Cricket in India: It's Big Business but Not Businesslike
Published: April 05, 2007 in Knowledge@Wharton

Sachin Tendulkar, arguably India's best-ever cricket player, earns some $30 a minute. India's highest-paid CEO, Mukesh Ambani of Reliance Industries, gets $10, and celluloid superstar Amitabh Bachchan, $8. Ordinary people like Indian President A.P.J. Abdul Kalam and Prime Minister Manmohan Singh get 3 cents and 1 cent respectively. These figures from PaycheckIndia, which describes itself as an Internet-based labor market research tool, are back-of-the-envelope calculations. But even if you ignore the numbers, the conclusion is that India's cricket stars are handsomely paid. That makes it tempting to assume that the business of cricket must be huge and thriving, too.

It is -- though it wasn't always so. The Board of Control for Cricket in India (BCCI) is now the world's richest cricket association. But, in 1992, it had a deficit of $150,000. In 1997, the International Cricket Council (ICC), the apex body for world cricket, wasn't in the red, but it had just $25,000 to show for its 90-year history. Now, times have changed: The ICC is expected to make a profit of $239 million from the 2007 Cricket World Cup, currently underway in the Caribbean. The BCCI, meanwhile, has increased its profits from $1.11 million in 2004-05 to $7.64 million in 2005-06.

Alas, while the money keeps rolling in, disasters keep rolling out for the subcontinent's cricket fans. Both India and Pakistan have been eliminated in the preliminary rounds of the World Cup. Advertisers are hastily reworking expensive campaigns that were earlier based on cricket. And TV channels that paid big bucks for telecasting rights are having trouble offloading their inventory of advertising spots.

These troubles, aggravated by a nationwide sense of disappointment over the World Cup defeat, have caused many in cricket-obsessed India to ask whether the business model for the game is flawed -- and if so, how it might be fixed. According to faculty from Wharton, the Indian Institute of Management and other experts interviewed by India Knowledge@Wharton, India needs to rethink the business model for cricket. The current model needs improvement in areas such as governance as well as in the way incentives for players are structured. Some suggest that a professional league for cricket might be the solution. In fact, on April 3, Zee TV founder Subhash Chandra announced at a press conference in New Delhi that he would invest Rs. 100 crore ($23 million) to create a parallel cricket league as an alternative to the BCCI.

The Business of Cricket

To see why the current model doesn't work, consider how the business of cricket is organized. This is harder than it might appear because it is difficult to quantify exactly how much the business of cricket is worth or how much it makes. For the year ended 31 March 2006, ICC had revenues of $36 million and a deficit of $3.5 million. The money made depends on the events held during a year. One successful World Cup can replenish the coffers for several years.

The BCCI's finances, meanwhile, leave many questions unanswered. "The BCCI behaves as a private club," says Sandeep Bamzai, author of Gavaskar & Tendulkar: Shaping Indian Cricket Destiny and other books on Indian cricket. There is, of course, no reason why it shouldn't, because the BCCI is a club. (It is a society under the Tamil Nadu Societies Registration Act.) Fighting often breaks out among different factions. Office bearers sometimes make more news than cricketers do. It is run by industrialists and politicians. India's agriculture minister, Sharad Pawar, is the president.

"At the national level as well as state levels, politicians and businessmen dominate the BCCI administration," says Anjan Raichaudhuri, professor of marketing at the Indian Institute of Management Calcutta (IIMC). "A long-term vision for developing the game is not apparent." Moreover, BCCI is involved in many lawsuits. The bill for legal expenses in 2004-05 was nearly $1 million.

Last year, Forbes magazine attempted a valuation of the different cricket boards. According to its calculations, the BCCI was worth $1.5 billion, the England & Wales Cricket Board $270 million and Cricket Australia $225 million. The ICC was pegged much lower at $200 million. The others were Pakistan ($100 million), South Africa ($65 million), Sri Lanka ($14 million) and Bangladesh ($5 million). "There are 10 full members of ICC, but in terms of revenue India contributes more than 70% to the game," the magazine wrote. "Most sponsorships and broadcast rights come from India, and Indian tours make foreign boards rich."

That has brought its own share of problems. Officials at the BCCI and the ICC have been waging a war for control of world cricket. The shifting of the ICC headquarters from London to Dubai in 2005 was regarded as one more battle won in the inevitable transition of power. But while acrimony prevails, running the business smoothly has its problems.

The official money in cricket is big. For instance, ESPN Star Sports has won the audiovisual rights for ICC events from late 2007 to 2015 for $1.1 billion. This includes two World Cups -- Asia (2011) and Australasia (2015). There is more money coming ICC's way. Sale of sponsorship rights could fetch another $500 million. Companies like LG Electronics, Pepsi and Hero Honda, which have been sponsors for the past few years, may, however, take a second look after India's poor performance at this year's World Cup.

The BCCI, meanwhile, has been setting new records. It collected $612 million from Nimbus Communications for the global media rights to all international and domestic cricket owned or controlled by BCCI to be played in India from 1 March 2006 to 31 March 2010. Later it sold its global media rights for one-day internationals (ODIs) at neutral venues (places like Abu Dhabi, Holland, the U.S. and Malaysia, where cricket is not very popular) to Zee Telefilms for $220 million. This contract runs up to March 31, 2010. The BCCI has also sold the kit sponsorship to Nike for $45 million for five years through December 31, 2010. The team sponsorship has gone to Air Sahara for $72 million. The board's income has crossed $1 billion. And, despite the recent setback, more funds will flow into its coffers. New Delhi-headquartered financial daily Business Standard estimates that it will get another $450 million from the sale of other rights, including hotel, travel and ground sponsorship.

Superstar Sachin

The business of cricket, however, goes beyond the ICC and the BCCI. Consider sponsorships. Last year, Tendulkar signed a three-year deal with Iconix, a newly formed marketing arm of international advertising giant Saatchi & Saatchi. India's star batsman will be paid around $40 million over the period. Tendulkar is also leveraging his iconic status for other businesses. He owns two restaurants -- Tendulkar's and Sachin's. He has a joint venture with the South India-based Manipal Group for healthcare and sports fitness products. Virgin Comics, owned by Richard Branson, is bringing out a series in which Tendulkar will be featured as a superhero. The royalty may be minimal, but it all adds up.

Other Indian cricketers have not been able to create such successful money machines. But it is nothing to be sniffed at. Indian captain Rahul Dravid, for instance, is estimated to earn an annual fee of $3.5 million from endorsement deals, a little lower than Tendulkar's estimated $4.6 million annual endorsement money. (The latter's Iconix deal encompasses much more than sponsorship or endorsements.) Former Indian captain Saurav Ganguly has been charging an annual fee of close to $350,000 per endorsement. He endorses Hero Honda, Puma, TCL, Tata Indicom and Sahara, among others. Dravid promotes Reebok, Max New York Life, Sansui, Hutch, Britannia and Citizen. And Tendulkar has been endorsing products for companies such as Pepsi, Canon, MRF, Sunfeast, Pantaloons, Audemars Piguet and G Hanz, among others.

The cricketers also get paid to play the game, of course. The BCCI has several of them on contract. The top Indian players -- eight at last count -- get an annual retainer of $115,000. The players in Grade B (four) get an $81,000 retainer and those in Grade C (five) get $46,000. The match fee is $5,800 a test match and $3,700 for ODI matches. The contracts expired in September 2006. Hoping to squeeze more from the Board, the players walked away from the negotiating table before the World Cup. They may have hoped that good performance at the Cup would make it difficult for the BCCI to deny them a bigger slice of the pie. Under the existing system, 26% of BCCI's gross revenues were earmarked for player payments. The Men in Blue -- the Indian team -- got 13%, domestic cricketers got 10.6%, with the remaining 2.4% going to junior cricketers.

These sums may seem small compared to the endorsement amounts, but they provide a perspective on what is wrong in Indian cricket. At the level of the domestic league -- the Ranji Trophy -- a cricketer at the very top can expect to earn $15,000 annually. You can survive on that sort of money, but your one ambition is to make it to the India team and onto the gravy train.

Flawed Model

"It would be good to take a look at how professional leagues are structured in the U.S. and Canada as a possible model for Indian cricket," says Jitendra Singh, professor of management at the Wharton School of the University of Pennsylvania. "In the NBA, NFL or the baseball leagues, you have professional athletes who spend time playing and a marketplace that supports them. There is a market for talent. You can get a contract for seven years based on your performance. If you do well, you can stay on in the major leagues. If you don't, you drop down to the minor leagues. Indian cricket isn't set up to work like this.

"I see three problems with the business model of Indian cricket," Singh continues. "First, the market is not as deep as it is in the U.S. It allows those who have talent to command a very high price, while those who are not part of that small group don't make money. In the U.S., performance is what drives your compensation. In India, the money from endorsements exceeds payment for performance by many multiples. We should ask if these incentives are structured the right way. Second, the governance system for cricket is not functioning effectively. The third issue is the motivation of the cricketers. In the past, it was an honor to play cricket for India. Now some players make $30 million to $40 million a year. If you make so much money, to what extent does that take away your motivation for the game? Money has changed the nature of the game."

Where does the money come from? Eventually, of course, it comes from the consumer. In India cricket sells better than anything else, including movies. In a curious sidelight, Bollywood, as Bombay's film industry is called, tried to cash in on World Cup fever with cricket-themed movies such as Hat Trick, Say Salaam India and Meerabhi Not Out. The first two were released to coincide with the World Cup and have bombed at the box office, in keeping with the Indian team's performance. Earlier movies on cricket have done better. "Cricket has been a catalyst for social transformation," says Raichaudhuri of IIMC. "This is reflected in movies like Lagaan (which won an Oscar nomination)."

It's not just the movies that have suffered. Many expensive campaigns that banked on India making it to the final stages of the World Cup have had to be withdrawn. Pepsi's Blue Billion campaign, on which it has spent several million dollars, has been yanked. It will return, probably without the cricketers and the hype. Several other companies that had launched similar campaigns have pulled out. Consumer durables company Videocon, which has already spent nearly $6 million on cricket-related advertising this year, has dropped cricketer Mahendra Singh Dhoni from its ads. The same has been the fate of Dravid in the campaigns of Sansui India, the Indian subsidiary of the Japanese electronics giant.

Before the World Cup debacle, the industry had estimated that some $450 million of the $1,600 million corporate advertising on TV would be on cricket. Now all bets are off. Companies want their money back. SET MAX, the official broadcaster of the World Cup and an affiliate of Sony, has dug in its heels. But it is believed to be doling out TV spots as freebies. It had not sold these spots, hoping to sell them at triple the price when India made the semis or the finals. This implies a notional loss of $18 million. "The advertisers took a gamble on India making it to the final rounds," says Rohit Gupta, executive vice-president of SET MAX, the channel that has the rights for the current World Cup. "In no other country would we be asked to share the losses."

The less quantifiable loss is the impact on TV manufacturers (inventories have begun piling up), tour agencies (corporate junkets to the Caribbean are being cancelled), hotels (which were setting up big screen extravaganzas) and others cashing in on the Cricket mania.

Darker Side

The massive illegal betting on cricket will also be affected. How much money is involved? Nobody quite knows. But Delhi-headquartered morning newspaper The Hindustan Times reckons it is more than $25 billion in a good year for Indian cricket. One of the most sordid incidents of the Caribbean World Cup was the alleged murder of Pakistani coach Bob Woolmer, a former England cricketer. Like India, Pakistan got knocked out at the initial stages of the tournament. Some media reports have claimed that Woolmer was about to blow the whistle on illegal betting and match-fixing. Now that both India and Pakistan are out of the World Cup, the illegal betting might cool off -- at least for a while.

Kenneth L. Shropshire, professor of legal studies and business ethics and director of the Wharton Sports Business Initiative, acknowledges that gambling is difficult to control unless there is will. He recalls the Black Sox scandal in 1919, when eight members of the Chicago White Sox (known as the Black Sox after that) were banned from baseball for intentionally losing games. "The fans said they would no longer watch the game and they did not respect it any more," he says. A judge was appointed as the first baseball commissioner. Adds Shropshire: "That helped restore the credibility and the popularity of the game. It was a watershed moment in American sports. The challenge for Indian cricket may be to align political forces to bring about a similar outcome. This is one form of governance that has worked."

New Ballgame

With Woolmer's death, the dark clouds around Indian cricket have become darker; the big business of illegal betting is in India, not Pakistan. And the setback comes at a time when the game is under attack for a variety of reasons. The first is its traditional form. The principal form of cricket is a five-day test match. Throw in a rest day, and each game takes almost a week. When a test match is played in a city like Calcutta, where fans are known for their fanaticism, the city comes to a standstill. That may have been acceptable in a more laid-back world, and many players came from the leisured classes; it is an aberration in a fast-paced, global economy.

The alternative has been the ODI which, as its name suggests, lasts for a day, or 50 six-ball overs a side. Now the ICC has been pushing for a new format called the Twenty20. This will consist of 20 overs a side. A Twenty20 World Cup -- another ICC property in the making -- will be held in South Africa later this year. India had resisted the new format but fell in line after all other cricket-playing nations agreed to the ICC proposal. "It's a whole new ballgame," says sportswriter Bamzai.

Indeed it is. When five-day test matches ruled, cricket was genteel. The best players were noted for their elegance and style; it didn't matter how many runs they scored but the way in which they did it. With one-day cricket, the big hitters gained ascendancy. In the Twenty20 format, the pace will pick up further and players will be under pressure to throw their bats at everything they can. "It won't be cricket," rues a purist. "You could possibly call it baseball."

Changing the rules has often proved detrimental to India. A few decades ago, the country had no challengers in field hockey. Then came Astroturf -- a faster surface -- and rules were changed to make the game more "exciting." India just couldn't adapt. It didn't have the money to put up Astroturf surfaces across the country. And the players didn't have the muscle, size and stamina that the new game demanded. Hockey fell by the wayside. Cricket also could.

Cricket appears far more vulnerable when viewed in light of hockey's fall from grace. When India won, hockey had a huge following. Once the country joined the ranks of the also-rans, fans dumped it for cricket, where India had started performing respectably. Today, there are alternatives for disillusioned fans. Vishwanath Anand is the world chess champion. Sania Mirza has been doing exciting things on the tennis court. And, after several barren decades, India has started picking up medals at the Olympics. Indians have long lacked sporting icons. The moment they have others to cheer for, cricket could lose its primacy -- and possibly its mass appeal. The process may have begun. "There is a huge consumer market in South Asia and (Indian) advertisers have plans for this market," says Sushil Khanna, professor of economics and strategic management at IIMC. "Some of the advertising money is also going to football and car racing, even without an Indian team."

Misaligned Incentives

Saikat Chaudhuri, a professor of management at Wharton, sees the problems of cricket spreading to other sports. "If one player -- like Sania Mirza -- shines, everybody wants to go after her. That is how we see her ending up with contracts from a host of different companies. This is neither systematic nor sustainable because companies end up supporting individual brilliance rather than putting money into a system. In Indian sports, the biggest weakness is that whenever money flows into a sport, it ends up with individuals rather than in a system that can help build that sport. It is opportunistic in nature and very, very limited in its scope."

Others agree that the focus on individual incentives lies at the root of many problems. "We value the individual a lot more than the team," says Simon Chaudhuri, senior project manager at Citigroup in Düsseldorf, and a passionate supporter of professionalism in Indian sports.

"There is a distinction between individual incentives and collective incentives," says Jagmohan Singh Raju, a professor of marketing at Wharton. "The individual gets a lot more from outside sponsorships than from playing cricket. If all the money came to the BCCI, and it was then allocated to the players based on how popular they are, it would have been a different story. But if that money comes from outside, the players' incentive is not to retire but to keep playing as long as they can. They may spend more time in front of the TV cameras rather than on the cricket field. It creates an incentive structure that is not good for the game."

Once a player has made it to the hallowed ranks, his main ambition is to make as much money he can as fast as possible. The earning-per-minute figure for Tendulkar may seem high, but one has to remember that all sportspersons have a limited shelf-life. Tendulkar has been on the India team for 18 years, but he is an exception. Most Indian cricketers ride off into the sunset when they finish their playing careers. Some may find jobs as media experts, but not everyone can make the cut.

Some say discipline is a problem area too. Players have been known to arrange their schedules to accommodate their sponsors instead of participating in mandatory practice sessions and coaching camps. The coach and trainer have no authority because the top players are stars -- and can sometimes act like prima donnas. India's coach and former Australia captain Greg Chappell -- who resigned on April 4 -- has often pointed to the attitude problem of senior players as the main cause for their erratic performance. A day earlier, Tendulkar had lashed out against him in an interview in the Times of India. "Typically Indian players don't listen to their coaches," says Chaudhuri of the Wharton School. "I don't know why that should be the case, but it is definitely a problem."

India Team players also ignore the domestic leagues -- the Ranji Trophy, the Irani Trophy, the Deodhar Trophy and the Duleep Trophy -- though the BCCI requires them to take part. The only time they show up is when the BCCI declares that their performance in a particular match will be used for selection purposes. The net result is that domestic cricket in India is largely unloved and unnoticed. With no sponsors and very little money, cricketers can't treat this as a fulltime occupation.

Anjani Jain, vice dean and director of the Wharton School's graduate division, says that one problem is clearly the lack of professional cricket leagues in India. "A privatized professional league could help curb the illegal and 'greedy' aspects of the sport," he says. Incidentally, according to him, "some prominent Wharton alums are thinking of starting a professional cricket league in India."

Chaudhuri of Citigroup offers the example of Germany, which has "a structure in which clubs have a lot of say and they give the players to the national team." He explains: "The federation is responsible only for the national team. There is a very strong club culture, which means it is in private hands. This means there is accountability at the national level. But at the same time the clubs have the power to manage what happens and they are accountable to their fans. The head coach is responsible for the selection of the team. The coach of the national team is paid by the federation, and he is responsible for the results. But he has the freedom to choose the team based on performance. Politicians don't get involved."

Another challenge facing not just cricket but also other sports is the severe shortage of sports infrastructure. For long, food has come before football. Though India is no longer a shortage economy, sports and games are still not top of mind at most schools. Even today, if faced with a choice between funding a midday meal program (which have had remarkable success in improving attendance levels) and investing in a playing field, administrators are more than likely to choose the former.

The cash-rich BCCI, too, has found it difficult to set up the grassroots infrastructure to locate new talent. This is one of its mandates, but it has been largely content with refurbishing old stadiums. In its defense, though, it must be said that all the BCCI's wealth wouldn't make a significant impact. That does not mean that the BCCI is blameless. Cricket may be a gentleman's game, but for its administrators, it is a pugnacious sport. At the BCCI, every election for its office bearers is hard fought, and many election contests end up in court.

"Cricket is now too overheated," says Gupta of SET MAX, referring to the amounts being paid for rights. "At $1.1 billion (paid by ESPN Star Sports for the audiovisual rights for ICC events up to 2015), it will be impossible to make money." A decade down the line, he could be proved right, but for a different reason. The game in 2020 is more likely to be Twenty20. It might make money. But will it be cricket?