India has seen a spurt in professional sports leagues over the last few years – from cricket, to football, kabbadi, wrestling, hockey and badminton. The entertainment value it brings to millions of fans is immense. Expectedly, sponsorships and digital advertisements volumes have gone through the roof, making it a beneficial space for brand associations. Investments and commercial transactions are bound to rise further, but the underlying risks around fraud, corruption and non-compliance could potentially hit the leagues with a nasty curve ball.
Playing games on a risky turf?
The world of sports is a multi-billion dollar space, attracting talent, brands and audiences. But like many industries, it has its own share of challenges in the form of unethical practices. Global concerns around bribery and corruption still persist here as they are not yet addressed adequately. The last two decades saw cricket embroiled in ‘match fixing’ or ‘spot fixing’ scandals and football had allegations of money laundering and fraud. The use of performance enhancing drugs has been reported extensively across different genres of sports. With time, the convergence of sports and entertainment has made this space very lucrative but some still end up resorting to short cuts for quick financial gain, instant fame and success.
In India, some of the typical concerns in the sports arena, especially for professional leagues include gaps in corporate governance frameworks, third party risks, non-compliance with policies and disputes. Being a relatively ‘young’ category, governance gaps could arise if there are unclear or no policies and procedures drawn and communicated to stakeholders (such as anti-doping, anti-sexual harassment, racism, illegal gambling, code of conduct for players and umpires, conflict of interest and favouritism). Sports, like the entertainment industry, would also involve multiple dealings with a number of third party vendors. Lack of adequate due diligence to assess their credibility and track record can expose leagues to number of financial and reputational risks. In a franchise model set up, there could be issues around financial irregularities and kickbacks. Let’s understand this scenario through an example – a sports franchisee suspected that some of their employees were indulging in irregular practices with regard to sponsorship sales. To understand the granularities of the situation, a review was conducted to ascertain the process of deal finalization and if any potential kickbacks were given to employees. In this case, the review identified significant evidence pointing to unethical practices by the employees in question. An early action was able to help the franchise mitigate revenue losses to a large extent.
Some other vulnerable areas for professional sports leagues would include the digital field – securing intellectual property, protecting content and minimizing leakage of confidential information. There could be revenue losses due to counterfeit products (merchandise and tickets) impacting the bottom line as well as eroding the brand value of the league as well as sponsors. There is also a high propensity for the stakeholders to be entangled in disputes because of the high spends in branding, sponsorships and related activities. Some of the reasons here could be due to lack of clarity on revenue sharing, ambiguous contracts, calculation of royalties and similar matters which tend to be subject to interpretation. Sporting leagues may also be exposed to money laundering and tax evasion concerns due to cross border inflow of funds by organized crime syndicates to legitimize unaccounted or black money.
Creating a level playing field
In many ways, the industry needs to address these risks, raise compliance and governance levels and promote ethics and integrity. This would be instrumental to maintain the sanctity and success of the sport and trust of the billions of people following it. At an organizational level, companies or franchisees involved in professional sports leagues should chart a holistic compliance path by setting up a strong corporate governance framework. Whistle-blowing platforms will be crucial to uncover potential individual or corporate misconduct which can be further investigated based on facets and merits presented. The institutionalization of a regulator to oversee this field can be a catalyst in building an ethical ecosphere that would sustain the integrity of the sport. Sports bodies and associations can also take on added responsibilities to set standards in line with global leading practices and monitor adherence to those standards. The Prevention of Sporting Fraud Bill (2013) has proposed regulations, and includes provisions for imprisoning individuals indulging in any sporting fraud. Such measures can also help strengthen the sports ecosystem.
Technological overhauls in internal IT and security systems will also serve as a deterrent to mitigate data leakage and cyber-attacks. It is important for the league of (extraordinary) professional sports in India to take a cue from global counterparts by setting formal regulations, bringing transparency, undertaking anti-corruption initiatives and having a zero tolerance approach against unethical practices to emerge as a true winner and show sportsman spirit!
This article was first published in Business Today