The Board for Control of Cricket in India, the body governing the sport of Cricket in India, has been fined Rs 52.24 crore for unfair competition in allocation of licenses, following a complaint to the Competition Commission of India, filed on November 2nd 2010. The amount of Rs 52.24 crore has been arrived at by the commission as 6% of the average annual revenue earned by the BCCI for the three year period from 2007 to 2010. The BCCI earned Rs 1000.1 crore in FY08, Rs 725.83 crore in FY09, and Rs 886.11 crore in FY10. A summary of the competition commission report is below. Download the order here.
How The Media Rights For The IPL Were Allocated
On November 30, 2007, BCCI issued an Invitation to Tender document for the Indian Premiere League’s media rights for a period of 10 years commencing 2008 and ending 2017 on a worldwide basis; 6 companies purchased forms – Nimbus, Ten Sports, SET India, ESPN Software India, World Sports Group (WSGI) and Providence Equity. Of these, only ESPN Software India, World Sports Group (WSGI) and SET India submitted bids. On the date of opening of bids i.e. January 14, 2008, there were 3 bidders present: Sony had pulled out of their individual bid to partner in a consortium with WSG, the ESPN bid was declared not eligible, and only the WSG-Sony consortium was left. They won the bid with an offer of $1.026 billion for a period of 10 years Global Package:
a) USD 276 million – Rights for Indian subcontinent to Sony for first 5 years.
b) USD 550 million – Rights to WSGI for Indian subcontinent for next 5 years
c) USD 92 million – Rights for RoW to WSGI for 10 years
d) USD 108 million – Committed promotional spending for IPL
Accordingly the following agreements were entered into:-
a) MSM (Sony) Media Rights (India Territory) Agreement dated 21 January 2008 (1st Indian Territory Agreement).
b) WSG India – Media Rights (Rest of the World) Agreement dated 21 January 2008 (1st RoW Agreement)
Termination of 1st & 2nd Agreements: The agreements were terminated in 2009: On March14 2009, the India territory agreement was terminated due to “certain irremediable breaches” of the agreement by Sony. On 15th March 2009, the 1st RoW Agreement was also terminated by a deed of mutual agreed termination made between BCCI, WSGI and WSG Mauritius (not a party to original agreement). This agreement required WSG Mauritius to sub licence rights within 72 hours of the signing, which it failed to do despite extensions. A 2nd RoW agreement was entered into again with WSGI for the period ending December 31, 2017, but that was terminated 28th June 2010 on the grounds that the same was vitiated by fraud.
3rd Agreement: The rights for Indian subcontinent for the period 2009-2016 were again licensed to Sony by 3rd India Territory Agreement. The 2nd RoW Agreement contained a clause that Sony was to pay USD 80 Million in accordance with Deed for facilitation fee entered into between Sony and WSG Mauritius. In the absence of such payment, BCCI would have the option of terminating 3rd India Territory Agreement or paying WSG, the money or the bank guarantee. This provision was was inserted by Sh. Lalit Modi without any authority of BCCI, the BCCI says. It also challenged the basis of 3rd India Territory agreement was challenged. These are still under litigation in Bombay High Court. After setting aside the 2nd RoW agreement, the 3rd India Territory agreement was modified to increase the amount of media rights fee by Rs.300 Crores (USD 80 Million as reduced by Rs.125 Crore apparently paid by Sony to WSG).
In 2011, ITT was called for RoW rights again and this time the rights were granted to Times Internet* and Nimbus consortium through Agreement dated March 20 2011.
CCI On Allocation of rights to Sony-WSG
The Director General of the Competition Commission made the following observations on the allocation of rights:
i. The first meeting of tender committee was postponed from 11 am to 1 pm in order to facilitate and allow WSG and Sony to form a consortium.
ii. Though Sony and WSGI had submitted the bids separately, they were facilitated to form a consortium and bid was entertained in the capacity of consortium.
iii. The period of media rights i.e 10 years is very long and creates foreclosure of market.
iv. The subsequent agreement (3rd India territory agreement) was entered into with the same party i.e. Sony whose agreement was terminated on very serious irremediable breaches within 11 days without following any tender process. Similar approach was followed for RoW tender also.
On BCCI Preventing Competitive Activity; ICL
Clause 9.1(c)(i) of the agreement reads: “BCCI represents and warrants that it shall not organize, sanction, recognize, or support during the Rights period another professional domestic Indian T20 competition that is competitive to the league”, i.e. to the IPL.
This, according to the competition commission, “clearly and unambiguously amounts to a practice through a contractually binding agreement resulting in denial of market access to any potential competitor.”
The Commission says that the creation of monopoly by a regulatory power is an overreach to protect the market and the regulatory power to approve an event should not be used for this purpose. The Commission notes that “by explicitly agreeing not to sanction any competitive league during the currency of media rights agreement BCCI has used its regulatory powers in arriving at a commercial agreement, which is at the root of a violation of Section 4(2)(c).
The Director General of the CCI considered that the ICC rejected the application for grant of recognition on the influence of BCCI, and took on board the ICL view that BCCI took steps to ensure that cricket stadiums are not made available to ICL and also restrained players from participating in the activities of ICL. “As a consequence of actions of BCCI, ICL has at present suspended its operations temporarily.”
The Commission holds that competition is necessary for benefits to be widespread and for the BCCI plays a dual role of custodian of cricket and organizer of events has on account of role overlap restricted competition and the benefits of competition. “The objective of BCCI to promote and develop the game of cricket has been compromised,” while also concluding that the ICL’s failure cannot be solely attributed to the BCCI.
The Commission has directed the BCCI:
“i) to cease and desist from any practice in future denying market access to potential competitors, including inclusion of similar clauses in any agreement in future.
ii) to cease and desist from using its regulatory powers in any way in the process of considering and deciding on any matters relating to its commercial activities. To ensure this, BCCI will set up an effective internal control system to its own satisfaction, in good faith and after due diligence.
iii) To delete the violative clause 9.1(c)(i) in the Media Rights Agreement.
iv) “The Commission considers that the abuse by BCCI was of a grave nature and the quantum of penalty that needs to be levied should be commensurate with the gravity of the violation. The Commission has to keep in mind the nature of barriers created and whether such barriers can be surmounted by the competitors and the type of hindrances by the dominant enterprise against entry of competitors into the market. The Commission has also to keep in mind the economic power of enterprise, which is normally leveraged to create such barriers and the impact of these barriers on the consumers and on the other persons affected by such barriers.
BCCI’s economic power is enormous as a regulator that enables it to pick winners. BCCI has gained tremendously from IPL format of the cricket in financial terms. Virtually, there is no other competitor in the market nor was anyone allowed to emerge due to BCCI’s strategy of monopolizing the entire market. The policy of BCCI to keep out other competitors and to use their position as a defacto regulatory body has prevented many players who could have opted for the competitive league. The dependence of competitors on BCCI for sanctioning of the events and dependence of players and consumers for the same reason has been total. BCCI knowing this had foreclosed the competition by openly declaring that it was not going to sanction any other event. BCCI undermined the moral responsibility of a custodian and defacto regulator. The Commission however, notes that BCCI in their submissions have claimed that the funds of IPL have been re-ploughed in developing the game and considers it appropriate that the penalty of 6% of the
average annual revenue of BCCI for past three years…”
*Disclosure: Times Internet is an advertiser with MediaNama