FRANCHISE FEVER

Once a sport that epitomised timeless tradition, cricket has probably experienced more change in the past 20 years than in the previous 150. New formats, new competitions, new investors, and an ever-changing media landscape are transforming the sport for owners, fans and players. Here, three people at the very epicentre of this cricketing revolution discuss the opportunities and challenges with Charlie and Harry Stebbings, co-hosts of The Business of Sport podcast.

Words: Paul Simpson – Pitch Issue No.12

“Sports franchises are digital content factories, much like movie studios, with the primary difference that you have unlimited content.”

Harry Stebbings: What did you want to be as a boy?

Manoj Badale: The honest answer? I was always quite keen to make money. When you grow up in an environment where there isn’t money, you focus on that. I don’t think I had any sort of clarity. You just set yourself short term goals. Do we demonise making money too much? I actually like it when founders say “I want to make a lot of money.” It was a massive motivator for me and it’s a simple metric for judging your progress but over time it’s become much more than that.

Charlie Stebbings: Can you describe the path to achieving that?

Badale: People tend to reinvent history when they’ve had success. There was no path, just lots of periods when you had a goal put in front of you, whether it was secondary school, a scholarship, a bursary, universities. Looking back, I was very fortunate to have been in informed, competitive peer groups that drive you to good things. On the downside, I might have been too influenced by those groups and the supposed right thing to do. It’s about seizing the opportunities put in front of you. I like that a lot. Success is definitely a lot to do with luck. All I’d say is that to be lucky you need to work hard, put yourself in the right positions and be able to connect the dots.

HS: Are there particular qualities you look for when investing in sport?

Badale: For many years, sport was seen as a trophy asset for rich people, like big houses and yachts. Sometimes, that’s still true. But we do look for certain characteristics.

Number one is the value of the media rights, because investing in sport is ultimately about investing in eyeballs, so assessing the value of the media rights is vital.

The second thing is if, like me, you believe in business fundamentals, how can you make a profit? To do that, you need some control on costs, not just exciting revenues. Cost control often means salary caps because where you don’t have them –  the English Premier League for example – the main beneficiaries of those media rights are the players. If you’ve got cost control, you’ve got a level playing field – and a chance of winning. Only eight teams start the Premier League season with a real prospect of winning it, so there are a lot of redundant games, and fans want unpredictable outcomes which, I’ve always thought, are the essence of sport.

The rigor with which that salary cap is applied is as important as the cap itself. It’s easy to cheat and people with big egos who like winning will find a way. That’s where transparent procurement comes in, so you can’t cheat when purchasing players. In the IPL auction, teams literally buy players in front of each other, in one room, live on television. We all have an equal chance to get that player. There’s no cap on bids but there is on overall spend. It’s like going to an auction where everyone has £10 to spend. We’ve got the same players in front of us and we must consider how we’ll allocate our £10. The Americans pioneered this with the NFL draft and they go even further – if you finish last, you get first pick. And the fifth characteristic is no promotion, no relegation. The minute you have jeopardy as an investor, you have to discount the value. That attracted us to the IPL. There was no risk of spending tens of millions of dollars season after season and falling out of it.

LEFT: Rajasthan Royals captain Shane Warne celebrates the wicket of Ravindra Jadeja with Shane Watson in 2011.
RIGHT: 14-year-old Vaibhav Suryavanshi makes history with a stunning IPL century for the Royals in 2025.

HS: Can you turn that on its head and look at something like Wrexham and say value can decrease if things go wrong but increase when they get promoted?

Badale: Moving from the National League into the English Football League is one of the few interesting investment opportunities left in soccer. You’re still at a level where player salaries aren’t completely out of control, and the prize for moving up is massive but there is a discount on the value of many English Football League and National League clubs.

CS: You’ve been involved since day one with the IPL and Rajasthan Royals.

Badale: Actually, our involvement in cricket predates the IPL. In 2006, Charles, my business partner, got tired of hearing me rant about English cricket, how administrators weren’t recognising this massive seismic economic shift from England and Australia to India, and the equally fundamental shift from long-form to short-form, and said let’s do something. We ran a television show in India called Cricket Star, like a Pop Idol for the sport. We bought the commercial rights for Leicestershire, and tried to make that our focus because Leicester was the first British city to have more than 50% Asian population. We created a Champions League of T20 Cricket. These experiments were all reasonably unsuccessful, but when the IPL came along, we were the obvious people to be asked to bid for a franchise.

HS: Was that an obvious decision, given that those projects hadn’t worked so well?

Badale: The franchises were advertised at a price of more than US$60m. But, when you read the prospectus, that money was spread over 10 years. When you’re making a venture investment, you try to calculate your cumulative losses in the first three to four years. If it’s not working by then you’ll hand the keys back so we probably didn’t risk much more than $20m.

Was it obvious? Some things were. The appeal of cricket in India. After our experiments, we were convinced T20 would be the dominant format. Not everyone thought that 15 years ago but they do now. We firmly believed that if you had the world’s best players, eyeballs would come and the media rights would be valuable.

Reasons not to be so sure? I personally had doubts. We wondered whether Indian fans would become tribal about their teams like English football fans. At the first semi-final, we were playing Delhi in Mumbai and Australia’s Shane Watson was bowling at Gautam Gambhir, an Indian superstar. And 30,000 people were chanting for Watson. I remember saying to Charles “Wow, tribalism has arrived”. Also, there had been no T20 in India so would fans like the bite-sized version? And there’s always an existential risk when you’re investing in emerging markets, as India was then.

HS: When it comes to the auction, what is your strategy? If you had £10, given the economic clout of today’s superstars, is it better to spend £9 on Lionel Messi or Pat Cummins or try to build a good team?

Badale: The answer’s sort of in between. Essentially, you’re making three-year decisions because that’s the length of players’ contracts. In round numbers, if the salary cap is $12m, you’re deciding how to spend $36m, not quite instinctively, but in the moment, without doing any more due diligence. And you’ve got to get the allocation right. Your £9 out of £10 doesn’t work because you can’t win a cricket game with one player. There are 11 slots to fill, so you’ve got to bowl 20 overs, and bat down to six or seven.

CS: Does the limit on international players for each IPL team ramp up the pressure when bidding for them?

Badale: It’s partly supply and demand. If we’ve got 10 IPL teams, there are four international slots and 40 internationals across the league. There are many more international cricketers good enough to play in the IPL, so who do you prioritise? The second challenge is that you can buy eight for your squad. How do you motivate amazing players who only play one or two games? We had Joe Root, one of the greatest batsmen of all-time, as backup. That’s when you have to do due diligence on the player’s character. Joe is one the humblest, nicest guys you’ll ever meet and was just thrilled to be part of the IPL. That’s not true of all superstars.

HS: Your first criterion was TV rights, why is that so important?

Badale: Not TV rights, media rights. That distinction is important. TV rights, as a generalisation, are probably in decline, whereas digital rights are booming. In the very first IPL – I’m simplifying for effect – the TV rights were probably 90-95 per cent of the value with digital probably accounting for 5 per cent. In the last negotiations, digital rights were worth the same, if not slightly more than TV rights. I suspect in three years’ time, it’ll be 80-20 in favor of digital.

HS: Is social media the friend to the business of sport?

Badale: Over time, it’s an absolute friend. It does a number of things. First, there’s this concept of dual screening, where people watching on any platform can discuss the game with friends on social media, effectively creating a second screen for advertising. Then there are the highlights. Most kids don’t watch the actual game, they watch the bite-sized highlights and social media is incredibly effective at distributing those amazing moments. And sport is a tribal social thing, so Wealdstone Football Club fans across the world share National League streaming and discuss it on social media. That couldn’t happen in an analog TV world.

HS: How have the media rights changed since 2008?

Badale: It’s been an extraordinary growth, to the point now where, on a per game basis, we’re only behind the NFL as a sports league, which makes the IPL probably the second most valuable sports league in the world. When you work it out properly, a franchise today is worth around £1bn plus assets.

HS: When does franchise value plateau?

Badale: When the media rights plateau. Sports franchises are digital content factories, much like movie studios, with the primary difference that you have unlimited content. Over the past few years, we’ve seen the rise of ‘shoulder programming’, additional content. We’ve got our players for seven weeks and 14 games, so what other content can we create? Social media, adverts with sponsors, behind the scenes documentaries, and one on one stuff around a particular player… just watch Drive to Survive to see how ‘shoulder programming’ has transformed the economics of F1.

HS: Does it worry you as an owner when players acquire so much clout that Lionel Messi can tell Apple, “I’m having part of your revenue stream” and they give it willingly?

Badale: Not at all. When you’re building a sustainable business, you share your gains with the people who helped create them. If you don’t share the value appropriately, it will eventually catch up with you. There are two fundamental assets in sport: players and fans. The question that isn’t asked often enough is how do you share value with the fans? Look at social media. Facebook is what Facebook is because of its engaged users. But wouldn’t it be even more successful if there was some economic benefit for the users who create the content? The same is true of sport. All that matters is on field performance, and that’s driven by players and fans, so how – and it’s something we’re trying to think through – do you share the value with them?

CS: How do you ensure that interest in cricket keeps growing?

Badale: You’ve got to be crystal clear where the value comes from. That’s customers, right – fans in sport. And how do you prepare for the future? You base your decisions on what the fans of the future want, not what you want. It’s often said that the best players want to play Test cricket so therefore we should play Test cricket. Now, with due respect, that’s a secondary consideration to what fans may want in future. Attention spans are diminishing. Our willingness to take five days off to go to Lord’s is changing. Any business – especially a consumer facing one – needs change. I love Test cricket, but we must keep asking how we reinvent it, experiment and make it more appealing – and inclusive – for the next generation. In cricket we hide behind the notion that the sport represents tradition, but you’ve got to keep evolving to stay relevant.

CS: Looking at an English county club now, what would you do to make them sustainable businesses for the long term?

Badale: You have to start with a blank sheet of paper and ask where do we need to be? Our competition is not ourselves, it’s other sports, video games, other forms of entertainment. We can’t sit in a bubble. This is about how relevant cricket is in 20 years. The problem with many decisions in many sports is that there are always compromises. What can we get through the board? The counties? Administrators? The IPL was a disruption. Disruptions are bold. It was governed differently, moved at a different pace, and was driven by private investment, with the goal of making the IPL as big as possible and reaching as many people as possible.

HS: You talked about the importance of fans but the interesting thing about sport, as compared to business, is the weird dynamic between consumer and owner, a lack of transparency. Why is that?

Badale: I actually worry about the opposite: sports owners thinking it’s more about them than the team or the fans. One reason sports franchises are so valuable is that it is very rare to get such engaged customers for so long. And, if you look at lifetime value terms, when you capture a fan at the age of seven, it is incredible. That said, when things go wrong, there’s an awful lot of emotion, irrationality, and uneconomic perspectives shared in the media and social media.

CS: Which sport, outside of cricket, has the most untapped investment potential?

Badale: I find niche sports in large markets with very large engaged fan bases interesting. Handball is big in Germany, in many parts of Europe, and Asia, and has a truly engaged fan base. You could create a global handball league, a property made for digital and broadcast, in a relatively short time.

CS: What is the key discipline you bring from traditional business into sports ownership?

Badale: There’s no single discipline. We try to apply all the things we’ve learned, whether that’s hiring, reporting, evaluation, technology, and data or making decisions with sufficient cognitive diversity in the room. Every time we’ve gone astray, it’s been because we’ve let those principles drop – it’s either ego, passion, impatience, or urgency that may or may not exist. Sports owners sometimes ignore the reasons they succeeded in business. I’ve been guilty of that. There is a public visibility to your decisions which can influence you, consciously or subconsciously.

HS: What’s been your biggest highlight owning the Royals?

Badale: Winning that first season in 2008 was extraordinary. Nothing beats winning in front of large numbers of people. Much to my wife’s disappointment, I described it as the best moment of my life, which obviously is not true – second best moment fifth after the three kids. And, while you enjoy the good times, never forget what a privilege it is to do these things.