India: "Smells Like Team Equity"

Last Updated: 7 July 2011
Article by Desh Gaurav Sekhri

Originally published in the Indian Express dated April 15, 2010.

The transparency of ownership in the Indian Premier League, or IPL, has garnered much attention of late, with much of the focus being on the equity ownership of the new Kochi franchise. While it would be premature to speculate on whether or not the ownership of the ten franchises is of questionable antecedents, what seems to have gone relatively unnoticed in all the fuss is that this is an extremely positive development, albeit if carried out under duress.

There shouldn't be an iron curtain when it comes to information on team and league ownership in professional sports leagues. Indeed, the IPL is one of the only global sports leagues about which so little is known when it comes to the stakeholders. Until now this was not really an issue; but transparency in ownership is a must, as is accountability of the league and confidence in its conforming with legal and ethical considerations.

It is, after all, about to enter the next phase of its existence. Investments in the teams are imminent. So are, reportedly, changes of ownership and of control of the franchises. Prior to these contracts taking place, there should be a clear cut methodology in place that governs how the league does its due diligence when it is to induct new ownership.  

Globally, there isn't a hard and fast rule that describes the structure of professional sports leagues; nor is there any such rule when it comes to the ownership pattern of the teams within them. Yes, it is true that the fact remains that ownership in professional sports leagues — especially where there are large consortiums owning a particular team — are hard to regulate and verify. However, the first step is transparency, and a clear-cut guideline of ownership which would stipulate the ownership eligibility criterion. Once the eligibility criterion is met, then one can verify the funding and ownership.

The National Football League and the English Premier League are two of the most profitable and popular sports leagues in the world. Their respective league rules however mandate contrasting ownership structures.  

The NFL, arguably the most lucrative and successful professional sports league in the world, has a somewhat unique ownership structure, one which allows it to maintain strict control over management and ownership of teams. Unlike other leagues, there is absolutely no corporate ownership allowed, and the ownership groups must contain twenty-four or fewer individuals. The general partner and his/her family must together own thirty percent or more of the team, and any change in ownership is strictly regulated. The reasoning behind this is also linked to ensuring focused management with a singular vision as well as consistent and long term ownership. The ownership for the most part is transparent, and for all intents and purposes, above-board.  

The EPL is the exact opposite, where size and influence have mattered. The sale or purchase of Manchester United, Chelsea, Liverpool and Arsenal are frequently debated, and due diligence and background checks that have been conducted are sometimes questioned with respect to their thoroughness. The ownership guidelines have been questioned, too, along with their implementation.

The EPL faces, as well, questions about the nature of foreign investment in its clubs. While foreign investment has propped up the league and made it a global powerhouse, many of the clubs are debt-ridden, and the cleanliness of the funds and ownership has been a subject of mass speculation.   

Other professional sports leagues follow different patterns. Some leagues own their teams outright; investors then pay for the rights to manage and host a particular team's games. There is no clear-cut formula for how leagues are owned globally. 

While foreign ownership in the US leagues hasn't been much of a factor, the EPL on the other hand has seen a mass influx of foreign investment, and there are concerns as to whether or not the ownership guidelines would need to be tweaked. The Thaksin fiasco with Manchester City — in which the controversial former Prime Minister of Thailand briefly became the storied club's majority shareholder before selling out to an Abu-Dhabi based consortium — led to calls for curbing foreign investment But what the debt-ridden EPL clubs desperately need is equity financing.

What is more likely is a more rigorous 'know your investor' credential and background check, so as to ensure the sanctity of management and ownership of these teams. This is also something the IPL can adopt so as to avoid future spats, and ensure there is a systematic procedure in place. If it learns from the EPL, then it has found a good model to emulate. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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