PSL negotiations: Franchises weigh options after PCB's take-it-or-leave it offer

The deadlock between the PCB and PSL franchises over a new financial model is set to continue, with a new board taking a more hardline approach in the negotiations.

As franchises contemplate a final, take-it-or-leave it offer from the PCB and push for an extension before responding, it's become clear that a change in administration has hit the ongoing negotiations hard - the Ramiz Raja-led group has put down what amounts to a fresh set of terms. The franchises have to respond to the offer on Monday, following another meeting among themselves on Sunday.

Three options are available to them: (a) they agree to the terms, (b) they don't agree, or (c) they ask for more time, which looks likeliest.

The new terms include the PCB offering the six franchises a hike in their share from the central revenue pool from next season; a fixed 95% of all revenue streams in the new deal, as opposed a variable amount between 85% to 90% previously. But, at the same time, the plan to give them rights in perpetuity after the tenth season has been removed. Instead, franchises would have to pay an increased franchise fee [existing fee + 25% or 25% of market value of the franchise, whichever is higher, is the hike in fee value].

Last week, objecting to the hike, the franchises had written to the PCB, saying, "… we believe that this is a punitive clause which punishes the Franchises who have built the PSL from scratch. […] If this clause is removed then the franchisees shall be in a position to invest more in the development of the franchises and consequently improve the quality of PSL. The overall effect of this clause is that if the Franchisees invest and work towards the growth of their brand then that same growth shall be counterproductive to their efforts and consequently leave them with paying a higher franchise fee."

In its new, final offer, the PCB has also revised the franchise fee payment schedule and done away with the regular practice of paying player fees themselves and adjusting that amount from when they pay out from the central pool revenue. In this new model, the board is asking franchises to pay 50% of the player fees in advance.

The board-franchises impasse has been on since 2018, with franchises arguing that the model, as it was, has prevented profitability for them. The league is now six seasons old, but four out of the six franchises, it is believed, are yet to break even on their investments. Franchises have long felt the current model is skewed in that, while the PCB has made money off the league as the sole beneficiary, the franchises as stakeholders have not made similar headway.

Another longstanding point of contention has been over the exchange rate of the US dollar. The price of franchises when they were auctioned was set in US dollars. In 2015, when the first five franchises came on board, the rate was PKR 105 to a dollar. The rupee has consistently and significantly lost value since then, presently hovering as high as PKR 170 to the dollar. This has hurt the franchises. In 2018, ESPNcricinfo has learnt, all parties were close to agreeing to peg the rate at PKR 138.6 to the dollar, after taking independent advice. But an agreement couldn't ultimately be reached, as the PCB said it didn't have faith in the independent advice that was given.

The matter has remained unresolved since. While franchises have been paying their fee every year - though not without delays from some - as per the USD rate on the day, the board has signed its commercial and broadcasting deals (the latest three-year cycle has ended this season) according to USD rates locked in 2018. The current board has told franchises it cannot now agree to the September 2018 rate because it has expired. Instead, the PCB has offered to lock the rate to the day the new agreement is signed.

In 2020, the franchises took the battle to the Lahore High Court, though ultimately the court asked the parties to settle the matter out of court. That led Ehsan Mani, the previous board chairman, to set up a one-man panel with a retired chief justice of the Supreme Court of Pakistan to arbitrate on the issue. Tassaduq Hussain Jillani submitted that report last month, though the PCB has not shared the details of it with the franchises, citing it as confidential.

"The PCB should review the matter since there has been a massive increase of the franchise fee amount in rupee terms owing to rupee devaluation, something that was not envisaged by PCB or Franchises at the time," Najam Sethi, the former PCB chairman who was in charge when the league began, told ESPNcricinfo.

The last two seasons of the league have been disrupted by the pandemic, which has, Sethi said, hit the value of the central revenue pool, which is shared by the franchises. "Why doesn't PCB make public the Justice Gillani report on how to move ahead with the Franchises? All models will break down if only one side makes money," he argued.

The original franchise agreements, from 2015, were formed by Salman Sarwar Butt, at the time the project director responsible for selling franchise rights. "PCB was required to play the role of a franchisor by forming a team of experts to regulate its product rather than just relying on the central pool," Butt told ESPNcricinfo. "They were meant to bring in the intellectual capital to assist. We haven't seen any development of these income streams.

"So, while the PCB is happy with their franchise fee, it was evident that franchise owners would start feeling the revenue crunch in the absence of other revenue streams that they should have developed with the initial assistance from the PCB."

One of the major sources of revenue was expected to come from merchandise sales, but franchises have often complained about piracy issues. That would, however, involve pulling in government and law-enforcement agencies to clamp down on piracy vendors. At least three franchises have their apparel and other products online but it has yet to become a major revenue stream.

"The PSL as a product and brand has grown substantially, which you see through the tripling of broadcast and central sponsorship values," Butt said. "However, the values of franchise sponsorship has struggled and that is largely because the market was not really fully explored. Cricket is the most popular game in the country, but you have to market it wisely and properly.

"Back in 2015, we were new to this product, and the agreements were signed with an open mind envisaging growth. There was certainly some nervousness as there was no proof of concept in our market at that time. However, we were positive about it despite the league being played in UAE.

"At the heart of it, the sports franchise model has to be looked at as a retail brand and business building endeavour in which you build the brand of the franchise, create a following of fans and then co-opt with product and service providers to sell to the co-opted and co-branded products and services and monetise the fan base. This very important work needed to be led by the PCB but we didn't really see that happen."

As for the future, Butt said, "Our contracts at the time were written offering flexibility to review accordingly as circumstances evolved. I don't know why there's been a reluctance by the PCB to change the financial model. In the first few years, franchises should have been given maximum amounts from the central pool to help them as they grow their own business streams. The clause about increasing the franchise fee by 25% to its market value after ten years can also be looked at. The teams can be given in perpetuity if certain conditions are met and can be taken away if they are not.

"Six years ago, we were launching and circumstances were very new. So, a relook is always on the cards, the IPL has done the same."