The 'facilitation fee' furore
26-Apr-2010
The $80 million facilitation fee paid by Multi Screen Media (MSM) to World Sport Group Mauritius (WSG), the legality of which is now being investigated by the Income-Tax department, was one of the charges levelled by the BCCI against Lalit Modi as grounds for his suspension. The point of investigation is whether the fee was a kickback for helping MSM re-secure the IPL television rights for India, after they had their initial contract terminated. George Binoy looks at all the known facts
The beginning
In January 2008, WSG India bought the worldwide telecast rights of the IPL for ten years (2008 to 2017) at a cost of over $1 billion with MSM as its partner broadcaster. MSM secured the rights to broadcast in India for five years (2008 to 2012) and entered into an agreement for the same with the BCCI. MSM had the option of securing rights to broadcast in India for the remaining period (2013-2017) by paying WSG an option fee of $25 million latest by the end of the third year of contract. If that option was availed of, MSM would have to pay WSG, who would in turn pay the BCCI, $35 million at the end of the fifth year as a potential rating incentive.
In January 2008, WSG India bought the worldwide telecast rights of the IPL for ten years (2008 to 2017) at a cost of over $1 billion with MSM as its partner broadcaster. MSM secured the rights to broadcast in India for five years (2008 to 2012) and entered into an agreement for the same with the BCCI. MSM had the option of securing rights to broadcast in India for the remaining period (2013-2017) by paying WSG an option fee of $25 million latest by the end of the third year of contract. If that option was availed of, MSM would have to pay WSG, who would in turn pay the BCCI, $35 million at the end of the fifth year as a potential rating incentive.
The termination
In March 2009, shortly before the second season, the BCCI had, according to a release from MSM, "unilaterally terminated" the agreement with MSM. The Indian board cited a breach of contract on MSM's part as reason for the termination, the fallout of a deal with Big TV, and the quality of the television broadcast. The BCCI terminated MSM's contract on a Saturday night and signed a new deal for broadcasting rights in India for nine years (2009-2017) with WSG (Mauritius) at 3 am on Sunday.
In March 2009, shortly before the second season, the BCCI had, according to a release from MSM, "unilaterally terminated" the agreement with MSM. The Indian board cited a breach of contract on MSM's part as reason for the termination, the fallout of a deal with Big TV, and the quality of the television broadcast. The BCCI terminated MSM's contract on a Saturday night and signed a new deal for broadcasting rights in India for nine years (2009-2017) with WSG (Mauritius) at 3 am on Sunday.
Court hearings and negotiations
MSM filed an injunction in the Bombay High Court to stay the termination and talks between MSM and the IPL failed to reach an out-of-court settlement because MSM wanted a non-terminable contract. The court issued a freeze on the IPL-WSG (Mauritius) deal until it determined that the IPL's decision to terminate MSM's contract was legitimate. However, the IPL maintained the new deal with WSG was valid as it was signed before they received the court's freeze order. The court later cleared the way for the BCCI to seek a new broadcast deal, which had already been done. WSG (Mauritius) was now searching for new broadcast partners and MSM was keen on re-negotiating a new deal.
MSM filed an injunction in the Bombay High Court to stay the termination and talks between MSM and the IPL failed to reach an out-of-court settlement because MSM wanted a non-terminable contract. The court issued a freeze on the IPL-WSG (Mauritius) deal until it determined that the IPL's decision to terminate MSM's contract was legitimate. However, the IPL maintained the new deal with WSG was valid as it was signed before they received the court's freeze order. The court later cleared the way for the BCCI to seek a new broadcast deal, which had already been done. WSG (Mauritius) was now searching for new broadcast partners and MSM was keen on re-negotiating a new deal.
The new deal
In a release, MSM said their goals during the negotiations were two-fold. They wanted to secure the rights that had been terminated for the nine-year period (2009-2017) and pay the same amount to the BCCI as in the WSG (Mauritius) contract. They also wanted a direct contract with the BCCI, rather than a sub-license from rights-holder WSG (Mauritius). The result was that MSM now reached a renegotiated agreement for the IPL telecast rights with the BCCI, for the same price and duration as WSG Mauritius, in lieu of WSG Mauritius relinquishing its rights. The nine-year deal was worth Rs 8200 crores.
In a release, MSM said their goals during the negotiations were two-fold. They wanted to secure the rights that had been terminated for the nine-year period (2009-2017) and pay the same amount to the BCCI as in the WSG (Mauritius) contract. They also wanted a direct contract with the BCCI, rather than a sub-license from rights-holder WSG (Mauritius). The result was that MSM now reached a renegotiated agreement for the IPL telecast rights with the BCCI, for the same price and duration as WSG Mauritius, in lieu of WSG Mauritius relinquishing its rights. The nine-year deal was worth Rs 8200 crores.
The facilitation fee
Because WSG Mauritius stepped aside and gave up its telecast rights for the Indian subcontinent, paving the way for a direct contract between MSM and the BCCI, MSM agreed to pay WSG Mauritius a facilitation fee. MSM specified the facilitation fee of Rs 425 crores was for: the option fee of $25 million (Rs 115 crores approximately) to extend the rights from 2013 to 2017, an additional fee of Rs. 310 crores payable over the nine years of the contract compensating WSG Mauritius for returning the rights it acquired from the BCCI. The $35 million potential rating incentive, payable at the end of the fifth year under the original agreement, was eliminated.
Because WSG Mauritius stepped aside and gave up its telecast rights for the Indian subcontinent, paving the way for a direct contract between MSM and the BCCI, MSM agreed to pay WSG Mauritius a facilitation fee. MSM specified the facilitation fee of Rs 425 crores was for: the option fee of $25 million (Rs 115 crores approximately) to extend the rights from 2013 to 2017, an additional fee of Rs. 310 crores payable over the nine years of the contract compensating WSG Mauritius for returning the rights it acquired from the BCCI. The $35 million potential rating incentive, payable at the end of the fifth year under the original agreement, was eliminated.
MSM said it had paid WSG Mauritius Rs. 125 crores to date and would pay the balance Rs 310 crores in eight installments over the next seven years of the contract. One of the allegations was that no tax was levied on the transaction but MSM said the "payments made to BCCI and WSG Mauritius have been in accordance with applicable laws and as per established international cross border banking norms and procedures. MSM received tax advice from external tax experts that the transaction with WSG Mauritius did not attract India taxes and MSM has accordingly not withheld any Indian tax."
What the BCCI said after suspending Modi
"There is an allegation that a facilitation fee was paid," BCCI chief Shashank Manohar said. "But the board does not have the document. Now this deal happened between MSM Singapore and WSG Mauritius. So there is no reason why this document would be present with the board. So since I don't have this document with me, I don't see any reason why we should be aware of this."
"There is an allegation that a facilitation fee was paid," BCCI chief Shashank Manohar said. "But the board does not have the document. Now this deal happened between MSM Singapore and WSG Mauritius. So there is no reason why this document would be present with the board. So since I don't have this document with me, I don't see any reason why we should be aware of this."