Spot the difference

Titanic struggle, but ARL Commission won't walk from club's off-field woes

The NRL's Gold Coast Titans are believed to be suffering from severe financial difficulties. The Titans franchise is the fourth incantation of a rugby league franchise hosted by the famous holiday strip that began with the inaugural Giants, then the Seagulls, followed by the Chargers. The Gold Coast is also home to the A-League's Gold Coast United, which has recently had its licence revoked by the FFA. It is also home to one of the newest AFL franchises, the Suns. It is considered a strategically important area by many major sports in Australia, and the AFL are believed to be supporting the Suns franchise to the tune of A$20m annually to help them compete not only within the AFL but also against rival codes in the area.

The Titans are in debt primarily because of massive investment in their Centre of Excellence, a state of the art training facility, gymnasium and conference facility. It was recently trumpeted as one of the major attractions for NSW and Australian centre Jamal Idris signing a lucrative deal with the club. Now they want to offload the facility to pay down debt. Meanwhile they have signed Queensland forward David Taylor to a sizeable deal and are believed to be targeting boom Melbourne halfback Cooper Cronk in a three year deal rumoured to be in the vicinity of A$800,000 a season. They are going cap in hand to the newly formed Australian Rugby League Commission pleading for help while they turn things around.

Sound familiar? Well, while the Gold Coast and Otago rugby stories are different given their contexts, they also show a remarkable similarity in the continued belief that teams in severe financial trouble will somehow trade their way out of debt, but only with handouts from the games governing body and hopefully the local council. I struggle to understand why this can continue to happen. To me, if you can't make it work, then it needs a major overhaul, and maybe even considering closing up shop. The problem lies with the involvement of local government in stadium investments. Once the government is involved in a facility project, it is not in their best interests to have a major tenant of the facility is about to go under. The Otago rugby debacle showed this all too vividly with the Dunedin City Council admitting that they would be worse off without a rugby team than with a heavily indebted one. I'm not too sure of the ins and outs of the Skilled Stadium on the Gold Coast, but I suspect the strategic importance of the Gold Coast to the NRL will see them take a supportive stance.

Lets not forget also the reaction from rival clubs too - and the precedent that is now being set. Getting into financial trouble? No worries! The NRL will help! The CEO of the NRL was on record this week as saying that he believed saturation of teams within Sydney was important to the League's long term viability. What message does that, combined with the Gold Coast situation, send to Sydney clubs? Will we see more clubs facing financial pressure in future? There have always been clubs in financial trouble, as it is notoriously difficult to make ends meet with sports teams. The present incentives, though, don't help the situation. It would seem that a financially responsible sports league is fast becoming a contradiction in terms.

Rugby World Cup as a "financial success" - for whom?

Rugby World Cup | IRB reap cash windfall from NZ... | Stuff.co.nz

So the IRB is going to make somewhere near £90m from the 2011 Rugby World Cup. That is better than expected, and actually means that the most recent edition of the RWC is the second most profitable tournament in its short history behind the 2007 RWC in France. It is worth remembering, though, that the beneficiary of this better than expected result will not be the New Zealand taxpayer. The NZRU might yet offset some of its 1/3 of the operational loss through a possible higher payout from the IRB, but I don't fancy the chances of the IRB giving the taxpayer a hand from hosting their tournament. And why should they? After all, we are supposed to benefit from around $500m that the event generated - which well and truly offsets some $25m in losses, right?

Christchurch and the stadium game

New Christchurch stadium trumps them all

Just a quick comment here. The new Christchurch Rugby Stadium (AMI Stadium actually) gets its first match tonight with the Crusaders at home for the first time in well over a year. The new facility was funded primarily with government funding and was intended to give Christchurch locals a return to a sense of business as usual with the return of major sports, and other large-scale attractions. I hope it goes well - I like that it is not considerably expensive and that it is purpose built for rugby. What worries me, though, is that when the old Lancaster Park gets pulled down, what will happen to the traditional stadium design in the city. I sense that if this facility succeeds, it may well lead to a situation not unlike what has occurred in the US in the past two decades, with multiple purpose built facilities replacing multiple purpose facilities. Money is of course going to be an issue, but when the government is involved, well, anything can happen. Especially if the intention is a newly vibrant city that wants to attract people back with a multitude of entertainment/sporting options...

The climax to the ORFU saga

So a deal has been reached! The Otago Rugby Football Union (ORFU) has staved off liquidation! Just a few short weeks ago liquidation was a fait accompli, now they live to fight another day, in the finest traditions of the battling underdog overcoming the insurmountable odds that is so synonymous with sport.

But the tipping point wasnt't due to money being coughed up by a benevolent benefactor, rather it was the Forsyth Barr Stadium, the fear of losing a tenant and what it would do to facility revenues.

After a seven and a half hour meeting yesterday, the Dunedin City Council has agreed to 'forgive' a $480,000 debt from the ORFU to ensure that professional rugby remained in the city, and more importantly, guaranteed the new stadium at least one rugby tenant. But they were not exactly happy with either the ORFU, and the need to do so. This from Dunedin Mayor, Dave Cull, on the ORFU:

"I think there is pretty much universal agreement that they cocked up, and that they cocked up on a chronic basis. Pretty reprehensible really, but we have to deal with the situation as we find it."

and on reasons for the bailout:

The ORFU was bailed out because "the financial model around the so-called private sector funding component of building the stadium is dependent on revenues from the games that professional rugby play there.
"I'd have to say, before it was being built and right up until now, that was the most imprudent, risk-laden way of financing anything. It was basically pretty stupid, but we've got it, and we have to find a way of maintaining the revenue stream for that, or it falls back on the ratepayer. This deal has avoided that,'' he told Radio Sport.

While I can totally understand the frustrations, and the fact that the DCC have painted themselves into a corner, the story gets murkier yet. Why? Because of this juicy tidbit, revealed later in the article:

Cull said it had been discovered that there were no agreements in place for either the Otago ITM Cup team or the Highlanders to play at the stadium.

''Whether the ORFU went into liquidation or not, DVML was left with a very risky situation, as there were no contracts in place guaranteeing an income stream from professional rugby in our region. DVML had taken on the running of the stadium under the impression that those contracts were in place, underpinning that revenue stream.'' 

I'm sorry? I didn't just hear that. There are NO agreements in place for ANY local rugby teams/franchises to play at the new stadium? The one that is very, very dependent on future revenues from rugby to make ends meet on a regular basis? I have to scratch my head in amazement. It wasn't long ago that the ORFU admitted that they hadn't factored in the cost of playing in the new stadium into their cost projections, and now it emerges that there wasn't in fact anything actually tying them to the new stadium at all? Where is the communication here? What is going on? There really doesn't seem to be any semblance of coordination between two parties who obviously need each other to survive. If this is the state of play with rugby in the new stadium, I'd hate to know what the security of the other anticipated relationships is like.

So, when it boils down to it, the DCC (and the ratepayers who paid for the majority of the Forsyth Barr Stadium) are actually behind the eight ball to the tune of almost $500,000 when they should have been 'ahead' due to the revenues earned from rugby being played at the stadium. The other way you can look at it, I guess, is that it has just cost the DCC and ratepayers almost $500,000 to lock in a rugby presence in the new stadium. Was this cost in the budget for the new stadium? I should think not. And what of the Highlanders? They are higher profile than the ITM Cup. I can just imagine them saying: "Now, Mr Cull, you've just helped out the ORFU. How much do you want to pay us for to play at your swanky new stadium? You need us. Your figures show you'll have a very hard time without us, in fact. There is nothing stopping us from hightailing it elsewhere to other parts of the country for a better deal. Show us the money!". My goodness! Shades of the US professional sports now start to appear before my eyes, ones where franchises and cities are at war with new stadiums smack bang in the middle.

I'm sure that there will be more to this story...

Nelson's RWC boost

This, today, from the Nelson Mail:

A final report on Nelson's hosting of the Rugby World Cup scores it a success, with an economic benefit of $9.2 million in new spending.

The Nelson City Council also released this press release, labelling the RWC as an investment that has "paid off big".

I've requested a copy of the report from the Nelson City Council (NCC), but let's take a look at the article for any interesting facts. The NCC contributed $1.76m towards the event, which resulted in "an economic benefit of $9.2m in new spending". Hang on. Any economist worth their salt will know that new spending doesn't equate to economic benefit. The increase in GDP is $7m, which is the figure worth reporting. In any case, it is not clear from the article whether the council's contribution is included in the benefit estimate - I have my fingers crossed that it isn't. It shouldn't be, as it is money that would already have been spent in the Nelson economy in the absence of the RWC.

Further, from the Mail:

The Economic Impact Assessment included in the final report says that total match attendance for the three matches combined was nearly 45,000, with 16 per cent of those spectators coming from overseas. Visitors spent $5.1m in the region, mostly on accommodation and food and beverage.

Taken on the surface, the $7m increase in GDP is similar to what the Taranaki region received from the tournament ($6.74m).

Taranaki as a Super Rugby host

As I mused on Monday about the fate of the Highlanders Super Rugby franchise, The Taranaki Daily News reports that the Taranaki union has yesterday reiterated its interest in becoming a Super Rugby franchise. But it is no ordinary one-for-one bid. Firstly, this:

Taranaki's bid involves a radical expansion to the Super Rugby competition at the end of its existing broadcast deal in 2015. The union wants up to eight New Zealand sides involved, and the current national provincial championship acting as a feeder competition. 

I have no problems with the national provincial problem being a feeder competition. In many ways, it mirrors the present relationship between the Heartland Competition's relationship with the NPC. But eight teams? How will that work? The chairman of the Taranaki Rugby Union (TRU) suggests the following:

"What we are saying is maybe in New Zealand rugby there is the potential for eight professional teams and the rest go back to not being even semi-professional but almost reimbursement type teams where the maximum you can pay a player is $25,000." 

Let's evaluate this proposal objectively.

Before I do so, I should confess to having a Taranaki link - my family lives on the Taranaki side of the South Taranaki/Wanganui border, and I went to secondary school under Mt Taranaki in New Plymouth once upon a time and went to several Taranaki games in my time.

I have very serious reservations with an eight team NZ conference. While the present five team conference has been the status quo since Super Rugby debuted in 1996, Australia has expanded from its original three teams (NSW, Queensland and ACT) to five with the addition of the Force (Perth) and the Rebels (Melbourne). South Africa has gone about things a different way, expanding their four original teams - Sharks (Durban), Bulls (Pretoria), Cats/Lions (Johannesburg) and Stormers (Cape Town) - with the expansion Cheetahs (Free State), and they plan to add the Port Elizabeth Kings franchise from 2013, but it is unclear as of yet whether there will be an expanded competition or whether the Kings franchise will replace one of the existing South African franchises.

In any case, I believe the status quo represents the best arrangement for New Zealand teams. Any expansion would involve an increase in player costs, which will not only put pressure on the bottom lines of existing franchises but also those of new franchises. While I acknowledge that New Zealand has an exceptional talent base, it is a small one relative to other countries due to our small population, and the addition of franchises will potentially stretch the already limited talent base further, raising potential question marks over the overall quality of players, particularly at the lower end of the scale. The talent dilution question is often raised in North America, where competition for expansion teams is fierce, and opinions there differ markedly.

If we look at the host cities of the Super franchises in this country, the they are based in the five of the seven largest urban areas in the country - Auckland (1), Wellington, (2), Christchurch (3), Hamilton (4), and Dunedin (7). At number 5: Napier/Hastings. The Hawkes Bay union has also indicated interest in a Super franchise. New Plymouth ranks as number 11, behind Tauranga (6), Palmerston North (8), Nelson (9) and Rotorua (10). It would appear New Plymouth would struggle to have the support base of the existing franchises and even some of its potential competitors for the eight franchises it envisions. Lets not forget that expansion of the present conference will have impacts on existing franchises - for instance, the Hurricanes franchise would be impacted if two of its participating unions, Taranaki and Hawkes Bay, were to become new franchises, drawing support away from the Wellington-based franchise. While some may argue that the existing franchises are largely supported by the fans in the host cities and not so much by those in their partnering unions, I fear that the smaller unions are being drawn into Rugby World Cup-type hype - that the attendances they received in the RWC would be similar to what they would command on a regular basis with a new Super franchise. Longer term, teams need a sizeable and stable fan base. I would suggest that there would be a stronger correlation between average attendance and local area population than with RWC attendances.

I am particularly interested in the suggestion of a revamp of player payments alongside expansion. If there was an eight team professional Super conference, the other six non-Super ITM unions would be involved in a semi-professional feeder or 'minor league' competition. There would be a clear distinction between Super and non-Super players as a result. Non-Super players would basically be on a maximum reimbursement of cost contract, and would basically have to play for the love of the game. While this is admirable, what does this do for the incentive for fringe Super players to play at non-Super level? There is a clear choice if they don't make Super contracts - play for the love of the game, or go overseas. This may result in a dilution of talent in the non-Super level so that a gap in talent between Super and non-Super rugby similar to the talent gap presently existing between the NPC and the Heartland competition. Would this be good for New Zealand rugby? I would argue it isn't. Will it be a case of the rich getting richer, with larger unions getting more of the talent (and revenues) than smaller ones? How will players get into Super franchises if not through the NPC? Talent identification at schools and national age group teams will become crucial and development through academies will see players continue to bypass club and provincial rugby for professional contracts. Rather than propping up the professional game as suggested in this proposal, it may end up eroding the game at the grass roots and harming the very future of the professional game.

A fair question as a result - would contraction be a more feasible option? I don't think so. With fewer Super franchises, I can only see a widening of the talent gap between the Super and NPC levels. Fewer opportunities for Super contracts would result in an exodus of fringe players overseas, where they can command higher salaries than they can in New Zealand.

I remain to be convinced of the merits of expansion of the New Zealand Super conference in the present operating environment. Even though Taranaki is a proud and ambitious rugby province, I find it difficult to imagine a small provincial city making a Super franchise work. The fan base alone is a big question mark.

The tip of the iceberg?

Further to the ORFU saga over the past few days, the New Zealand Herald has examined the financial performances of each of the 14 ITM Cup provincial unions, and has pointed fingers at Counties Manukau, Southland and Manawatu as prime examples of unions with debt issues.

This from the article:

Few unions performed better in their last reporting year than the previous, indicating that the cashflow problems are endemic.

Hmm. I'm not completely sold on that claim, and here's why.

These results have to be taken in context, which is complex. With global economic uncertainty causing this country's growth to remain rather flat, people don't have more money to fork out to go along and watch the ITM Cup. Massey sports management expert Associate Professor Andy Martin was on TVNZ's Breakfast yesterday (see the video here) and made a very good point (one of many, in fact) that behind the All Blacks and Super Rugby, the ITM Cup is really a third-tier competition. Couple this with increasing competition for the consumer's entertainment dollar with a wider rugby-playing window that now competes at times with cricket, soccer and basketball, it is little wonder that the ITM Cup unions are suffering. Thats not to mention other areas in which the consumer entertainment dollar can be stretched to, like movies (the introduction of 3D), among others. Lets not forget that the last two years have seen developments around the Rugby World Cup, of which (a proportion, I assume, of) facility upgrades and the like are likely to be reflected in the costs of unions. Locals would have been holding off going to as many ITM Cup games with an eye to the more expensive RWC tickets later in the year. These, added to rising player costs (some eye-popping figures in the Herald article, including Southlands $2.2m player wage bill in 2010 - I'm sure SBW wasn't moonlighting in Invercargill as a Stag) has made their economic environment a tough one.

In saying this, as I said yesterday, teams need to live within their means. This also from the Herald article:

The salary cap for the ITM Cup is now pegged at $1.3m or 36 per cent of commercial revenue, whichever figure is higher. 

Southland must have had a heck of a lot of commercial backers! Maybe the Ranfurly Shield does bring with it extra benefits... I just hope it was worth it. I wonder if Taranaki will experience the same in 2012?