CSA admits financial woes – but keep calm, it says

Despite anticipating a R654 million loss in the next four-year cycle, Cricket South Africa is optimistic about the future.

The financial thunderstorm Cricket South Africa (CSA) currently finds itself in is hardly surprising given the tough economic climate in the country. Anything remotely connected to the South African currency – and every institution that relies on government funding – has been imperilled over the past few years. So there is reason to believe that sport bodies such as CSA will begin to operate under a new normal that means dwindling sponsorships and government support, and a greater reliance on media rights, licensing fees and distribution income.

When CSA sat in front of Parliament’s portfolio committee on sport and recreation last month, it painted a gloomy picture regarding its growth prospects over the medium term. By now, the members of the committee must be accustomed to the desperate, penniless monologues of sports bodies, from the SA Rugby Union and Boxing SA to Sascoc, the national Olympic committee. All have projected some sort of loss.

But such is the state of the South African economy that even the organisations that have enjoyed generous support in the past are now desperately trying to doggy paddle their way to safety.

CSA’s vice-president and CEO, Thabang Moroe, broke the bad news to the sport portfolio committee by saying his organisation has projected a loss of R654 million over its next four-year financial cycle. It’s a punch in the gut for everyone involved, and even though Moroe did his best to rationalise his doomsday scenario, it did little to calm anyone’s nerves.

Committee member Darren Bergman (Democratic Alliance, DA) told the meeting he felt that there was no openness and transparency in CSA’s presentations, and asked how much CSA had spent on the T20 tournament in 2017 and 2018.

Naasei Appiah, CSA’s chief financial officer, responded by saying CSA lost R196 million in 2017/18 for a full T20 league launch. He said 50% of this had gone to the players from a contractual perspective, as they had been given rights to play and had to be paid. The production of trophies, equipment from overseas and cargo costs had been unavoidable. Marketing costs were also incurred for the creation of brands. Suppliers and agencies had to be paid for the work done.

Tsepo Mhlongo (DA) questioned the source of funding for players’ performance over the next four years. There was no direct answer to this question from CSA, other than to suggest the money would come from broadcast rights and sponsors.

Cricket development is costly

CSA’s “anaemic” projected medium-term growth was blamed on “inadequate future tour programmes content” and the “challenging broadcast and sponsorship landscape”. To add a bit of spice, Moroe mentioned CSA already spent R340 million this year on “cricket development”, a broad term that includes anything from mini-cricket to women’s cricket.

What Moroe was hinting at was that so-called cricket development costs money, and CSA and the sport and recreation department have a moral, legal and political obligation to fund all its programmes.

Fair enough, Mr Moroe, but how is CSA planning to turn itself around?

The cricketing body monitors itself on a four-year financial cycle because of its fluctuating business model, which relies heavily on inbound tours and broadcast deals. For context, CSA’s previous four-year financial cycle, from 2011 to 2014, saw a net surplus of R286 million, thanks mainly to tours by the money-spinning Indian and Australian national teams.

CSA is not panicking just yet, and the organisation is confident that once the Mzansi Super League (MSL) gains momentum over the next five years, it will break even. Key to this is making the future tour programme such that the world’s top cricketers will avail themselves for the league.

Lining up broadcasters

CSA has contracted FreeSports, a channel operated and owned by Premier Media S.à r. in the United Kingdom. The channel brings free sport to 22 million UK homes through the Freeview, Sky, Freesat, TalkTalk and BT Platforms.

This follows a recent announcement that Sony Pictures Networks India (SPN) will also screen the MSL T20 in India and the sub-continent. And Flow Sports will broadcast the MSL in the Caribbean region.

SPN’s sports channels SONY SIX, SONY TEN 2 and SONY ESPN will telecast MSL T20 matches, including the playoff and the grand finale on 16 December. Season 1 of the MSL T20 will also be available on GSC’s partner OTT Platform Cricket Gateway on app and website www.cricketgateway.com.

In addition, CSA have signed up Sportsmans Warehouse as an official sponsor. “Even if we don’t get any additional sponsors for the MSLT20, we will still be okay,” Moroe told media at the introduction of the MSL team captains in Cape Town. “Given the scale that we are operating in today, we would probably start making breakeven by year five.”

It’s worth bearing in mind, he said, that Australia’s Big Bash, which is in its seventh year, only started making a profit last year.

Avoiding meltdown

All of this bodes well for future investment in the MSL, and is likely to boost CSA’s profits over the next four years, and allay fears of a meltdown in South African cricket. It also falls in line with CSA’s model for future revenue growth, which will see broadcast rights making up almost 80% of CSA’s revenue.

For the summer ahead, South Africa will host Pakistan for three Tests, five ODIs and three T20 internationals; and Sri Lanka for two Tests, five ODIs and three T20 internationals. This before they head to the ICC Cricket World Cup in England and Wales, which gets under way at the end of May next year. There’s also talk of bringing India’s glam T20 league, the Indian Premier League (IPL), to South Africa, but only time will tell if this will be more of a complication than a boon.

For the remaining years in the four-year cycle, South Africa will face India away in 2019 and England at home in 2019/20. In 2020, they will play Australia at home for just three ODIs, Sri Lanka and West Indies away, and Pakistan at home again for three ODIs before trying their luck at the ICC T20 World Cup in Australia.

Interestingly, the future tour programmes and tournaments scheduled by the ICC, the international cricketing body, for the next four years now include back-to-back T20 World Cups. This after the Champions Trophy, which was scheduled to take place in India, was scrapped in favour of another, more lucrative, T20 World Cup. Sending national teams to Australia and India to participate in these tours and tournaments will no doubt rack up further expenses for the already broke CSA.

In 2021, South Africa plans to host England, Australia and India, so CSA can expect to negotiate broadcast rights deals from a position of power. But this won’t stave off the losses that inevitably happen when the big teams don’t tour these shores.

The MSL factor

Moroe said the four-year outlook doesn’t include the MSL, which has the potential of being a viable revenue stream. But that’s not likely to happen any time soon because before the MSL makes any money, it will end up costing CSA money it simply does not have.

To understand how CSA landed in this financial quagmire, one needs to appreciate that the cricketing body has never really been in control of its revenue-generating potential until the MSL. Inbound tours and tournaments are decided by the ICC in negotiation with its affiliate members.

Notably, India’s powerful cricketing body, the BCCI, and Cricket Australia have indirectly dictated the length and timing of their tours because of the audience and sponsorship numbers they command. When it comes to stadium and broadcast audiences, South Africa can’t compete with India, Australia and England, hence CSA has little to bargain with when it comes to broadcast rights internationally.

Cricket was in a different place financially back in 2010/11, when CSA recorded a profit of R295 million, with revenue at R740 million and expenses at R487 million. But things got worse for CSA in the following financial year. According to its annual report for the year ending 30 April 2012, revenue was R430 million. The decrease, the report reads, was mainly due to a “decline in broadcast rights fees, and a reduction in amateur and professional sponsorships”. At the same time, CSA experienced an increase in expenses to R517 million. Back then, broadcast rights comprised 64% of CSA’s total revenue.

By 2012/13, the financial future of South African cricket looked ominous.

On the field, the Proteas were the world’s top-ranked Test team. A series win in Australia, with a remarkable final Test in Perth, was followed by home Test series wins against New Zealand and Pakistan. This, of course, was after winning a series against England in England. But they struggled in limited overs cricket, and their coach at the time, Gary Kirsten, didn’t renew his contract owing to family commitments. Russell Domingo took over as Proteas coach soon afterwards.

According to CSA’s 2012/13 annual report, its “total revenue for the financial year amounted to little over R520 million”, and sponsorship revenues increased by 70% year on year. This was due to CSA having secured sponsorship deals with Momentum, Sunfoil, Blue Label Telecoms, RAM and KFC. But while its revenue grew, its expenses totalled R700 million, resulting in a net loss of R133 million.

IPL bonus drama

In October 2012, then CSA chief executive Gerald Majola was found guilty on nine charges against him, centring on R4.7 million in bonuses that were paid to himself and 29 other CSA staff members after South Africa hosted the 2009 IPL. Three separate investigations found that the money was not properly declared to the CSA Board and contravened principles of good corporate governance.

Fortunately, in 2013/14, CSA recorded revenue of R810 million and incurred expenses amounting to R634 million in expenses, which resulted in the cricketing body posting a profit of R176 million for the year. Majola’s successor, Haroon Lorgat, came at an annual salary of close to R2.5 million, while then acting CFO Naasei Appiah earned close to R1.2 million per year.

By 2014/15, it seemed as if CSA had turned a corner, with new sponsors Audi, Samsung and New Balance coming on board. The cricketing body posted a profit of R107 million in 2015/16, with about half of its revenue in 2016 derived from media rights.

Tackling overspending

Revenue took a dive in 2016/17, however, resulting in a loss of R159 million for that financial year, as income from broadcast rights almost halved. This underperformance represented the biggest dent to CSA’s coffers in five years. But while revenue from sponsorships increased slightly, employee remuneration rose to a staggering R210 million in 2017.

Lorgat reasoned (as CSA always does) that this decrease in revenue was expected “due to the less commercially productive inbound international tours”. But, the reasoning continued, “on a brighter note, it was extremely rewarding to see all our major commercial sponsorships renewed”. Then, though, in imitation of an ostrich: “Looking ahead, our revenues will be sound and the ICC’s revised financial model will certainly boost our revenues in the current tough economic conditions.” Famous last words by the CSA chief executive at the time.

In 2017/18, CSA recorded a net profit of R350 million after absorbing expenditure from the T20 Global League. But it still recorded a 34% increase in expenses, chief of those being professional cricket. Amateur cricket also cost a lot more, at R341 million to 2016/2017’s R301 million.

Over the past four years, CSA has shown it has been unable to curb spending in line with a weakening economy and dwindling financial support from government, broadcasters and the National Lottery.

Moroe also told the committee the “Ram Slam” T20 competition makes no money for CSA, and had cost between R20 million and R25 million per year to run for the past few years. The current league had not started yet, but already R180 million in deals had already been signed.

All this would explain CSA’s eagerness to launch the Mzansi Super League and provide fertile ground for compelling cricket content. For this, broadcasters and sponsors are prepared to pay a hefty price.

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