Full Text of Lucky Report (Part 1)

Tue, Aug 30, '05

 

[ Part 1 ]

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(EDITOR'S NOTE: This is the first of a multi-part verbatim republication of the WICB's sponsorship negotiations review committee).

EVIDENCE: The committee received documents from the WICB including correspondence from the relevant parties. Having reviewed these documents, the committee found that there were questions which could only be answered by persons who had participated in the negotiations and who could verify and/or clarify the several issues that arose in the negotiations. These included inter alia how, and why, the Board found it necessary to engage the services of a brokerage firm as the Board?s agent for the purpose of negotiating sponsorship on its behalf.

We approached out remit from a broad and practical perspective. In accordance with our terms of reference, we examined relevant correspondence, transactions, communications, minutes, contracts and records, among other things. Consequently, we perceived that fundamental questions continues to arise which could only be addressed by analysing the manner in which the negotiations had been conducted and the role and function of the negotiators themselves.

CHAPTER 2

DID THE WICB TREAT CABLE & WIRELESS FAIRLY IN THE NEGOTIATIONS?

The Committee had to determine whether the negotiations were conducted in good faith, incorporating the principles of fairness, transparency and full disclosure in accordance with accepted business practice. The WICB/C&W contract which was concluded in 2001 provides that negotiations should commence fifteen months prior to the expiry of the contract.

The evidence discloses that negotiations did not commence fifteen months before the expiry of the contract as stipulated. An explanation that was accepted by both parties is that there was a Home Series being played at the time and that as a result neither party was able to assemble their full negotiating and advisory personnel to attend the meetings. Consequently, the meetings commenced in August 2003 in the Cayman Islands.

What resulted from various meetings, based on correspondence, was that both parties arrived at a commercial agreement in September 2003. This is evidenced by a letter from Teddy Griffith, the then Chairman of the Marketing Committee of the WICB to Mr. Chris Carpenter of C&W dated September 17, 2003.

As a result of the commercial terms agreed, C&W drafted a redlined contract of sponsorship and submitted it to the WICB on October 20, 2003. The redlined contract was a copy of the existing contract ?redlined? to reflect the new terms agreed in the letter of September 17, 2003.

The Committee was not provided with any correspondence or minutes of meetings to indicate whether the Board of Directors approved or disapproved of the said commercial agreement. There then ensued a period of silence by the lack of documented communication for the month of November 2003, save e-mails discussing administrative matters.

On December 4, 2003, the CEO, advised the President of the WICB, that C&W had materially altered the terms and conditions negotiated in the commercial agreement. On the basis of a report, dated December 14, 2003, prepared by the members of the Marketing Committee, the CEO and the Board?s legal adviser Mr. Milton Samuda, the President consented to the implementation of Clause 14.2 of the C&W/WICB sponsorship agreement which was still in force. Clause 14.2 allowed the WICB to to to the market to seek new sponsorship.

On December 5, 2003, (the date on which the 10 month period ended) the CEO of the WICB wrote to C&W and advised them that they ?now invoke clause 14.2 and will forthwith enter into negotiations with other interested third parties for the grant of sponsorship rights?. During evidence, executives of the WICB were of the view that C&W still had a chance of concluding sponsorship with the WICB since they had the first right of refusal of any new offer presented to the WICB. Mr. Griffith?s evidence is that he was advised by the CEO, that when the commercial terms agreed where compared to the red-lined version of the proposed contract sent by C&W; the net effect was that the WICB would be worse off by approximately $1 million.

The president gave evidence that his recollection was that somewhere in October or November 2003, a draft was provided and then replaced with an amended version. He said it was the sub-committee?s opinion, when they looked at the proposed contract, that there were obligations that were being included that had never been previously discussed during the course of the negotiations and which would have incurred greater cost to the WICB. When asked what these obligations were, he replied that he did not know, he was not present; that this decision was made by the Marketing Committee and that there was a schedule of variations that were in fact referred back to C&W.

The committee requested evidence from the WICB to illustrate the additional cost of $1 million. The committee was provided with a document prepared by the WICB indicating discrepancies between the redlined version of the contract and the commercially agreed upon terms, but it did not conclusively show that the cost was close to $1m. In the committee?s view, the report was not specific and detailed enough to clearly illustrate that the variance between the commercially agreed terms and the redlined version of the C&W contract was $1m. Notwithstanding that, C&W later capitulated on all the points of contention that would have alleged cost the WICB $1 million.

The point which the committee must make therefore, is that it is clear that the WICB executives did not do the rigorous financial analysis that would be required of them to accurately quantify and justify the $1m cost. It is important that we highlight his matter as this variance was then used to inform the Executive Committee of the WICB that they had reached a stalemate with C&W and they will be advising C&W that they will invoke Clause 14.2. In the committee?s view, this was a critical decision and although C&W had the option to match the potential offer, decisions of this nature must be backed up with detailed analysis supporting the decision. Finally, on this matter, the WICB report was prepared with a date of December 14, 2003. This was after December 5, 2003, when a letter was written to C&W advising them that they were going to market.

By letter dated December 9, 2003, C&W responded to the CEO of the WICB indicated that they disagreed with the views expressed in the letter dated December 5 and requested a meeting with WICB executives to discuss the points of contention.

On December 12, 2003, the CEO of the WICB responded, indicating his willingness to meet Miss Agard of C&W notwithstanding the Board?s stated intention to continue seeking the sponsorship of third parties. A meeting then took place on December 15, 2003 in Barbados to discuss the points of contention. Persons present were Roger Brathwaite and Tony Marshall (member of Marketing Committee) representing the WICB and Pat Bynoe Clarke and Lisa Agard representing C&W. Miss Agard recalled asking them ?Can we go through the contract clause by clause so you can tell me what areas of concern you have with the contract because you have not told me what is wrong with the contract.? The concerns were noted verbally and documented by C&W as Annex A.

On December 17, 2003, following the meeting of December 15, C&W set out in a letter its position stating inter alia that it remained gravely disappointed that the WICB remained committed to its stated course of action thereby invoking the provisions of clause 14.2 of the agreement that then existed. In that letter, C&W reiterated that it had repeatedly requested the areas of disagreement in the redlined draft contract be explained but none was provided until the meeting of December 15, 2003.

It is clear from the evidence examined by the committee that C&W subsequently capitulated on all the areas of contention as agreed in interviews with the CEO and evidenced in a review of the correspondence between the CEO and Lisa Agard of C&W during that period. However, the committee remains of the view that C&W should have negotiated their new terms instead of introducing them in a draft context. That said, the new terms were inserted in redline in the proposed contract indicating that the document was a first draft for discussion. In our view, the WICB was not proactive in discussing the new terms. It is therefore not unreasonable to conclude that the WICB had every intention of going to the market even though C&W had conceded on all areas of contention.

In terms of the decision to invoke clause 14.2, the Committee examined the process of making that decision. The Committee refers to evidence given by Mr. Teddy Griffith. He stated that it was important to give an overview of the negotiating process up to the point when he ceased to be a member of the Marketing Committee. His notes are particularly instructive as Mr. Griffith was in fact Chairman of the Marketing Committee and took part in the start of the negotiations with C&W up to the end of September 2003. Mr. Griffith during evidence stated that "We reported back to the Board that we had reached an agreement with C&W of US$3.65 million on commercial terms subject to Board approval and subject to contract.? The question can then be posed as to the location of the documentation which establishes Board approval or disapproval.

Mr. Griffith was unable to recall whether it was an Executive Committee decision or a Board decision to get the feel of the market. His exact words were, "I do not recall this off-hand. I mean, the Executive really acts on behalf of the Board. The decision was taken to go to market and C&W was told and was written. C&W was informed that we were going to exercise this right to go to the market." (This decision is set out in the e-mail of December 4, 2003.

It is essential to note that according to the Memorandum and Articles of Association of the West Indies Cricket Board Incorporated, the Executive Committee consists of the President and Vice President. It also includes three Directors, each of whom should be from a different territorial Board appointed by the Board of Directors from amongst the Directors and finally two officers of the Board, both of whom shall ex officio be appointed and non-voting members.

Mr.Griffith continues: "I can certainly say that I know there is correspondence between the Board, through its Chief Executive Officer; and C&W which indicated that the West Indies Cricket Board was going to use its right under the contract to go to third parties."

The Committee inspected the corporate records at the registered office of the Board and found that there are no minutes on record to support the claim that an executive decision had been recorded. The Committee saw no evidence of minutes that the decision to go to market were confirmed by the Executive Committee. They were informed. There is no evidence to show that the decision was circulated to other members of the Board.

On January 15, 2004, the CEO of the Board sent a letter to Lisa Agard denying that there was ever a commercial agreement between them.

In January 2004, while those negotiations were still pending between with C&W and the WICB, representatives of SBI/ISM, had a meeting with the CEO of the WICB. This meeting was said to be informal. In his evidence, Barry Thomas, the CFO of the WICB, said that at one point between January 19 and 23, 2003, whilst he was in London with the CEO to work out the mechanics of the Board's agreement with Sky Television, "I was introduced to Mr. David Brooks and Mr. Neil Fairbrother who represented ISM. I was provided with their business cards. Then there was a discussion between the CEO and themselves. I don't have a clear recollection of what was discussed because it was not a meeting I had a role to play in, so I just listened. It may have dealt with the identity of a potential sponsor and when David and Neil would be able to disclose the identity of the sponsor so that was my first contact with the representatives of ISM (International Sports Marketing, a United Kingdom company)". He continued to state that, "On receiving their business cards I realised and made the connection between that and what my CEO had mentioned previously about being contacted by a firm who was interested in bringing us together with parties wishing to invest in the West Indies?.

During our interview with Digicel representatives, Mr. McDermott (Director of Business Development) confirmed that Digicel were interested in sponsoring West Indies cricket and the West Indies cricket team for some time before 2003 and had indicated their interest albeit informally whilst sponsoring a golf tournament in Jamaica.

The CEO signed a commission agreement with ISM, and on the February 23, 2004, through its commission agent, Digicel agreed upon the terms set out in that letter, albeit this was while C&W were seemingly still of the view that they were negotiating with the WICB and negotiations had not broken down with respect to a new sponsorship agreement. The CEO had signed the Commission Agreement committing the Board to the terms therein.

The Committee enquired as to whether he (Brathwaite) was authorised to sign the Commission agreement by the Executive Committee or at a meeting of the Board of Directors and whether there were any minutes to that effect. The Committee was told that his actions were authorised by the President verbally. It was therefore necessary for the Committee to address the question as to whether a decision or order of the President can bind the Board in such an arrangement. The Committee ascertained that the answer lies within the Memorandum and Articles of Association of the WICB which sets out the procedure to be adopted (See Articles 59 to 69 of the Memorandum and Articles of Association of the WICB Inc.) in the circumstances.

It is pertinent at this stage to evaluate and discuss the evidence of Darren Millien, who indicated that the position of CME at the time of the negotiations was actually held by Roger Brathwaite, who was doubling up as CEO and CME up to and around September 2003. Darren Millien commenced work as CME of the WICB in or about September 2003.

When asked by a member of the Committee: "Who did the detailed analysis of both agreements, C&W and Digicel?" "Who appraised the project?" "Who analysed it and came to a recommendation that based on this analysis the Board would recommend such-and-such?" "Who was involved in the process?"

Mr. Millien interestingly replied: "That process would have been broken up into two parts. The actual crunching of the numbers was done by the CEO, primarily because they had signed the non-disclosure agreement". (The Committee points out here that the evidence suggests that there was no written non-disclosure agreement until May 2004). Millien continues, ?So we did not know who we were talking to or what the contents of the deal were until they had received it and discussed it and that kind of thing. When we came in, it was really to analyse contract signing, in other words, what we were trying to deliver for this value. That was when we came in and we had to do the analysis of a contract that was given to us by C&W after several meetings."

The CEO of the Board received an offer. A presentation was made to the Board, the Executive, and his committee (Marketing Committee) came in, as he put it, "at the back end". The Committee was not shown any written presentation to the Board. Further an inspection of the Minutes of board meetings makes no reference whatever of any presentation to the Board. The Committee noted that we saw no minutes or records of the meeting from the WICB.

On March 1, 2004, under clause 14.2 of the exclusive sponsorship agreement with C&W, the CEO wrote to Mr. Usman Saadat of C&W presenting him with what the WICB considered to be a bona fide offer of sponsorship from SBI. C&W was being granted the first right of refusal to match the offer from SBI. It is important that we note here that SBI was a company used to mask the identity of ISM.

Mr. David Brookes, Director of ISM gave evidence as follows, "Finally, to address the question of why ISM used SBI to formally submit the sponsorship offer. The reason for this was because I had been informed that during the negotiations, Cable & Wireless had a clause in their contract whereby they had a right to see any offer made to the WICB for team sponsorship, and furthermore, had a two-week period to match any such offer?.

"Naturally knowing of the highly competitive commercial nature of the C&W/Digicel relationship, I assumed that C&W would not wish to be replaced by a competitor and therefore, would automatically match the offer if they were aware it was on behalf of Digicel. I felt this put Digicel at an unfair disadvantage and because ISM had worked with Digicel in the past, ISM could be easily linked to them. To avoid this, I hired the services of SBI simply for client confidentiality reasons with the aim of ensuring that the Digicel offer was viewed fairly, reasonably and on a level playing field that C&W were therefore given the right to match this offer. As we are all aware, C&W have publicly stated that they made a conscious decision to withdraw their sponsorship from the WICB, instead becoming involved in the World Cup via the ICC. Therefore in retrospect, I probably did not need to be so cautious." Later on, the Committee will analyse this issue.

On March 16, 2004, C&W responded to the WICB advising them that they had decided not to match the rival bid from SBI.

In order to determine whether or not C&W was treated fairly in this process, it is important to:

1. Compare the financial terms of the offer presented to C&W by the WICB to the final signed Digicel contract and determine whether the difference, if any, was material enough to make a difference to C&W's decision; and,

2. Examine the propriety of the offer in terms of the masked identity of the third party.

Appendix 1 illustrates the financial offer to C&W against the final signed Digicel contract. It is critical to point out that the bottom line numbers cannot be accepted at face value and the analysis below explains this. We analyse all components of the offer below:

First, the Digicel final offer is net of the World Cup sponsorship which was valued at $2.5m. The evidence indicates that C&W were aware that the World Cup rights were included in the offer they were asked to match.

Second, the team incentives of $7.65m were forecast at the time the offer was made. However, at the time of writing this report, the incentives are now forecast at $6.65m. C&W were well aware that the player bonuses were completely win-incentive related and the amount was subject to change depending on the West Indies Cricket team performance. There is however, a point to be made here. The offer presented to C&W indicated a team incentive of $12.5K for an ODI match win against an A ranked team and $6.25K for an ODI match win against a B ranked team. The final Digicel contract offer is that the team incentive is only paid for an ODI series win and not a match win. The Committee cannot speculate as to what the potential variance here might be as it depends on the number of wins the WICB could achieve in a given year in one day matches.

In terms of the Under 13/Under 15 sponsorship, this was increased by $350K to $1M in the final contract through the implementation of the youth development fund. Digicel must be applauded for this particular initiative.

The key difference therefore is the commission agreement. The WICB represented to C&W that they were potentially receiving the full amount of the offer. There was however a commission of 10% payable on all amounts received by the WICB from Digicel. As disclosed earlier, a commission agreement with ISM was signed on February 23, 2004. At the lowest end of the range, the WICB was receiving at least $1.975m less than the offer. In the Committee's view, the $1.975m is considered material as it represents 10% of the minimum contract receipts.

In our opinion therefore, C&W were not treated fairly in this particular instance as there was a difference of at least $1.975m between what the WICB ultimately received and what C&W was asked to match.

* In the next installment, the committee will continue to examine the question of whether C&W was treated fairly in the overall negotiations by the WICB.