BCCI, IPL AND CRICKET IN INDIA – CAUSE IT’S A BITTERSWEET SYMPHONY

This is the story about how IPL and new-age cricket changed the vantage of one organisation once and forever. BCCI stopped publishing annual reports after 2017 and hence all analysis done is only up until that point. If you'd rather read this later, please head over to everyfin.in and subscribe to the Sunday weekly newsletter. I will make sure it reaches you this weekend.

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Rewind back to 2007 – It was one of the greatest cricket matches in the history of the game. India vs. Pakistan in the final of an epic T20 tournament. Joginder Sharma, who had kept his cool while bowling the final over in the semi-final, was entrusted the job again.

 Little did Joginder Sharma know that he was going to change the history of cricket in India and the good fortune of BCCI for a long time to come. But change them, he did. The entire cricket frenzied nation was on its edge, figuring out this strange, short but adrenaline packed form of sport that had been blessed to them.

He started with a wide, and Misbah then thumped his second legitimate ball for six. 6 runs were required off 4 balls when Misbah made up his mind to scoop the ball over fine-leg. He went for it, but was undone by the bowler’s change of pace. The ball ballooned in the air. In the TV commentary box, where the tension was all too palpable, nothing was said for a few seconds, till Ravi Shastri found his voice; “Fielder under it, Sreesanth takes the catch, India win!”

In March 2007 Indian cricket team had hit a rock bottom, after being knocked out of the World Cup in the very first round. Exactly six months later, Dhoni and his team had taken it to the summit winning the inaugural edition of ICC T20 world cup. Only 2 days after the start of the event, BCCI announced the launch of two T20 forms of cricket series calling them – Indian Premier League (IPL) and Champions League. And cricket as we knew it back then, would cease to exist once and forever.

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The IPL has literally been a game changer for world cricket and one of the BCCI’s proudest achievements. An IPL trophy has the Sanskrit words ‘Yatra Pratibha Avsara Prapnotihi’ inscribed on it, which translate to – ‘Where talent meets opportunity.’ And what a great opportunity it was. The home bred cricketing talent increased significantly. As of 2016, over 6000 cricketers were registered in the BCCI database by state associations. With that, the team structure of the Indian cricket team also changed drastically. Young players thronged the scene. The crowd loved it.

Just 2 years into the IPL series, Sports magazine valued the league at $1.6Bn. Today that figure has quadrupled. The T20 format of the game brought in over $150M in income in the very first year of its launch. The media broadcast right for IPL was won by Sony Max & World Sport Group for Rs.4,000 crores for a period of 5 years in 2007. This was resold in 2012 for Rs.8,000 crores and then in 2017 for a staggering sum of Rs.16,000 crores.

With more money in the coffers, the BCCI started doing right by several people.

1. It did justice to the players. Since 2012, they have been making one time pay outs to retired cricket players, their widows and have started revenue share arrangements with players.
2. The BCCI started doing right by state cricketing associations. The infrastructure subsidy offered to state cricketing associations went up to Rs.60 crores per year per association. More and more new state cricketing venues got inaugurated. In the year 2015 alone, BCCI coordinated cricket matches were held in a stunning 97 stadiums across the country.
3. But more importantly, BCCI did right by the cricket fans. They made cricket far more interesting and adrenaline filled than ever before. Consider IPL 2011 – Of the total 76 matches that were held, as many as 10 matches saw last ball finishes. This format of the game put the batsmen at the centre and scores previously considered far & few between in ODI cricket history were now being taken in T20 at great frequencies. Chris Gayle hit 175 of 66 deliveries against PWI in Bengaluru in 2011! Such run scoring was considered fantastic even in ODI context back then.

But there is more to this story.

Why won't you pay?

So, tell me reader, should a monopoly organisation with strong commercial interest in a sport turning over thousands of crores in income pay taxes? Or should they be viewed as an organisation spearheading a charitable cause supporting the greater good of the country in promoting a national sport? This is exactly the question that was before the director of income tax (exemptions), Mumbai in 2009. You see up until that point, the BCCI was indeed registered as a charitable organisation and was exempt from paying income taxes. And they never did. But in 2006, the BCCI board amended their objects and memorandum. The income tax exemptions director reviewed these changes and made up his mind. He judged that the BCCI is not a charitable organisation anymore and that it should be paying taxes. But the BCCI was not going to accept it.

Over the next years, the income tax department would raise, re-raise and re-re-raise tax demands all the way from the financial year 1997-98. To the BCCI’s credit, they have been begrudgingly paying the taxes in protest only to sue the income tax department later. The IT department on its part has been suing the BCCI back on charges related to concealment of income & furnishing inaccurate income information. As of 31 March 2017, the IT department had raised tax request notices for a sum of Rs.3,668 crores to the BCCI which it does not believe it should be paying and is disputing in court.

• The service tax department, which was watching all of this thought the BCCI should be paying service tax too. They sent the BCCI a tax notice for close to 300 crores in 2016 relating to media rights income. The BCCI decided it should not be paying it.
• The sales tax departments of Delhi and Maharashtra sent payment notices. The BCCI decided it should not be paying it.
• The stamps duty collector department and the directorate of enforcement also sent show-cause notices. The BCCI decided it should not be paying them also.
• The competition commission of India sent a penalty notice of 52 crores stating the BCCI misused its dominant position in contravention to the competition act. The BCCI decided it should not have been penalised in the first place, let alone pay the penalty.

Nobody is going to have BCCI’s money, nah ah.

Battling the government agencies wasn’t enough fun for the BCCI. It got into fights with a number of partner organisations and franchises. To name just a few, the BCCI is fighting legal battles against Essel, Maxx Mobilink, Nimbus communications, Viacom 18, GCV, Zee entertainment enterprises, Precept holdings, WSG media, Kochi cricket private limited, Sahara adventures sports limited and a bunch of banks. And I haven’t even mentioned all the internal disputes and legal proceedings that are going on internally at BCCI.

The agency hired a whole load of lawyers and started fighting them all. Legal fees in 2014-15 and 2015-16 were about 15% of 18% of net profit generated! BCCI appointed Markandey Katju, one of the most controversial legal figures in India, to head the commission for all legal advice.

The BCCI also hired a commercial team and started encashing bank guarantees that partners and media houses furnished to it like it is nobody’s business. Case in point – In BCCI’s court case against Nimbus media for non-payment of dues worth around 350 crores, the agency tried encashing Nimbus’ bank guarantee worth 1600 crores! The banks said, “Not happening, bro” and the BCCI sued them. The court had to interfere and ask the banks to pay BCCI 400 crores. Another example? The board revoked Kochi Cricket Pvt Limited’s franchise and encashed their bank guarantee of 150+ crores.

BUT ONE OF THE FATTEST OF ALL CHEQUES THE BCCI RECEIVED WAS NOT FOR HAVING CRICKET CONTINUE, BUT FOR HAVING CRICKET DISCONTINUE. IN JULY 2015, THE CHAMPIONS LEAGUE T20 FORM OF CRICKET WAS DISCONTINUED DUE TO POOR RESPONSE AND THE BCCI MADE RS.1,600 CRORES AS COMPENSATION FROM RIGHTS HOLDERS (INCL MEDIA) FOR TERMINATION OF RIGHTS AGREEMENT.

I told you there is more to this story than just confetti and cheer leaders. You’ll be surprised. There is even more to it.

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The Sorry State of a Franchisee

The franchise model of IPL was meant to work in a rather straight forward way. Bidders sent in a closed bid for different cities and the highest bid was accepted. The winning bidder was required to pay the franchise fee over a period of 10 years, in equal instalments. In return, they are eligible for a share of revenue earned through media rights. In addition, franchisees are eligible to retain 100% of income earned through ticket sales & sponsorship income. At the end of the 10-year period, the franchisees own the teams in perpetuity and pay 20% of their total income for the year to BCCI.

Imagine it is now 2007. You bid for Royal Challengers Bangalore and win that team for 446 crores. How did that investment pan out over the next decade, at the end of 2017? Well, not that great. If you had sold out the team entirely at the end of 2017 for its then value of roughly Rs.600 crores, after accounting for all the years of losses the team made, my calculations indicate that you would have made a return of 6.5% per annum on your total investment! Hello HDFC bank Fixed Deposit!! (The media makes a huge deal about how much each team is worth today. But the devil is always in the details.)

United spirits limited, the company that actually owns RCB, publishes financial reports which give us more clues.

The RCB team did not make any profits, as far as we know, till the year 2017 – A full 10 years into IPL. RCB kept paying the BCCI Rs.44.6 crores each year and United spirits kept giving loans to RCB. At the end of 2017 when the franchise fee was paid to BCCI in its full, RCB’s balance sheet looked something like this.

All assets are imaginary, all liabilities are real – like a fresh MBA graduate (Rs.25 lakhs in bank loan liability against a degree written in a piece of paper worth Rs.25). Scary!

Check out RCB’s cash flow (FCFF) in Rupees Crores over the years 4 years between 2013-14 and 2016-17.

They were consistently burning cash and most of it was going to the BCCI. Not everyone is born equal in cricket.

The Fourth Element

During a press release in 2007 just after the launch of IPL was announced, Lalit Modi, the founder of IPL said, “The BCCI would provide officials for IPL, guarantee exclusivity to the franchisees. If, say, a team is based in Delhi, then we will make sure there is no rival side in Noida.” He meant what he said. Only two years later the BCCI would go on to pretty much destroying the Indian Cricket League, a private cricket league funded by Zee entertainment that operated between 2007 and 2009 in India, by rejecting their application for recognition & derecognising players who joined ICL. You see, the problem was that the ICL had chipped away close to 70 Indian cricketers while the BCCI was sitting with their jaws open. And if there is one thing at all that you need to know about the BCCI, they hate competition. The association was founded in 1928 and till date, no other national cricketing agency has survived. They are the monopoly and they aren’t going to give that up.

But what gives an organisation so much power? Is it money? Is it its monopoly position? Is it the fan base? Perhaps a bit of everything? Turns out, there is a fourth element that is all too important which the BCCI enjoys in large amounts – political support.

BCCI HAS SINCE THE DAWN OF TIME ATTRACTED THE IMAGINATION AND INTEREST OF POLITICIANS. FROM FATEHSINGH GAEKWAD TO SHARAD PAWAR, FROM S.K.WANKHEDE TO ANURAG THAKUR, YOU’D BE AMAZED AT THE NUMBER OF POLITICIANS WITH SUCH KEEN INTEREST IN PROMOTING CRICKET AS A SPORT IN INDIA GOING ON TO BECOMING BCCI’S PRESIDENT.

Take a recent example – Narhari Amin, former congress politician in Gujarat was the long-standing president of the Gujarat cricket association (GCA). In 2009, Narendra Modi, the current prime minister of India, led his party to a stunning victory in the Gujarat by-elections. Only one day later, he was unanimously elected as the president of GCA overthrowing Amin. No prizes for guessing who the current GCA president is. Hint – His name starts with Amit and ends with Shah.

BUT THIS INTEREST AMONGST POLITICIANS HAS ALSO MEANT THAT THE ORGANISATION HAS TRADITIONALLY BEEN BLAMED OF RAMPANT CORRUPTION AND IS ALWAYS IN SOME SORT OF INTERNAL CHAOS. THE TERM OF A BCCI PRESIDENT IS 3 YEARS; THE AGENCY HAS HAD 11 PRESIDENTIAL APPOINTMENTS OVER THE LAST 10 YEARS. THAT IS HOW CHAOTIC IT IS.

Take the case of Jagmohan Dalmiya, the man often credited for bringing cricket world cup to India in 1996. Before 1993, BCCI had to pay Doordarshan roughly Rs.5 lakh per game to broadcast the matches. Dalmiya put an end to this. When he came on board as the president of BCCI, the agency had (-85) Lakhs in coffers and when he left it had over 100 crores in cash. In 2004, Dalmiya irritated Pawar by casting his tie breaker vote in the next presidential election to the opposing candidate and the then Haryana CM’s son Ranbir Singh Mahendra. Mahendra was ousted in 2006 & Pawar found his way to the top of BCCI. The BCCI immediately sued Dalmiya who got sent to prison briefly for alleged mishandling of the board’s finances.

Take the case of Lalit Modi – He had been trying to get elected to one of the regional cricket associations in India. He tried and failed in Himachal Pradesh and then tried and failed in Punjab. He then used his connection with his friend Vasundra Raje, who became the chief minister of Rajasthan, to get elected to the board of the Rajasthan cricket association (RCA). Once at RCA, he helped Pawar get elected to the BCCI board as president who appointed him as a VP of BCCI in return. Eventually, Lalit Modi got kicked out of BCCI and IPL. Why? Also, politics.

Concluding Remarks

I am a Parsi after all. When we received our first pay cheque - 50 rupees per day we used to get playing Test cricket. 250 rupees for a 5-day match. Did you hear that Virat? We just played for the love, the pride and honour of playing for Mother India. And I remember, against Sri Lanka, Sunil Gavaskar and I were finishing a game in four days and we were getting all sorts of messages – “Arey pagal ho kya? Make the game last till the fifth day. Kal ke pachaas rupaye jayenge” (Are you mad? Make the game last till fifth day. Else we'll lose tomorrow's 50 rupees).

Farok Engineer at the 5th M A K Pataudi Memorial Lecture, Bengaluru

Gone are those days of playing Cricket for 50 rupees per day, perhaps also gone are those days when cricket was played for the love of it and for the honour of playing for the country.

George Bernard Shaw once said about cricket, “One fool throws the ball, another fool hits it. And the greatest of all fools is one who runs after it and fetches it.” When it comes to cricket, the only one who is not a fool is the BCCI.