In 2010 Harish Thawani, CEO of Nimbus Communications, bet the house on a four-year cricket television rights deal for Rs 2000 crore (approximately $350 million).
The deal is now cancelled; a Rs 2000 crore bank guarantee is at stake, and Nimbus is saddled with the costs of a cricket channel without the cricket to make it viable.
Nimbus was reportedly in talks with Multi Screen Media, formerly Sony Entertainment Television, to sell itself in part or whole.
A senior analyst in a research firm who was familiar with the discussions said the talks ended abruptly. He linked the sudden termination to the broadcast deal's cancellation.
An MSM executive said he could not discuss the talks because there were an internal matter. A top Nimbus executive denied they were looking for a buyer, and said that the company was looking for a cash infusion.
DRAFT RED HERRING PROSPECTUS
In 2010, Nimbus, whose investors included 3i, Cisco, and Oman International Fund, filed a draft red herring prospectus, necessary for an initial public offering. The document was Nimbus' most public declaration that it needed capital. It planned to use the proceeds from the issue, valued at Rs 900 crore, to start bollywood and lifestyle channels, thereby hedging its reliance on high-stakes cricket broadcasts for revenues.
The prospectus confirmed suspicions about the company's precarious financial position: losses grew each year, from Rs 25 crore in 2006 to Rs 160 crore in 2010. Nimbus was also burdened with the need to make frequent payments to the BCCI. If and when payments were delayed, it risked forfeiting a Rs 2000 crore guarantee issued by a banking consortium led by Punjab National Bank. PNB alone had guaranteed Rs 750 crore of that amount.
In fact, that was what happened last week. The BCCI announced Nimbus in forfeit, cancelled their agreement, and said it was cashing the bank guarantee.
A former executive familiar with Thawani's management style says the Nimbus chief opted to acquire cricket television rights on onerous terms (the company was offered the right to refuse first) because the alternative meant shutting down the channel. "He could have refused the rights, but he doesn't think that way. He probably thought he could make it up." At the cost price of Rs 31.5 crore per game for 62 games, Nimbus had to earn an unprecedented amount over a sustained period to turn a profit.
According to a mortgage deed filed by Nimbus, it anticipated earnings of Rs 2761 crore from the rights. The source of this confidence is unclear: the deed states that Nimbus expected to earn Rs 1213 crore in advertising revenues from cricket between 2010-14. However, the ad revenue from all its sports for the previous four financial years was only Rs 360.1 crore.
In plainspeak: Nimbus expected a 400% rise in ad revenues.
'LOT OF HYPE'
The company's single biggest expense is its sports broadcasting rights. The income from these rights has grown, but the cost of the rights has slipped further and further out of reach. According to the company's prospectus, Neo, the Nimbus arm that broadcasts cricket, accumulated losses of Rs 1158.7 crore, "which far exceeded the shareholders' equity of Rs 513 crore…"
The senior analyst, whose firm had considered taking up the mandate to sell Nimbus this year, said that he strongly recommended against it, and prevailed. "Nimbus essentially is a commodity company. It buys rights and sells advertising spots. Every other broadcaster can do this. They don't add much value."
He believed the company was run "on a lot of hype. You might try to create a brand name in the market, and then attract higher ad rates than your competitor. But that didn't work. There hasn’t been a single year when it looked like it was going to make money."
Contemporaries describe Thawani as a man with a love for quick deals, in possession of a sharp mind, and an eye in search of weaknesses to capitalize on. He also acquired a reputation as an inveterate risk-taker who thrived in the opaque world of Indian cricket broadcasting. He was, and remains, a constant presence in a domain whose biggest players – Mark Mascarenhas, Jagmohan Dalmiya, and Lalit Modi – came to expand the commercial boundaries of the sport through a mixture of cooperation and cunning.
In 2006, Thawani put in a blockbuster $612 million bid during a poisonous battle for television rights that ended with aggrieved Zee Television officials starting a rival 20-over competition that, in turn, hastened the birth of the Indian Premier League. "Knowing Nimbus, I'll bet we didn't have a million bucks in our bank account [when we made that bid]," the executive says.
Nimbus had produced cricket before, but winning the television rights gave it the opportunity to enter the league of marquee broadcasters, which included Sony and the ESPN-Star Sports combine. Nimbus executives who were present at the Marriott when word of their winning bid came through say Thawani's delight was tempered. He reportedly told his staff to stay grounded, and added that they now had a "good opportunity" to start a channel. For the next 48 hours he had them work out revenue streams during a marathon session. Soon Thawani allowed them to savour the contract when he held a party at a garden outside his fourth floor office in Lokhandwala where the staff mingled with Thawani's friends. (Thawani would later mortgage the 36750 sq ft office for the Rs 2000 crore guarantee.)
Next October, Nimbus launched Neo Sports. But some wonder if Thawani should have bid for the rights at all.
Nimbus' entry as a bidder took Zee by surprise because Thawani had earlier worked with them as Zee prepared its own bid for the broadcast rights. The consensus was that Thawani had been underhanded in his dealings. Broadcasters claim he knew what Zee was going to bid – a charge the former company executive denies vehemently.
"When I sit outside and think about it now, bidding by ourselves was seriously unethical," the executive says. "When I was there, it was like 'why not? All the planning is done here, the thinking is done here, and all the work is done here by us, so why should Zee have it?' But did he know Zee's amount? I don't think so. Why else would he bid so much more than them?"
Nimbus bid $612 million. Zee had bid $513 million. (The executive says that after a government intervention, Thawani assured his staff that the BCCI was going to reduce the deal amount – which did happen.)
Having won, Thawani faxed Zee, offering to sell them the very rights they had felt cheated out of. The polite version of the story is that Zee turned him down.
Thawani recognized few lines when it came to business. A former channel head says Thawani didn't care to make appointments. He would call and ask if they could meet that day.
Once, when the executive demurred, he allegedly retorted, 'Could you take a shorter lunch break?'
"He didn't believe that things like rules and laws could apply to him. I mean, people waited a month and a half to meet me." The channel head says that "one day he actually came over and said 'I want to make a daily soap because that spells money. You tell me what daily soap you want, and I'll make it for you'." He didn't bother with presentations. "He had these crazy ideas about what he was going to do. But now look at him. He has that Singapore office he talked about," the executive says in admiration.
Employees say that Thawani's vision permeated the enterprise, and he alone gave it direction. He would walk into external meetings alone and proceed to dominate them. This led to other broadcasters describing it as a 'lala' company which ran according to the whims of its owner. Employees found him willing to listen and act upon ideas immediately, but they noted that the final call was always his. Nevertheless, they strived to be in his good graces because, the executive says, the people Thawani disliked were often pictures of misery.
FACING THAWANI's IRE
The group that most often faced the brunt of his ire was reportedly the finance department. "He was always after them to make money all the time," the executive recalls. It became a "bad, bad place to work. You're constantly being pushed to make money. You don't see that kind of turnover of Chief Financial Officers in other companies."
"Money was always an issue," the former executive says. "Nimbus, at the end of it, was an individual shop. That one person would think, and he would deliver." A marketing officer at Doordarshan and All-India Radio recalls tough meetings with Nimbus officials after the government instructed Nimbus to share telecast rights with state-run broadcasters. "When you pay that much money for rights…"
To keep costs down, production personnel shared rooms during games, and were retained on monthly salaries. This gave them the security of a stable income, and allowed the company to retain them at lower wages than they otherwise would. The arrangement was a happy one because it allowed staff to cover events for other broadcasters as long as Nimbus was a priority. Other broadcasters anonymously claim that Nimbus' exercises in reducing costs affected the quality of their broadcasts. "This isn't true," the executive says, "The way we ran production was new to these guys. We hired and groomed talent."
COMPLAINTS ABOUT WORK CULTURE
There were complaints about the work culture at Nimbus – a culture other broadcasters were happy to depict in detail. One employee who stayed for a few months said, "I had a great boss, but I hated it. It was haphazard, not like a proper organization." The employee described scenes of yelling and loud abuse before noon, and people who left because they thought "management elsewhere was better".
But another former employee who sold advertising at Nimbus for close to two years said that he wanted to move there despite everything he had heard because it held the rights to cricket, "which basically does 50% of your job for you".
When the issue of an inhospitable work culture was put to the former executive, he dismissed the charge outright, and said that instead of complaining, people who don't like it should "get the f--- out". Thawani, he said, was a softie who "would never sack anybody. People were sitting there doing zilch."
In his view the operating procedures were fine. "There were weekly reports, and monthly reports with client responses. Unless you went beyond your budget, you didn't have to meet him. The amount of freedom he gave us was fantastic." He described Thawani as a "great guy" with one of the best brains in the business.
"It's a shame he's almost bankrupt."
For the former channel executive, Thawani's decision to take up the BCCI's offer finally led to his undoing. "I saw it coming the day he signed that contract. I saw Neo Sports wasn't doing well anyway. Not that any channel was doing very well, but guys like ESPN-Star Sports had deep pockets. That's the only reason they survive. Nimbus doesn't have deep pockets. He should have come out with an IPO earlier."
The analyst says that Nimbus' biggest risks didn't lie in what it was doing, but who it was doing it with. "The bank guarantee, all that stuff, that's on the banks. Nimbus is going to lose its shirt, but that's it." The biggest risk, he said, was the BCCI. "How do you deal with an entity that is run on egos and personalities? There's no certainty when it comes to them."
Rahul Mehra, a supreme court advocate who has badgered the cricket board and other sporting bodies to make themselves more transparent, refuted the hypothesis that Nimbus was a victim of the very system it benefited from. "Look, it was a company with no standing otherwise. It was a non-entity. He had contacts within the board. And he got a life-time deal on a platter."
When I mentioned employee complaints to the former Nimbus executive, he expressed unreserved disgust for them. "You have got in with your eyes open. If you don't like it, get the f--- out. F--- off from there."
Nimbus had thrived because of – and despite – the transient nature of the larger system it was a part of.
Thawani knew what it contained. He had walked in with his eyes open.