January 23, 2014

Cashing out the future of cricket

The ICC's draft proposal seeks to distribute more wealth among the rich, mostly at the cost of development and investing in the future of the sport

In many ways I'm surprised by the angst generated by the ICC's F&CA working group paper. It proposes things that have been proposed by many people many times: the removal of underperforming Bangladesh and Zimbabwe from Test cricket; tiered Test leagues with theoretical promotion and no less than four Tests against the lowest ranked top-eight side for the top-performing Associate; a significant reduction in the vote-for-tour trading that plagues the ICC executive board; and the marginalisation of several Full Members who are up to their armpits in corruption and mismanagement.

That the decisions being proposed by the leading ICC members are based purely on promoting their own financial benefit ought not to be a surprise either. The FTP was created to give financial security to the Full Members, and it has declined, as cartels inevitably do, as those members devised more profitable arrangements on their own. Even there, though, the draft carefully threads together enough clauses to maintain the Full Members outside the big three in their current states, at least in the medium term. The real losers are the ICC's administrative arm, castigated for waste and mismanagement, and the dozens of smaller members whose tournaments have been cancelled without anyone outside the tiny development community even noticing.

Taking the long view of ICC history this is perhaps no more than we ought to expect. Much is said, in praise, about the revolution of 1996 that saw the veto pass into history, but not enough is said in condemnation of what replaced it. As Rod Lyall's history of ICC development makes clear, the growth in Associate numbers (even with each vote counting for half a Full Member) brought forward a restrictive clause on their influence: that a two-thirds majority of Full Members be required to pass a binding resolution. After 1997, under the reforms proposed by New Zealand's John Anderson, no Associate vote mattered; they could no longer influence decisions because there were but three of them on a 12- (then 13) member board.

It was those reforms that laid the foundation of the venal and incompetent ICC executive board, which is sorely in need of reform, even if the proposed ones are not necessarily of the right type. The combination of a vast increase in ICC revenue, the significant structural limitations most boards face in generating revenue of their own, and the subsequent creation of the FTP to protect revenue streams derived from the hosting of tours has been immensely damaging to cricket. Test cricket has stagnated at ten (realistically eight) nations, with no context worthy of the name, and the gradual erosion of smaller tours. A tragedy of the commons has played out amongst the smaller members, each fighting for its piece of a large Indian pie, while neglecting to build the multilateral institutions and robust competition that might have acted as a counter-weight. That is, in the main, on their heads.

In theory they remain Full Members under the proposals, but while the working paper argues that "no member will lose any of their current voting powers", having the four-person executive committee act as the "sole recommendation committee" means they are a rubber stamp, significant beneficiaries of ICC largesse and little else. But we ought not to lament the demise of a body that has been dysfunctional, self-serving, and myopic in its vision.

However, any improvement in governance from the proposed reforms would rest on whether the big three govern sensibly and with some imagination regarding the development of the game. There is precious little evidence in the draft document to suggest they will. The lack of transparency and wider consultation that leads to a paucity of ideas will remain. The chasing of short-term financial wealth over development will worsen. The ideas put forth in the working paper are doomed to fail - slowly perhaps, but eventually.

The biggest proposed change is the removal of the FTP in favour of bilateral agreements (with an implied guarantee from the ECB and CA, though notably not the BCCI), and the introduction of a tiered system of Test cricket.

In its last cycle the ICC reported $1564 million in revenue. If revenue stayed roughly the same, the savings outlined above would find their way into the big three's pockets, the BCCI taking some $63 million... If revenue increases to $2 billion, the big three will take 108% of that increase

Tiers are a solution. They are not a good solution. The working paper manages to recognise this when it states that the big three cannot be relegated. Finance, much as we'd like it not to be the only thing considered, is important. If India were relegated or the Ashes ceased to be played for a period, the effects would be monumental. The costs of relegation, even with the protections imposed, are enormous for any member subject to it. Any half-way sensible body would put out a working paper that looks across different sports and discusses alternatives.

Cricket, in its asinine obsession with maintaining status gaps, presses on, creating, in effect, a four-game play-off, with the reasonable probability that the current inept rating system will raise some interest in a few matches leading up to it.

There is a vastly superior alternative for Full Members concerned that their bilateral matches aren't profitable: cede the rights to bilaterals that are not against any of the big three to the ICC, share the revenue, and create a two-to-three-year tournament that integrates a large number of nations into a profitable and marketable entity. That, in essence, is what the World Cup is: a massively profitable tournament, despite India only playing in ten or fewer of the matches.

The details pertaining to relegation may overstate the risks in any case. Firstly, a side must lose a four-match play-off against a side with little cricket against strong teams behind them - and if that side is an Associate, a significant financial disadvantage. Secondly, even when relegated, a nation will maintain its previous bilateral agreements and lose only 10% of its dividend payments in the following rights cycle. Meanwhile, a promoted team is guaranteed no matches at all, and must find space within the existing (maintained) bilateral agreements for Tests of their own, with only a 10% ICC funding increase and whatever hosting rights they can sell to sustain a professional structure.

In essence, this is little more than a convenient way to remove any obligation to play Bangladesh and Zimbabwe, by relegating them to the Intercontinental Cup. That may not be a bad thing, as it will certainly improve the quality and value of that competition. Relegation at least recognises that teams can improve and decline; that there are (possibly permanent) differences in the quality of sides; and that a structure must accommodate that. It isn't a terribly good structure, but it is something.

At the top end, the dropping of the FTP merely reflects the unstated status quo. Australia's main summer opponents from 2010-11 until 2014-15 were and (are to be) England, India, South Africa, England, India. Four-year cycles good, three-year cycles better; except now the ICC lacks even the moral authority to argue for a more even distribution.

This is a process, needless to say, defined entirely by finance, though there is nothing new in that. The saddest aspect of the working paper is that there is no justification for the decisions other than financial.

The ICC ought to have a role in defining and structuring competitions; indeed, it is hard to see what the point of the ICC is if not that. The MCC controls the laws; no one in cricket administration seems to collect statistics or define what constitutes an official match between the majority of members; and the ICC rankings are a joke, mathematically flawed and excluding 90% of the membership. Yet the ICC has done good work in its development offices - work I don't always agree with, but with some reasonable progress, and after some mistakes they have created a structure that incentivises grassroots growth and player development.

The working paper trashes that work. There are complaints about administrative costs, though how they might be lessened is not made clear; of tournaments being run "without approval" (presumably the Division Three regional ones now scrapped); and of the costs of minor cricket, though it represents only a $20-30 million outgo on $1.5 billion in revenue. The cost of Associate and Affiliate cricket is inflated by including under it everything development-related, such as the women's World Cup, reserves and development funds. Any independence the development committee had is proposed to be reduced, and it is to be made subject to the F&CA committee.

Far and away the most ethically questionable element in the working paper is the concept of "distribution cost", where members' shares in revenues are sought to be made proportional to their contribution in the generation of those revenues. The BCCI receives a much smaller proportion of the money generated in India than comparable nations do from their local markets. This is, in part, because ODI cricket is popular there, and the World Cup is far and away the most popular tournament of that type. The implications of the working paper are that the BCCI has made its future (lucrative) involvement in the tournament that props up the ICC, and by extension, most of its members, dependent on more of that revenue going to them. There are several points to be made on this:

Firstly, deceptively, the working paper doesn't specify amounts, only percentages, of total revenue. The table below helps fill some of them in, because actual amounts are much easier to understand and compare.

In its last cycle the ICC reported US$1564 million in revenue. If revenue stayed roughly the same going forward, the cost savings outlined above would find their way into the big three's pockets, the BCCI taking some $63 million. In other words, the likes of Estonia and Peru will not play any international cricket, so the world's richest cricket board will have an extra $63 million to pay some of the world's richest athletes. If revenue increases to $2 billion, the big three will take 108% of that increase. That's not just wrong, that's a disgrace.

Distribution of ICC revenue
ICC revenue 1500 2000 2250 2500 2750 3000 3250 3500
BCCI (Dist cost %) 4.2 17.4 19.7 20.3 20.7 21.9 21.9 21.9
ECB (Dist cost %) 0.9 3.8 4.3 4.4 4.5 4.7 4.8 4.8
CA (Dist cost %) 0.6 2.3 2.6 2.7 2.8 2.9 2.9 2.9
Full Member surplus payment 52.5 55.5 59.625 63 70.5 73.35 78.98 85.13
BCCI Dist cost 63 348 443.25 507.5 569.25 657 711.75 766.5
ECB Dist cost 13.5 76 96.75 110 123.75 141 156 168
CA Dist cost 9 46 58.5 67.5 77 87 94.25 101.5
Distribution cost (big three) 85.5 470 598.5 685 770 885 962 1036
% additional revenue captured   108 87 73 65 62 57 54
Figures in US$ million

Secondly, there is an implied ownership of the local market. Clearly the representatives of the BCCI, the Indian team, are more marketable to the Indian public than other teams, but ICC events are organised and operated by the ICC, the business. The money generated by that business is a payment from fans to the ICC for providing a product. Moreover, the money the ICC generates out of the World Cup is significantly higher than what India generates from a whole season of matches. The World Cup has cachet that a bilateral series does not; to claim money generated in a locale as otherwise belonging to that locale's cricket board is a nonsense. As a fan, I object in the strongest possible way to being considered a serf to Cricket Australia.

That money should be cross-subsidising development initiatives, smaller tournaments, administration, and anything that grows cricket as an international sport. That should be the ICC's remit and its option as an independent entity. FIFA may be riddled with corruption, but it spends big on development, and well it should. ICC revenue was already overly oriented towards funding members, and in turn, their professional programmes, instead of grassroots growth, infrastructure and development. The World Cricket League currently shuttles between a small handful of nations for lack of turf pitches and decent facilities.

There is little market growth and development in cricket but a lot of redistribution. The working paper proposal would serve only to exacerbate that problem

Thirdly, the accounting of the "distribution cost" is questionable in the same way Goldman Sachs bonuses are. The standard Full Member/development split is 75%/25% of the surplus. But as the table above shows, the surplus barely increases with revenue even though costs (and therefore the scope of services offered by the ICC) stay nearly the same. The difference is made up by accounting for payments made to Full Members (naturally not Associate members), to cover the opportunity cost of participation instead of playing elsewhere. Instead of investing ICC revenues in the game, they are being paid out as a "cost" to nations for the right to have them turn up: a kind of corporate bonus from management to part owner that strips value from the firm.

And for Associates and Affiliates, these payments mean they get a double kicking. Not only is ICC development funding being reduced, the 25% surplus has now been redefined to exclude the "distribution cost" that makes up almost a third of revenue in most scenarios. As the "distribution cost" is larger than the projected surplus, this represents roughly a halving of the Associate and Affiliate development payment for most revenue projections. Add in the Test fund (which will help the financially strapped Full Members with their challenges relating to "uneconomical or unfeasible tours"), also a cost, and the scrapping of subscriptions, which added to revenue, and the Full Members are getting an enormous increase in payments without giving anything back in return. Sometimes you just have to stand back and admire the sheer brazenness.

Other issues pertaining to global growth could go either way. The accounting of events as event costs, rather than putting them under the head of development might be an improvement. But the subjugation of development to the F&CA committee means it comes under the control of Full Member representatives, who have repeatedly demonstrated little knowledge of development issues, and even less care, and who now have a vested interest in cutting as many programmes as possible.

The increase in funding to the top six Associates is likely to backfire too. We have already seen in the recent past that high-performance-programme grants are mostly used to pay professional players to train, which adds nothing to long-term development. The scorecard system in place provides a much more nuanced assessment of needs, and represents greater value added, and while it will no doubt remain, increases in funding to teams without increasing playing opportunities is a waste of time.

There is little market growth and development in cricket but a lot of redistribution. The working paper proposal would serve only to exacerbate that problem. There is no development of cricket's products, though the most lucrative bilaterals can now be played even more often. And there is a clear aim to reduce the scope of ICC operations under the guise of cost-cutting, a lot of re-accounting to increase distributions to Full Members (but mostly the big three) at the expense of ICC programmes and independence.

For the most part the proposal leaves cricket exactly where it is now, and that is a very short-sighted solution to very real problems. The ICC certainly needed reform, but any change also needed to build on what was there. Limiting the only multilateral body capable of moving the game forward is a backwards step. This proposal is a power-and-money grab by bodies that believe in little else, and have no demonstrated capacity for leadership or growth.

Cricket will survive it, but any notion of it growing into a global sport recedes. You can't grow a sport without investment, and that just isn't happening, in product development, in market development, or in administrative capacity. Even if we consider the ICC as purely a business, those in charge should still be held accountable for investment decisions; when investment is foregone for asset-stripping then it is time to sell your stock instead.

Russell Degnan writes on cricket governance, finance, statistics and Associate cricket at Idle Summers, and hosts the Associate and Affiliate cricket podcast