It is an off-season in-boardroom play. After the Virat Kohli-led Royal Challengers Bengaluru (RCB) won the first IPL (Indian premier League) trophy this year, in the 18th season, the game has shifted from the cricket pitch to Richie Rich’s clicket. Adar Poonawalla, the vaccine king of India, as well as the stud supremo, has indicated an interest to buy the franchise. The unofficial price tag: a mouth-watering $2 billion. Potential buyers, including the frontrunner, who is the owner of Serum Institute, and stud farms, with a multi-generational interest in breeding and racing horses, need to hold their horses, and do a reality check. RCB is not a gift, and it will not be a bad idea to look it in the mouth.
One can think of three reasons to answer the why. First, RCB’s valuation has suddenly shot up largely due to various reasons. It won the trophy after a long wait, which was excruciating for skipper Virat Kohli, who found it snatched away three times earlier in the IPL finals. It was fourth time lucky, or fifth time, if one includes the lost finals in Champion League T20 (CLT20). after the franchise had played almost 300 matches in the IPL and CLT20. Hence, there is excitement, and experts are touting the team as the most expensive in the league. But remember, a lot of it is hype, as others like Mumbai Indians, and Chennai Super Kings have better records. Even Hyderabad has won it twice, albeit in different avatars.
Going through the last 11 years’ balance sheet, it is evident that the franchise was financially down in the dumps in the 2010s. It incurred losses before tax between 2014-15 and 2017-18. In the last-mentioned year, the loss (`18 crore) turned into a profit after tax of `38 crore, mostly due to the deferred taxes of `57 crore. Since then, the profits have fluctuated, between a loss of just under `12 crore in 2022-23, and a profit of `222 crore the next year. The last two years, 2023-24 and 2024-25, proved to be bumper years, with a combined profit of `362 crore. Combined with the trophy win in 2025, they automatically and logically bolstered the valuation.
Second, as profitability improved, the parent, United Spirits, formerly owned by the flamboyant Vijay Mallya, and then by Diageo India, the global spirit-makers, took money out of the franchise. In 2023-24, after a long wait since 2008, RCB paid a dividend for the first time to the parent. It was a hefty `85,000 per share, or `125 crore. The next year, the figure was a lower `81,600 per share, or Rs 120 crore. In the recent past, the parent cleaned out cash from its subsidiary. In 2019-20, when the profit was less than `4 crore (though pre-tax profit was `53.33 crore), cash with RCB slumped from `94.5 crore to `1.75 crore. In 2023-24 and 2024-25, RCB’s cash rose from `28 crore to `176 crore due to higher profits.
Both the dividend payouts and cash outgo make logical sense. The reason is that Diageo has pumped in huge amounts to keep the IPL franchise afloat. In the beginning, thanks to the losses, which accumulated to over `200 crore in 2016-17, wiped out the share premium of `170 crore, and led to negative reserves of `32 crore, the parent kept pumping in money through inter-company loans. Diageo reduced the interest rate on them from 13 per cent to nine per cent. During several years, interest payments were kept in a limbo, and included under the head ‘accrued but not due.’ The fair value of the loans from the holding company, which included the interest accrued, amounted to over `650 crore in 2016-17.
In September 2014, United Spirits’ board initiated an inquiry against possible diversion of funds from the parent, and its subsidiaries, especially Kingfisher Airlines, by the former owner, Mallya, who ran away from the country after being declared a wilful defaulter of bank loans. A second inquiry revealed actual diversions of `913.5 crore, and potential improper transactions worth `312 crore. RCB was somehow dragged into the controversy. “In particular, and as regards Royal Challengers Sports (which owns RCB) … the Additional Inquiry indicated that `114.72 crore appeared to have potentially been diverted….” The parent, “as a matter of prudence,” wrote off this amount in the financial statements of the earlier years. Later, Diageo “decided not to pursue the recovery, and approved a write-off.”
Third, RCB’s balance sheet has improved in the past few years. This sudden change was due to higher profitability, which allowed the company to pay the debt to the parent, and dramatically reduce its debt-equity ratio. In 2017-18, the ratio was a suicidal 6,647 per cent, with the equity attributable to the shareholders (parent) at just over `6 crore, and a debt of over ` 400 crore. Since then, it came tumbling down, as debt was paid, and equity value jumped. The ratio was 417 per cent in 2018-19, with equity attributable at `91 crore, and debt `380 crore. The next year, it was down below 290 per cent. In 2020-21, equity attributable had jumped to almost `150 crore, and the ratio further slumped to less than 130 per cent.
By March 31, 2022, the equity value was further up at ` 215 crore, and debt-equity ratio down at 59 per cent. In 2023-24, equity attributable went further northwards to `300 crore, and the debt-equity was one per cent. The next year, the ratio was meaningless; there was no debt, as the company had a net cash of `176 crore, and the value of equity was `321 crore. No calculation needed to be made. RCB was debt free. Possibly, it is a coincidence that the franchise won the league the same year, although after the balance sheet was finalised for 2024-25. Maybe, debt was the cross that pulled down its cricketing fortunes. Now, its valuation, which would have been a few hundred million dollars even in the post-Covid years, has zoomed to $2 billion, a truly extraordinary turnaround for the team, company, and the parent Diageo India.
Given this background and context, it seems unbelievable that a franchise that Mallya purchased for $110 million, and which witnessed volatile financial and sporting fortunes, is now worth 18 times more in 18 years. This translates into a compounded annual growth of 17.5 per cent, something even the Indian stock markets have not given. The Sensex ruled at 20,000 in December 2007, and came down to below 9,000 in March 2009 due to the Great Recession of 2008. Today, at just over 80,000, it has catapulted either four times, or nine times, given the timing one picks. Gold was at `12,500 in 2008. It is 10 times higher today at `1,23,000.