Way out for Srini
The former BCCI chief’s idea of distancing himself from the IPL franchise is to give CSKCL to India Cements’ shareholders, apart from the promoters. According to him, the idea behind ICST is to distribute the 50,000 shares it held in CSKCL to two sets of investors. The first will include all the ‘non-promoter (non-owner) shareholders’ of India Cements, who would get shares in CSKCL in the same proportion as their shareholding in India Cements. Thus, if an investor held 10 percent in India Cements, he will get 5,000 shares, or 10 percent stake, in CSKCL.
So, what will happen to the CSKCL’s shares that the promoters are entitled to? To maintain an arm’s length, Srinivasan says that ICST will transfer them to another trust, which has already been “ established for the benefit of ex-cricketers”. Although one doesn’t know the details of this new trust, it is clear that it will have strong links with India Cements. One of the reasons for this is that the new trust was set up for ex-cricketers of India Cements itself.
If Srinivasan or his family members are connected with the new trust, there will be an implicit conflict of interest. If some of the directors of India Cements remain as its trustees, there will be an explicit conflict of interest, as defined by the SC. Even if Srinivasan, his family members and none of the India Cements’ directors stay away from this trust, there will be a conflict of interest as long as it has direct or indirect influence over the trust.
The only way for Srinivasan to adhere to the letter and spirit of the apex court’s order is to disconnect totally from CSK. There are two clear-cut and transparent solutions. The first is to sell his and his family’s stake in CSKCL to a third and unrelated party in a purely commercial deal. The second is for India Cements to sell CSKCL entirely to a new buyer and distribute the earnings proportionately among all the shareholders of India Cements.
Why hasn’t Srinivasan pursued the above and tried to keep CSK in his empire? It is surprising because when he purchased CSK in 2008, he openly told analysts that he may sell the franchise in the future if he got the right valuation. There may be several reasons why Srinivasan continues to hold on to CSK. The first is that he has developed an intense emotional bond with the franchise and its cricketers, especially MS Dhoni, the India skipper whom he treats like a son.
Business of IPL
Another reason may be that this is a wrong time to sell the franchise. Since the match-fixing scandal of 2013, the valuation of the IPL brand and, therefore, of its franchisees, has taken a huge beating. Thus, India Cements and Srinivasan feel that they may get a lower price for their stakes in CSKCL.
In addition, there may be no serious buyers. Recently, PepsiCo gave up the sponsorship of IPL as it felt that there were “concerns” related to the brand’s image.
Media reports suggested that Pepsi- Co’s termination notice to the BCCI said: “BCCI failed to act in a fair and transparent manner to prevent or take corrective measures in respect of such sporting frauds. Soon after PepsiCo executed the Agreement, various instances of betting, match-fixing and other sporting frauds came to be associated with the IPL. Since the BCCI failed to duly investigate into these allegations… public interest litigations were filed… and the entire issue eventually came before the Hon’ble Supreme Court of India….”
After the SC-appointed Justice Lodha committee suspended two IPL franchisees, CSK along with Rajasthan Royals, for two years, the few interested buyers will drive down the purchase price. So, Srinivasan desperately wants to hold on to the team for at least a few years, and sell it at a higher price later. Although the net-asset value of CSK is less than Rs 8 crore, as disclosed in the quarterly results (ended June 2015), the sale value can be several hundred times lower. Remember that two new IPL teams were sold for almost RS 1,650 crore and just under Rs 1,500 crore.
Finally, there may be a business strategy- related motive behind Srinivasan’s moves to somehow retain his grip on csk. Over the past eight years, India Cements has realised that the real value of CSK is not the franchise’s intrinsic value, but how it benefits the company. CSK and IPL have enabled the company’s products, especially cement, to gain a nationwide image, and an all-India presence. Earlier, India Cements was a regional player with sales primarily in south India.
CSK has helped the company to save huge amounts on advertising and marketing of its cement products. For example, by changing the colour of its cement bags to yellow, which is the colour of CSK players’ uniform as well as that of the company’s logo, the product gained instant recognition. Several print advertisements of the company feature the same colour as also some of the well-known CSK players like Dhoni and Suresh Raina.
In interviews after CSK’s purchase, Srinivasan revealed the benefits of owning an IPL franchise to stock market analysts. He explained that while his competitors spent crores of rupees to buy TV ad spots of a few seconds during IPL telecast, his cement products got free publicity for hours each time CSK played a match. Moreover, the ownership of the IPL franchise was in perpetuity, and not just for 10 years as was widely believed. To add the icing on to the cake, an IPL franchise could easily become profitable because of revenue-sharing deals with the BCCI
There will, thus, be financial and emotional losses if either Srinivasan or India Cements sell their stakes in CSKCL However, the biggest impact will be on India Cements’ businesses. This is truer now that the company has acquired national ambitions.
After it emerged as the largest cement maker in south India, it decided to expand across the country. Recently, it built a large cement plant in Rajasthan to cater to markets in states such as Gujarat, Rajasthan and Madhya Pradesh.
The last reason may best explain why Srinivasan wishes to retain the links between his company and the cricket team. After all, everything is about business; even cricket has become commercial, thanks largely to the IPL.
The sport is no longer a gentleman’s game; therefore, there aren’t any compulsions on Srinivasan and India Cements to behave in a morally-correct manner, as long as they are legally on the right foot. However, one can be sure that in case there isn’t a complete delink between CSK and India Cements, the SC will push the former BCCI chief on the backfoot yet again.
editor@tehelka.com
