Part 7: Comparing the C&W, Digicel Contracts

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FINANCIAL ANALYSIS
(All amounts in United States Dollars)

The committee has analysed and assessed the various financial components of both the proposed C&W contract and the final signed Digicel contract.

In assessing the two contracts, it was important that we separated the fees into two distinct components as follows: Guaranteed Fees (Fixed Element) and Variable Bonus payments/player incentives (Variable Element).

First, it is important to point out the committee examined the proposed C&W three-year contract provided to the WICB in draft form by e-mail of October 20, 2003. Further, this draft contract was adjusted to reflect the amendments discussed December 15, 2003, when C&W conceded on all matters of contention raised by the WICB in the draft contract.

The committee has prepared Appendix 2, which illustrates a side by side comparison of the guaranteed fee element of both contracts.

It is important to point out two line items in the analysis. In the Digicel contract, there is a maximum cost of $250k per annum to the WICB for a maximum of three years for the shared cost of the broadcast of Away Matches on local television. Digicel presented evidence from the encyclopedia of firms and precedents, 5th edition - Sports & Sponsorship Volume 39(2) 146 to support their view.

The volume states "Where the television coverage is fundamental to the sponsorship agreement, the sponsor will seek to reserve a right to terminate the agreement if a minimum level of television exposure is not achieved. Whether or not it has a right to terminate the contract for lack of television coverage, a sponsor usually requires a reduction in the amount of the sponsorship money payable".

Digicel further submitted that it is critical to the revival of cricket in the region that there be extensive and consistent television coverage of both Home and Away matches of the West Indies Team. Under the C&W proposed contract, this was not a requirement hence not a cost to the WICB.

In respect of payment to players, C&W through the WICB had guaranteed to fund payment to players to the extent of $390k per annum. Since the players are still entitled to that guarantee from the WICB, the WICB are now funding the $390k from the base fees from Digicel.

In respect of Appendix 2, it is clear that the net cash inflows on a per annum basis are $2.55m from C&W and $3.057m from Digicel. However, the committee is of the view that these bottom line figures cannot be accepted at face value as there are other factors that are difficult to quantify at this stage. These factors include the following:

1. Clause 37 in the Digicel Contract with respect to "force majeure" does not specifically mention in the event of rain in respect of cancellation and abandonment. There is the implication therefore that subject to clarification, the WICB may have to purchase adequate rain insurance against cancellation or abandonment of a match or series. The CFO of the WICB has advised that rates for such insurance can be high and up to the timing of this report, we could not obtain premium quotes for such insurance. The proposed C&W contract did speak specifically to rain such that the purchase of insurance in the event of rain was not a cost of the WICB. This issue is currently being clarified with Digicel and a conclusion had not been reached at the time of our report.

2. C&W's proposal was to purchase the Home Series only. Digicel's contract is for both the Home and Away Series. The issue then becomes how valuable is the Away Sponsorship to the WICB on a net basis. Evidence from C&W is that the WICB could earn substantially more revenue by finding sponsors for overseas tours. Evidence from the WICB reveals that for the last 3 years, the WICB earned approximately $700k for Away Series Sponsorship of which approximately $200k went to the WICB and $500k to the players.

The Committee is of the view that it is not our position to speculate as to what value of Away Sponsorship could be generated over the next 5 years, had the WICB chosen the C&W contract. The evidence indicates that in the past five years, the WICB found sponsors only for test match tours to the UK, Australia and to a lesser extent South Africa. The Board did find sponsorship to India in 1995, however there is a bad debt in the books with respect to that sponsorship.

3. Evidence corroborated by correspondence between the WICB and C&W indicate that there was an intention for C&W in partnership with the WICB, to negotiate a number of revenue generating projects throughout the year aimed to generate a minimum of $500k per annum in incremental revenues to the WICB. There was also a plan to increase the number of secondary sponsors from 8 to 12. The committee did not quantify what additional revenue could be generated through this medium.

4. In our analysis of the two proposals, the committee also received evidence from both parties in respect of monies spent outside of the sponsorship contract. C&W has been in the region for many years and a Press Release from them in March 2005 quotes them as investing $35m in the home series alone over the last ten (10) years, as well as regional training and development programs. Digicel gave evidence to the Committee and later in press reports that they will (our emphasis) spend US$45m over the next five years.

5. Finally, in this section, it will be remiss of the Committee if we did not factor in a verbal offer made of US$4 million per annum by C&W to the WICB in March 2004. This has been dealt with elsewhere in our report. However, to reiterate, the evidence from Mr. Austin of C&W who made the offer was that the WICB could not accept the offer at that time since there was an exclusive agreement in place at that time. Evidence from Digicel is that there was no exclusive agreement in March 2004, but a letter of intent, signed on May 21, 2004. The facts are that the $4m per annum was never accepted by the WICB. Subsequently, the reason given by the WICB for not accepting the verbal offer was that it would have been ethically wrong to return to C&W after negotiations were well advanced with Digicel.

VARIABLE FEES

Appendix 3, illustrates the application of variable fees.

As disclosed earlier, the Committee considered it necessary to separate the analysis of the variable fees for player incentives since the two proposals in respect of player bonuses and incentives are structurally very different. For one, the C&W proposed fee structure is based on main and secondary tours; hence two numbers have been inserted in the C&W column to reflect the fee depending on the nature of the tour i.e. main vs. secondary.

The Digicel fee structure is based on the ICC ranking of the team being played by the West Indies, whether it is an "A" or "B" ranked team. In summary, an "A" ranked side is in the top 4 of the ICC rankings. A review of Appendix 15 will quickly indicate that the Digicel proposal is highly incentivised and that the bonuses are very attractive and paid only on a "win only" basis. The C&W proposal does reward winning performances, but also pays bonuses for all outcomes other than win. Further, in one day international (ODI) matches, Digicel only pays fees for winning the ODI series and not for winning ODI individual matches.

The Committee cannot determine in the long run which fee structure would be more financially rewarding for the players. However, the Committee will state the following:

1. There is a 10% commission payable by the players on all incentives earned by players under the Digicel Contract.

2. Examining the time period between the commencement of the Digicel contract - the VB Series in Australia to the current period - The Indian Oil Cup, The West Indies have won one test match, for which the players will receive $75k less the 10% commission, or $67.5k. The one-day win against Pakistan in the VB Series does not attract a fee for the players; neither does the one-day win recently against Sri Lanka. Under the C&W proposed contract, the players would have earned $330k under the same period as payments are made for drawing and/or losing a test match and/or a one day match.

3. It would not be unreasonable to conclude that given the current performance levels of the West Indies team, achieving substantial performance incentives would be difficult, at least in the near future. However, Digicel has provided very generous player incentives and the committee hopes that the players are truly motivated to achieve these potential rewards.

As stated previously whether the new sponsorship agreement and Digicel is in the best interest of the WICB and the development of Cricket in the West Indies will have to be determined in the fullness of time, it is history which will ultimately, and conclusive show the results. The Committee is also of the view, that there are some benefits which will accrue to West Indies Cricket; both the Public and Players alike. However, it is evident that mistakes were made during the negotiating process, and subsequently; the consequences will and has been borne by the WICB and peoples of the region.

The management of institutions will make mistakes, and it should be accepted that mistakes will be made. Having said that, management should recognise its mistakes whether they are internally detected or not. Most important of all, management should take the appropriate steps to correct them. Further, the management of West Indies Cricket have been elected and or nominated by their various governing bodies and or peers; it is their respective governing bodies to which they are accountable in the first instance. However, the governing bodies are ultimately accountable to the Peoples of the region and should be made accountable when necessary.

In summary, the Sponsorship Agreement with Digicel raises legitimate questions and concerns as to whether in the best interest of WICB and Cricket development in the West Indies, which will only be determined in future. The new sponsorship agreement is in its infancy, and to pass a final judgment would be premature. However, the evidence presented to the committee clearly indicates that on some stipulations of the new arrangement was not in the best interest of the WICB and cricket development in the West Indies.

* In the next installment, the committee examines the question of whether payments improperly accepted by members of the WICB as an inducement.