company could look at monetising to focus management bandwidth and capital in spirits business.”
From a financial standpoint, IPL franchise owners and investors are likely to focus more acutely on return on investment as the world’s premier domestic cricket tournament moves into a more mature and stable phase, experts said.
“RCB will command a premium even after not performing well largely because of Virat Kohli and also because Bangalore is a huge market for advertisers. It is their gateway to South India. Hence it is slightly insulated from their on-field performance,” said an IPL Brand Valuation Report 2018 by Duff & Phelps.