Union's off-field game a real winner

Is the New Zealand Rugby Football Union the country's most successful commercial organisation?

This is not a ridiculous question. Over the past six years it has undergone a huge reorganisation and in many areas has outperformed Baycorp, the top-performing listed company.

Total income has grown five-fold and at $76 million exceeds Baycorp's revenue by more than $17 million. The Rugby Union has also reinvested a large proportion of its surpluses into the development of the game, yet it still has a very strong balance sheet, with nearly $29 million of cash and short-term deposits.

Our Super 12 teams and All Blacks may not be as dominant as they were a few years ago, and there are continuing rumbles about the state of the club scene, but the ruling body is in a very strong financial position. This bodes well for the future of the national sport.

It was a very different story in 1995. The Rugby Union was 103 years old and little had changed in the intervening period. It was still run by 19 black-blazered councillors who received nominal payments for their services.

But when a battle broke out between the World Rugby Corporation, Super League and the Rugby Union for control of the players, the union showed amazing resilience. It won the conflict and with the endorsement of the International Rugby Board, rugby became professional.

An accord was signed between the national unions of South Africa, New Zealand and Australia (now known by the acronym Sanzar) and they agreed to rationalise their seasons to facilitate Super 12 and Tri-series competitions.

Through Sanzar, the three unions signed a television deal with News Corp worth $US555 million ($1373 million) over 10 years. This contract is now the backbone of professional rugby in the Southern Hemisphere.

The Rugby Union immediately obtained a $5.5 million three-year loan from News Corp for player prepayments and player investments in 1995.

In 1996, the professional era got into full swing both on and off the field. The Auckland Blues won the inaugural Super 12 and the All Blacks dominated the Tri-nations competition and won their first test series in South Africa.

Sky TV began its intensive coverage of the game after buying broadcasting rights from News Corp. This contract included the rights to all international and provincial games played in New Zealand, South Africa and Australia but excludes the World Cup.

From a financial point of view, the Rugby Union struggled during the first 12 months of the professional era and recorded a deficit of $6.2 million. Television revenue leaped from $3.2 million to $16.9 million and sponsorship deals were secured with Ford (Super 12 teams), U-Bix (Super 12 competition in New Zealand) and McDonald's (youth development).

But expenses also skyrocketed, with player payments going from $2.1 million to $16.6 million and rugby expenses from $3.9 million to $14.3 million.

The organisational structure of the Rugby Union was radically changed and a nine-member board of directors replaced the 19 councillors. Under the new constitution, two of the directors are independently appointed.

The Rugby Union experienced a dramatic turnaround in its financial performance in 1997 and recorded a surplus of $2 million.

A further improvement was achieved the following year, but on the field the All Blacks had a terrible season, losing all four Tri-nations games.

Its next big sponsorship deal was struck with adidas, the sportswear manufacturer. Adidas made its first payment on July 1, 1999, and this contract was mainly responsible for the $12.5 million increase in sponsorship/licensing revenue that year.

At the end of 2000, the Rugby Union was in a very strong financial position. Gross income had increased from just $13.8 million in 1995 to $76 million with television and sponsorship/licensing representing 45.4 per cent and 44.6 per cent of revenue respectively.

Gate receipts are now a tiny proportion of its income as television audiences far exceed match attendances. Because of this, television executives, rather than the fan in the stand, will continue to have the biggest influence over the game.

On the expenditure side, player payments have risen from just $2.1 million in 1995 to $26.7 million and account for 41.2 per cent of total costs.

The Rugby Union has to pay the top players to keep them in New Zealand, but it is not neglecting the provincial unions and development of the game. In the past three years, expenditure in these two areas has risen from $3.5 million to $14.3 million, a far greater rate of growth than player payments.

An overall surplus of $3.8 million was recorded for the December 2000 year and $28.7 million was held in cash and short-term deposits at year's end. Directors are reluctant to commit these funds because $20.4 million of this represents sponsorships paid in advance.

The Rugby Union also reports that 20 of the 27 provincial unions recorded surpluses in 2000 compared with only 14 in 1995.

There have also been a large number of non-financial achievements over the past five years. A New Zealand team has won all five Super 12 competitions; the All Blacks have won three of the five Tri-nations series; the adidas Institute of Rugby has been established in Palmerston North; the Rugby Union has been the driving force behind the seven-a-side World Series; and a big effort has been made to promote women's rugby.

But rugby operates in the entertainment industry and the difference between success and failure is very slim, as the New Zealand Warriors have demonstrated.

From a commercial perspective, the Rugby Union's main objective continues to be the promotion of its brands, because this will have a major impact on television, sponsorship and licensing income.

A high level of income from these areas is essential if money is to be available for the provincial unions and other grass roots levels.

The All Blacks brand is still powerful. Six million watched an All Blacks/France game on French television last November compared with just one million who watched Australia play France a week earlier, but most of the top players are playing too much rugby and their game is suffering. If the All Blacks and Super 12 teams become less successful, their brands will lose value and sponsors will be more difficult to attract.

The Rugby Union faces a dilemma; it has to satisfy television and sponsors who want plenty of first-class fixtures. On the other hand, the players need to be fresh if the All Blacks are to maintain their historical dominance.

One solution would be to change the structure of the season, with the NPC starting first, followed by the Super 12 and Tri-nations. This would allow test players to ease into the season and the second-tier players to finish after the Super 12 and return refreshed the following year.

In the medium term the renegotiation of the News Corp contract, which terminates at the end of the 2005 season, will be extremely important because television generates huge income as well as attracting other sponsors and promoting the game.

But there are other ways to raise money. A number of years ago David Wale, the chairman of the Stock Exchange at the time, said his organisation would welcome the listing of All Blacks Ltd. Nothing came of this suggestion, but it does have some merit.

The Rugby Union could be corporatised, restricted shares issued to the 27 unions and 20 to 30 per cent sold to the public.

This would allow it to strengthen its financial position. It would also enable the investing public to determine whether the Rugby Union is more successful than Baycorp and most of the other listed companies.

* bgaynor@xtra.co.nz