Broadcasting rights are the biggest revenue item following the signing of agreements with TV operators covering the five years from 2016 to 2020.
The December 2016 year was the first year of this new contract, with NZR's broadcasting revenue surging 95 per cent, from $37.5m in 2015 to $73.1m. ARU broadcasting revenue soared 239 per cent over the same period and SA Rugby's TV revenue by 94 per cent.
Although the ARU has been able to negotiate a much higher TV contract, it is still a poor cousin compared with Australian rugby league and Australian rules. Last year the ARU received broadcasting revenue of A$61m compared with the NRL's A$222m and the AFL's A$264m. This places the latter two codes in a much stronger position to promote their game in schools.
These huge TV contracts have also resulted in a massive increase in player salaries but these costly contracts have made it more and more difficult for TV companies to generate decent returns from their sports investments.
The second major item is sponsorship, with the NZR clearly ahead in this area. The All Blacks are an unique brand, attracting $55.0m of sponsorship last year, with Adidas, AIG and Sky Sports listed as its main sponsors. New Zealand Rugby's sponsorship revenue is well ahead of the ARU and SA Rugby but it pales into insignificance compared with the major football clubs, with Manchester United generating 160.1m pounds ($300m) of sponsorship revenue last year.
By comparison, the English Rugby Football Union generated sponsorship revenue of 29.3m pounds ($55m) for its June 2016 year.
Matchday revenue is the most volatile income stream and is strongly influenced by British & Irish Lions tours and the Rugby World Cup.
For example, this is how matchday revenue has fluctuated around these events:
• NZR had matchday revenue of $9.2m in 2004, $33.9m in 2005 (a Lions tour) and $11.2m in 2006
• SA Rugby had a one-off share of the profits from the 2009 Lions tour, approximately NZ$9m at the exchange rate at the time
• ARU matchday revenue went from A$33.5m in 2012 to $69.2m in 2013 (a Lions tour) and $34.8m in 2014
• NZR reported a $12.7m share of the profits of the 2011 Rugby World Cup held in this country, although there was expenditure associated with this event in the previous year.
A Lions tour is a financial bonanza for the host country and this year's tour will be no exception. Lions test match tickets are between $149 and $449 each, while tickets for the South Africa/France June test series vary between R100 ($11) and R600 ($66). The top ticket price for Australia versus Scotland in Sydney in mid-June is A$132 ($143).
Ticket prices for the Wallabies tests against Fiji and Italy in June are even lower and the ARU will be hard pressed to fill stadiums for these two games.
Unfortunately, the expenditure sections of the NZR, ARU and SA Rugby financial statements are not presented on a consistent basis and the disclosure is generally poor. The main reason for this is that the players are mainly paid by the national body in New Zealand compared with a combination of provincial unions and the national bodies in Australia and South Africa.
New Zealand Rugby and the NZ Rugby Players' Association reached an agreement in December 2016, covering the three years to December 31, 2018. Under this contract, the players get 36.56 per cent of NZR's player-generated revenue. This will give the players $191m over the three-year period, compared with $121m for the previous three years, although $15m is being held back for future years because of the one-off boost in revenue from the upcoming Lions tour.
Under the agreement, the maximum Super Rugby retainer is $195,000 and the maximum provincial union retainer is $55,000 with the exception of two veteran players per union who can receive up to $85,000. There are no limits on All Blacks' salaries, with a number of them now paid well in excess of $500,000 per annum.
Although NZR reported a loss of $7.5m for the 2016 year, it is in a far stronger position than the other unions because of the upcoming Lions tour and its $84.1m cash position. By contrast, SA Rugby has a cash deficit of $10.2m, after taking into account a significant bank overdraft, while the ARU has a cash balance of NZ$29.1m.
South African rugby is going through an extremely difficult period and there is no guarantee it will recover. President Mark Alexander wrote in the latest annual report that "there is no denying however that 2016 turned out to be the toughest and most disappointing year in the quarter of a century since rugby unity - both on and off the field".
We made this investment in 2016 because our balance sheet could sustain it due to having no debt and a strong cash position.
The Springboks won only four of 12 test matches and "the departure of South African players overseas has increased in pace against the background of a weakening rand: in 2015 a staggering 257 South Africans made top league appearances for overseas teams".
The South African economy is struggling with low economic growth, massive unemployment, high inflation and soaring government debt. The rand has weakened from R5.2 to NZ$1.00 when the Lions played the Springbok in 2009, to R9.1 to NZ$1 at present.
The ARU is constantly in the headlines, particularly over governance and management issues. It is losing ground to the NRL and AFL, particularly in the schools, and it has been severely criticised over its inability to decide which of the country's five Super Rugby teams should be culled.
Meanwhile, NZR is humming, with its only major blemishes being the All Blacks Sevens' disappointing performance and incidents of poor player behaviour. Its robust financial position places it in a much better position to hold onto its key players than ARU and SA Rugby.
Chief executive Tew told the recent annual meeting: "In 2016, we recorded an underlying loss of $6m, which was $3m better than budgeted. The loss reflects a deliberate decision to use the income due from this year's DHL New Zealand Lions series and invest it early into delivering our 2020 strategy".
"We made this investment in rugby in 2016 because our balance sheet could sustain it due to having no debt and a strong cash position"
New Zealand's national game is in good heart but the code's problems in Australia and South Africa, particularly the latter, are a major concern. The strength of the NZ game is highly dependent on Australian and South African test and Super Rugby teams offering stronger competition on the playing field.
Brian Gaynor is an Executive Director of Milford Asset Management.
