Cricket Australia To Launch IPO

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– Cricket Australia is proposing to list on the stock exchange
– Analysts see the potential to invest at the bottom of the cycle
– T20 and betting revenues could provide significant cashflow

 

By Greg Peel

Since Australia last won the Ashes in 2007 and lost several key players to retirement, our cricket fortunes in all forms of the game have been on a downward slide. Even before the announced resignation this week of captain Ricky Ponting and the quarter final exit in the ODI World Cup, Cricket Australia has been struggling with its finances.

The two decade dominance of Australia in international cricket, including consecutive Ashes wins from 1989-2003 and a superior test match win/loss record, along with three consecutive World Cup victories, had pushed Australian player salaries to the highest in the world. Winning assured solid gate takings and sponsorships to offset the cost of salaries and of the Cricket Academy. Not only has Australia now stopped winning matches and subsequent financial bonuses, but professional international Twenty20 has pushed salary requirements even higher, and aggressive competition between sports in Australia has pushed the cost of stadium hire up as gate takings for cricket have fallen.

Australia did not invent one-day (50-50) cricket but it did turn that “lite” form of the game into a cash cow in the 1980s. It is thus surprising that CA failed to see the financial possibilities of Twenty20 on the one hand, and the threat it posed to traditional cricket on the other, in moving too slowly to embrace and exploit this even shorter, more razzle-dazzle form of the game. CA hopes to make up ground next season when the local Big Bash competition relaunches in its new, highly professional format. As for the other forms of the game, CA is optimistic.

“As far as the test team is concerned,” CA media spokesperson Courtney Fyshe told FNArena this morning, “Australia has been here before. The collective retirement in the 1980s of veterans such as Greg Chappell, Dennis Lillee and Rod Marsh ushered in a low point for Australia's test stocks in a similar fashion to recent retirements. But under young leaders like Alan Border, and then Mark Taylor, and then Steve Waugh we rose to be the best team in the world. It can happen again.”

And that is why CA feels a listing on the stock exchange at this time will find popular support given investors have the opportunity to enter at a low in the cycle, with what CA sees as plenty of upside. The board has looked to the stock market success of the Brisbane Broncos over the past several years as an incentive.

CA is believed to have engaged three of Australia's leading (but as yet unnamed) stock brokers as lead managers for its initial public offering. The size of the offering is yet to be confirmed but some details have been determined upfront. CA will target a listing price of $1.00 and offer minimum investment of as low as $500 to encourage widespread retail interest. Future gate-take cashflows will be used to provide a dividend stream, but yield will be enhanced through the payment of special dividends in the event of substantial win bonuses – such as winning a major test series or ODI or T20 World Cup.

Shareholders will also be enticed with other incentives, such as preferential and discount tickets, invitations to meet-the-players functions, and opportunities for children to participate in elite coaching clinics.

FNArena contacted one stock analyst for his opinion this morning. He cannot be named due to research restrictions. “It's a compelling package,” the analyst admitted, “but it will all come down to pricing. It hasn't helped that Michael Clarke has been elevated to captain with a $1.5m salary while Ponting remains on contract at a still significant cost. But it's hard not to argue we could well be seeing the bottom of the cycle in earnings if CA makes good on its intentions to bolster T20 rather than fight it, which includes providing more opportunity for short-form specialists to achieve CA contracts. The old model of 'one player fits all forms' is long dead.”

The real sleeper, the analyst suggested, lies in the ability for CA to follow the NRL and AFL models in legitimising and exploiting legal betting on Australian cricket matches. “Betting opportunities and permutations are far greater in cricket, particularly five-day cricket, than in the football codes,” he noted. “Pakistan may have brought the game into disrepute recently, but it has also proven that revenue opportunities are significant and CA has the chance to embrace those opportunities rather than resile from them.”

“On that basis,” he added, “a listed Cricket Australia could become a real challenger to the likes of Tabcorp ((TAH)) and Tatts ((TTS)) in the gaming space.”

CA spokesperson Courtney Fyshe obviously sees a wonderful opportunity for Australia's cricket loving public to become “owners of their brand”, to use unfortunate twenty-first century parlance. “Cricket Australia has been caught out,” she admits, “or in cricket terms 'out caught'. But the board believes fortunes can be turned around and turned around in a short space of time. The new leadership team [Clark and vice captain Shane Watson] will usher in a new era”.

A listing date has not yet been determined, and clearly there are details to work through and investor appetite yet to assess at both the retail and institutional level. But CA has announced that interested parties can register to receive a prospectus when it becomes available, and by doing so receive “first-in” advantage on subsequent share allocation.

CA has established a dedicated website for this purpose, www.outcaught.com.au.

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