Brian Gaynor: Dilemma for rugby's richest amateur

The release of the New Zealand Rugby Football Union annual report for last year demonstrates the enormous financial strength of the organisation.

The union generates far more income than the Australian Rugby Union or the South African Rugby Football Union, is more profitable and has larger reserves.

This raises the question of why the NZRFU made such a hash of its World Cup involvement when it has been so successful in other areas?

The main source of revenue for all three unions is the 10-year, US$555 million ($1.26 billion) broadcasting agreement with News Corporation. This expires in 2005.

The contract covers the Tri-Nations series, the Super 12 and in-bound tours against recognised rugby-playing nations.

It also included the National Provincial Championship in New Zealand and Currie Cup in South Africa.

Under the News Corp agreement, Australia, New Zealand and South Africa must play at least three home tests each year in addition to the Tri-Nations series.

A minimum of two tests must be played against the national representative team of a recognised rugby-playing country.

The television contract dominates rugby in more ways than one. Games have been switched from the afternoon to evening to suit this medium, and the All Blacks are forced to go on end-of-season tours to attract reciprocal visits.

The renegotiation of the News Corp contract will have a very important influence on the game in the Southern Hemisphere. The NZRFU's decision to vote against the expansion of the Super 12 has probably hindered, rather than helped, this process.

The next major source of income is sponsorship. Here, the NZRFU is the clear leader as it has been able to capitalise on the popularity of the All Blacks, particularly through the adidas sponsorship.

The union has several other important sponsors, including Telecom for the Super 12 and Air New Zealand for the NPC.

The net gate-takings of the ARU increased by $5.5 million to $13.7 million last year, mainly due to the British Lions tour.

The NZRFU's income from fixtures and tours is relatively low because our stadiums are smaller and test matches are contracted out and run by the stadiums.



The main item of expenditure for all three unions is player contracts.

New Zealand's contract costs are higher because we have five Super 12 teams compared with four South African and three Australian.

From a financial point of view, five Super 12 teams is illogical because the NZRFU receives only slightly more than one-third of the television revenue from the Super 12, yet it finances five of the 12 teams.

The second main expenditure item includes costs associated with marketing, sponsorship, communications, domestic rugby and the test teams.

The ARU does not disclose a specific figure for development, but it places a very high priority on this area and this expense is included in the other-items classification.

The NZ union reported a net profit of $11.2 million for last year before a $7.8 million distribution to provincial unions.

The Australian union distributed $7.3 million and the South African union nothing.

At the end of the latest financial year, the New Zealand union had $16.3 million of members' money, South Africa $5.1 million and Australia $2.7 million.

The NZRFU is in a strong financial position and is forecasting better years ahead. Net profit is expected to increase from $3.4 million last year to $9.2 million this year and $13.9 million in 2004.

Members' funds are forecast to increase from $16.3 million to $50 million by the end of 2004.

The World Cup debacle can be easily explained. The NZRFU is driving the game from the grassroots up, whereas John O'Neill and the ARU are focusing on the top end of the game in the belief that this will stimulate enormous interest at the grassroots level.

There was no mention of the World Cup in the NZRFU's 2000 and 2001 annual reports except for a brief comment in the notes to last year's accounts.

This said: "The NZRFU is finalising an agreement with the ARU to host a number of matches being played as part of the Rugby World Cup Tournament in 2003. The costs associated with developing the agreement have been capitalised in the statement of financial position."

The union also published 16 specific targets for last year and 27 for this year - and not one of them mentioned the World Cup.

The ARU has taken a completely different approach to the big event. Its 2000 annual report made numerous references to the challenges and opportunities associated with World Cup 2003.

The ARU's report for last year said the "Rugby World Cup represents a wonderful, once-in-a-lifetime opportunity for Australian rugby, the rugby community and the game in Australia."

There would be 48 matches (25 in Australia) in up to 20 venues in two countries over a six-week period. The ARU predicted a television audience of more than three billion people in more than 200 countries, 3000 media representatives and a live audience of 1.5 million for the 48 matches.

The report noted that an infrastructure had been created to host the tournament, a sub-host union agreement had been concluded with the NZRFU in December, the financial projections looked increasingly robust and planning was well advanced for security, ticketing and media communications.

The ARU recognised the huge opportunities associated with the World Cup, whereas New Zealand gave it a very low priority.

This is consistent with the NZRFU's emphasis on grassroots rugby and the ARUs strategy to drive the game from the top down.

The fallout from the World Cup and the shortage of first-class games during the winter months will adversely affect stadiums and provincial unions, rather than the New Zealand union.

Between the last Super 12 game on May 3 and the first NPC game on August 23, there is only one first-class game at Eden Park, a test match against Ireland. The same is true for other stadiums.

The reason for this is that the union places a high priority on club rugby and maintains a relatively clear window for this aspect of the game between mid-May and mid-August.

But corporate box and season ticket-holders are big sources of revenue for the stadiums and they will be reluctant to renew their contracts when there is an absence of first-class games during the winter months and after the loss of the World Cup co-hosting role.

Many of our big stadiums are in financial trouble and this will place further pressure on them. Herein lies the dilemma facing the NZRFU. It is administering a professional sport but gives a big priority to the amateur side of the game, particularly during the key mid-winter months.

The World Cup will be a huge success in Australia. The ARU is on a roll and we may have to play second fiddle to the Australians on a regular basis at test and Super 12 levels.

South Africa is in a weaker position. Its teams may be easier to beat than in the past, but a weaker South Africa will diminish the overall strength of Southern Hemisphere rugby.

Dialogue on business

* bgaynor@xtra.co.nz