Guinness owner Diageo's investment in Indian cricket team set to reap $1bn payout 

Diageo shares jumped 2.4% on Wednesday as firm's 55.9% stake in IPL's Royal Challengers Bengaluru set for windfall

Fans cheer a bus carrying Royal Challengers Bengaluru after they won cricket's Indian Premier League in June. Guinness maker Diageo owned a 55% stake in the team which is set to sell for $1.8bn. Picture: AP Photo/Aijaz Rahi

Guinness maker Diageo Plc is on the verge of a financial windfall — not from a new blockbuster new drink, but from a championship-winning Indian cricket team.

The Indian Premier League’s Royal Challengers Bengaluru was sold on Tuesday to Aditya Birla Group, Blackstone, The Times of India Group, and Bolt Ventures for just under $1.8bn (€1.55bn). Diageo could reap more than half of that.

Shares of the maker of Guinness stout and Johnnie Walker whisky rose as much as 2.4% in early trading in London on Wednesday.

The origins of the payout trace back to 2008 when Vijay Mallya’s United Spirits Limited, India’s largest alcoholic beverage company, bought the Bengaluru franchise for $111.6m during the inaugural Indian Premier League auctions. The new cricket team was to become a major advertising vehicle for USL’s brands, in particular Royal Challenge whisky.

Diageo began a gradual takeover of USL in 2012, reaching a 55.9% controlling stake by 2020. And rather than sell the sports franchise — a potential anomaly on the balance sheet for a multinational alcohol conglomerate — it held onto the asset through the Indian Premier League’s explosive growth.

The IPL is the world’s most profitable and widely followed cricket competition, blending an intensive version of the sport with Bollywood glamour and US-style marketing to capitalise on India’s passion for the game. Ten teams compete over eight weeks every spring, with billions of dollars riding on the outcome.

But direct advertising of alcoholic beverages is broadly prohibited in India, and the country’s health ministry has looked at banning the promotion of tobacco and alcohol brands in the IPL. Diageo began considering options for Royal Challengers Bengaluru in the middle of last year.

After an intense bidding war, a group led by Kumar Mangalam’s conglomerate Aditya Birla won out. After accounting for an estimated $100m transfer fee to the Board of Control for Cricket in India, the headline valuation stands at $1.8bn, representing a roughly sixteen-fold return on the original capital.

The final use of proceeds is subject to a strategic decision by the USL board. If the roughly $1.8bn valuation is passed through entirely as a special cash dividend, Diageo’s 55.9% stake would yield a payout of just over $1bn.

The result could be close to a 1% boost to Diageo’s earnings, Jefferies analysts said in a note to clients.

Bloomberg