Tuesday, 28 February 2012

Why teams/franchises fail - untangling the web

I was asked this in light of the Otago rugby saga, and initially my thoughts resembled a tangled mess. After time for some thought, I've managed to separate what I believe are the major factors in why we have seen several teams/franchise strike difficulties in Australasia in recent times - and there are many parallels with the North American experience.

There is no question whatsoever that the role of bad debts has played a major hand in Otago rugby's imminent demise. The fact that the Otago Rugby Football Union (ORFU) owned its own aging ground, Carisbrook, and were therefore responsible for costly maintenance and upgrades would have hurt the union. The fact that despite its iconic status, the threat of losing major games if the ground was not overhauled was the major spur to build the Forsyth Barr Stadium. As soon as the FB Stadium was given the go-ahead, it was curtains for Carisbrook, and the ORFU therefore lost a lot of leverage in their financial situation. With a ground that was no longer the first-choice venue for rugby in the future (and had lost cricket to the University Oval), its value was diminished. Adding to their woes, they were understood to have been locked into long-term deals like a 30-year agreement to use lighting that they no longer use at Carisbrook. Despite offloading Carisbrook to the Dunedin City Council, and ridding themselves of many of the operational costs associated with the old facility, they were anticipated to be an anchor tenant in the new stadium and paying rent for the privilege - rents they were not paying at Carisbrook. According to the Otago Daily Times, the ORFU chairman Wayne Graham was reported as saying:
... owning Carisbrook had become a millstone around the union's neck, while matters such as how much it would cost to play at Forsyth Barr Stadium were never considered.

When the Union hasn't planned ahead to meet these costs, there must be serious questions asked of the present and past boards. While the wisdom of many of these decisions is debatable, the fact remains that the debt situation got to such a state that the New Zealand Rugby Union (NZRU) refused a bailout, despite sinking $200,000 into the Union for the first two months of 2012 in an attempt to alleviate the problems the ORFU were facing.

[NZRU chairman Steve] Tew told Radio NZ no other rugby unions were in as bad a shape as the Otago body, but he hoped it would be a "bit of a wake-up call'' to administrators that the NZRU won't be able to bail everyone out forever.

There are several pressing issues that will continue to shape the future of rugby in this country.

There is also no question that rising player costs has played a part in the ORFU's predicament. One needs to look no further than Southland, Otago's partner in the Highlanders Super Rugby franchise, who were given a substantial funding injection of $1.5 million by a group including the NZRU in 2011 with player costs believed to be a major contributing factor. The rise of the players association has been a factor in rising player costs, and has hurt some provincial unions. One could argue that the growing role of the players association/player unions is an evolutionary step in professional sports to combat the monopsony power of team owners, but it is worth recognising that player unions are primarily interested in, but not restricted to, facilitating higher wages for its members. The rising influence of player unions has been a major issue in professional sports leagues across the world, resulting in lockouts in three of the US major sports leagues in recent times, and will be an important issue in New Zealand rugby should we see other provincial unions continue to struggle financially.

One must also consider the nature of the revenues earned by provincial rugby unions in this part of the world. Provincial unions don't have the comparative luxury that the Super Rugby franchises enjoy with the lucrative broadcasting deals negotiated by SANZAR and broadcasters. Provincial unions rely on money filtering down from the professional franchises. At the advent of professional rugby in New Zealand in the mid-1990s, the provincial game has been caught in between the fully professional Super franchise and the amateur club rugby scene. The result has been that provincial rugby, at least for the ITM Cup provincial unions, is effectively semi-professional, which means that while the costs are sizeable, the revenues earned are not. At least the ORFU owned Carisbrook, which it was able to rent out to users. According to the Otago Daily Times (ODT), the ORFU's revenues from gate takings and ground rentals fell by up to a third in the past five years.

Fan support and the demographics of the Dunedin city and the Otago region must also be recognised as a factor in this situation. Crowd figures at Carisbrook were in steady decline, and this can be attributed to a combination of local area demographics, increased entertainment options (particularly the increasingly televised national game) and the poor on-field performances of the local team. Otago finished last in the ITM Cup in 2010, and although the team improved in 2011, attendances had flatlined and only the diehard fans were making the trip to the House of Pain to see the region's best go around.

There appears to be a growing gap between the haves and have-nots in New Zealand provincial rugby. This from the ODT:

In the past six years, the union has accumulated losses of some $10.5 million and in the past decade it has made just three surpluses, according to documents lodged with the Companies Office.
That compares to a decade of profitability for the Auckland Rugby Football Union, and just two deficits for the Canterbury Rugby Football Union in 2007 and 2009. The Wellington body reported three deficits in 2008, 2009, and 2010, but enjoyed a $1.2 million profit in the 2005 season.

As I mentioned in an earlier post in this blog, it is somewhat ironic that the team was expected to tenant the new Forsyth Barr Stadium - a facility that received rave reviews during the recent Rugby World Cup. The honeymoon effect associated with a new facility is likely to have at least given local attendances a boost while the novelty of the new stadium remained. A return to the days of a competitive (read: winning) local team would also go some way towards restoring local interest and getting the turnstiles moving again.

A related issue is the likely effect of the ORFU announcement on the anticipated private funding towards the Forsyth Barr Stadium. The ODT has raised this issue, and it is sobering. No Otago team would likely hit revenues from season ticket holders expecting to see not only Super Rugby but also ITM Cup rugby, and will lower anticipated hire revenues received from the ORFU. Local corporates might well review their longer term involvement in a facility that now has one less major attraction on its books.

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