Diageo considers future of RCB cricket franchise

Diageo is reportedly considering the sale of its Indian Premier League team, Royal Challengers Bengaluru, as part of a broader review of its global portfolio. The potential move comes amid efforts to focus on higher-margin spirits and increase returns on capital employed. Since Diageo announced a month ago that it was considering one or more major asset disposals to increase its returns on capital employed, speculation has swirled around various lower-margin brands such as Captain Morgan rum and Ciroc vodka. And while chief executive Debra Crew has vehemently denied that Guinness is for sale, analysts regularly suggest that the world’s biggest spirits group will trim its beer interests by selling East African Breweries.

Focus turns to Royal Challengers Bengaluru

Much more plausible rumours are swirling around India that Diageo could be about to sell off its trophy-winning Indian Premier League Cricket franchise, Royal Challengers Bengaluru. A Bloomberg report suggests that the franchise could be worth up to US$2 billion for a full sale. It is not known whether Diageo is looking to monetise the cricket team through a full disposal or by selling a large stake. The speculation follows the team’s recent victory in this year’s tournament, in which RCB beat Punjab Kings by six runs to record their first title since the IPL was formed in 2008. The side is captained by Indian superstar Virat Kohli. While the franchise has been a very visual boost to the Royal Challenge Indian whisky brand, that is not core to Diageo’s spirits interests, especially as the group is seeking to further develop the growing Indian market for imported premium-margin scotches such as Johnnie Walker. Only last month, Britain and India agreed a trade pact which will eventually see duties on spirits imported to India fall to 40% from the present 150%. Diageo has said this will lead to price cuts on imported brands and thus further improve demand for the higher margin whiskies, which today account for just under 5% of sales in India.

Whisky brand hierarchy and local competition

The best-selling Indian whisky is Diageo’s McDowell's No. 1. At more than 31.4 million cases a year, it far eclipses Johnnie Walker, which totals just over 20 million cases globally. Royal Challenge is the ninth best seller on the Sub-Continent. Furthermore, speculation in New Delhi is strongly tipping the national government to strengthen the existing ban on alcohol advertising by also prohibiting indirect promotion of alcohol via sponsorships and team names. The RCB franchise was bought by fugitive fraudster Vijay Mallya in 2008 when he owned and ran United Spirits, itself the owner of the Royal Challengers brand. Diageo bought a controlling interest in USL in 2013 after Mallya’s empire collapsed in 2012 under a mountain of debt generated by his failed Kingfisher Airlines. Mallya deliberately named the airline after his Kingfisher beer brand in direct circumvention of the national advertising laws and followed that by featuring the Royal Challenge name in his cricket franchise.