The accounts also show that despite the loss – which comes after a $47m deficit last year – that executive and director payments almost doubled to $7.5m.
These would not appear to be good results. NZR would not appear to be particularly seaworthy, something of growing concern given there is a significant iceberg lurking next year when Silver Lake will have the right to convert its loan to equity and be in line for an estimated $20m-plus annual distribution.
But because NZR’s accounts now carry a level of complexity given US fund manager Silver Lake’s $262m investment in the revenue-generating assets of the game – which are housed in the subsidiary New Zealand Rugby Commercial (NZRC) – there is leeway to make significantly different interpretations about the financial health of the game.
There is potential for a little smoke and mirrors, room for some old-fashioned PR spin, and the story crafted by NZR chief executive Mark Robinson and chief financial officer Jo Perez to sell the game’s monetary position was one ladled with positives and hope.
They did so through a triumph of selective presentation and careful promotion of largely irrelevant and strategically questionable achievements, such as managing to appoint a board to NZRC and putting $120m into cash reserves to boost the war chest to $175m – where it sits in low-yielding accounts.
“There is reason to be optimistic about the direction we are heading in key areas,” Robinson said.
But the critical metric raising red flags is the cashflow statements of the last two years.
US investment guru Warren Buffett is an advocate for focusing on a company’s cashflow to determine its true state of health and prognosis, and NZR’s accounts show an operating cashflow loss of $52m in 2022 and a further $23m loss in 2023.
These numbers indicate that NZR (and by extension NZRC) is burning through cash at a concerning rate and that its operating costs are too high – and that, specifically, it is spending too much on trying to generate new revenue.
This is best illustrated by Perez’s confirmation that $11m was spent setting up the in-house streaming platform NZR+ and creating content for it.
Robinson said: “We are seeing some amazing results starting to come through on NZR+, with 33 million unique people engaging with our content since its launch.”
But again, this optimism is built on manufactured presentation of the facts as this content is not being accessed through NZR+, it is all being published on YouTube – making it questionable what purpose it serves having a standalone, branded channel.
And, also, the unique viewers may sound impressive but the number of subscribers to the All Blacks YouTube channel is just 653,00 – when other major sports brands such as Manchester City have 7.5 million subscribers, and 132 million followers across all their media channels.
How NZR will win a return on its NZR+ investment is increasingly difficult to see as it has not produced viewing numbers that suggest it will be able to directly monetise NZR+ through a paywall, while even indirect benefits – such as using the audience to drive a higher broadcast fee or extract more from sponsors – seem unlikely to return more than the $11m spent on the cost of creating the content.
The adage of having to spend money to make money renders true, but NZR’s accounts suggest it is spending too much money in pursuit of revenue growth and that it needs to slow down its expenditure, particularly on content generation, the value of which it may be grossly overvaluing.
NZR will be reluctant to back away from NZR+ as it is the central component of Silver Lake’s investment thesis of using a content channel to engage global fans and eventually monetise them, and it also appears convinced that if it keeps spending, the audience will eventually come.
It’s a high-risk strategy, certainly, to keep investing in what increasingly looks like a doomed strategic plan, and if NZR is going to remain committed to burning through cash, it is going to need to find a short-term means to boost its income to sustain its spend-big-to-earn-big philosophy.
To grow its revenue quickly, it has three streams to pursue. It’s continuing to make inroads into the Japanese corporate market to win more sponsorship revenue.
Sponsorship and licensing income jumped from $113m in 2022 to $120m in 2023 and as rugby continues to grow in popularity in Japan, there appears to be an opportunity to keep winning new corporate backers in the world’s third-largest economy.
There is potential to drive more revenue from test matches. The All Blacks will play 14 times this year but could potentially play 15 in future years.
But the real opportunity lies not necessarily in playing an additional game, but in deriving more income from each test, and that may lead to the All Blacks playing more home games offshore – they are taking on Fiji in San Diego rather than Hamilton this year – and also playing more games in Auckland and Wellington, with the provinces unlikely to be hosting the national team.
The most significant opportunity NZR has to materially change its income profile is to renegotiate an improved broadcast deal to kick in from 2026 – negotiations for which are expected to begin next month.
Broadcast income is NZR’s only real means to shift the dial in the short term, and given the current cash burn rate and the distributions due to Silver Lake from next year, it’s not being dramatic or hyperbolic so suggest that the whole future of rugby hangs on the ability of NZRC chief executive Craig Fenton to extract an improved media rights deal in the next four months.
One hope for a cash injection
From the initial US$555m ($908m) 10-year deal struck in 1995, to the current $555m deal in play until the end of next year, broadcast income has long been the most critical determinant of New Zealand Rugby’s financial health.
However much private equity investors or rugby executives try to convince themselves that there are untapped revenue streams to be found in long-form content creation, digital innovations and intellectual property sales, professional sport lives and dies on its ability to maximise the price of its match-day broadcast rights.
There is no wheel to reinvent – broadcast income is everything and the Australians are the ultimate proof of that, having found themselves on the brink of insolvency after signing a catastrophic $30m-a year deal in 2021.
The equation NZR faces is relatively confronting. It will have a four-month closed window from July in which to exclusively negotiate a contract extension with current rights-holder Sky.
The current deal, when it was negotiated in 2019, had a headline value of $100m a year in cash, with, it is believed, a further $11m in other payments and agreements built in.
However, due to Covid, the reworking of Super Rugby and a retrospective revenue-sharing agreement with Australia, NZR has, on average, only banked $87m a year in broadcast income since 2021.
But working off the paper value of the current deal, NZR needs the next broadcast deal to be worth a minimum of $108.5m just to offset the impact of Silver Lake’s payment and retain what it currently has.
And unlike in 2019, it is working in a non-competitive environment following the collapse of Spark Sport, which was a genuine media player five years ago.
Sky is facing no competitive pressure the way it was in 2019 and it’s perhaps a sign of how confident it is feeling about securing the rights at a lower price that it is willing to cut back its investment in producing All Blacks tests this year.
Sky won’t be sending its own commentary teams to San Diego to cover the test against Fiji, and nor will a crew be going to South Africa for the two Rugby Championship tests.
It is not yet decided whether a commentary team will travel to Japan and Europe for the All Blacks’ end of year tour.
Sky said in a statement: “Delivering world-class sport to our customers is core to what we do at Sky, and we invest a significant amount in our commentary and production.
“With enhancements in technology, we’re able to deliver in different ways, including – when it makes sense – to not have as many people travelling internationally and still being able to deliver a great product for our customers.
“That said, we love having our Sky Sport teams on the ground with the All Blacks, and most of the matches this season will have a strong Sky Sport commentary team in stadium.”
Sky’s decision to not have its own people on the ground for crucial tests is one that both sells the viewers short and sends a powerful signal to NZR that the media operator feels it is under pressure to lower its cost base.
What gets lost in the calculations about how much media companies can afford to pay to buy live broadcast rights is the cost of producing the coverage, which in the case of rugby can be as much as $10m per month, given that there is an obligation to provide live access to All Blacks and Black Ferns tests, other teams in black, Super Rugby Pacific, the NPC and the Farah Palmer Cup.
Sky is also, maybe, hoping to send a subtle message that it is willing to downgrade the production values for All Blacks tests to give the impression that owning rugby is not fundamental to its survival the way it was in 2019.
You need to know what you’re buying
If question one is how much money Sky is willing to spend on buying rugby rights, question two is working out what exactly it will be buying.
The Southern Hemisphere international landscape is set to undergo a major transformation from 2026.
New Zealand and South Africa have agreed that every fourth year they will host reciprocal tours, with the All Blacks set to go to the Republic in 2026 for what will be either a three- or four-test series with a handful of midweek matches.
Also in 2026, the new Nations Championship will kick off, which will mean that in July the Southern Hemisphere nations of New Zealand, Australia, Argentina, South Africa (and probably Japan and Fiji), will host three separate Six Nations sides.
In November, the Southern Hemisphere sides then travel to the north to play the three Six Nations teams they didn’t play in July, with the top-ranked side from each hemisphere playing off in a final.
In 2029, the British and Irish Lions will come to New Zealand, and the following year it will be the Boks – and so for Kiwis, there will be a heavy diet of old-fashioned tours that will generate enormous public interest.
There won’t be a window for the Rugby Championship in 2026 or 2030 and so one of the topics of heated debate among the Sanzaar partners is whether to persevere with it?
Will it have any value being played so infrequently or would it make more sense to give it up and double down on the touring concept, committing to it entirely by building itineraries with Argentina and Australia that also include Japan, Fiji and the Pacific Islands?
Rugby Australia chief executive Phil Waugh and chairman Dan Herbert were in Auckland two weeks ago to discuss how the Wallabies and the Bledisloe Cup fit into the next broadcast cycle.
The Australians say that the Bledisloe is their biggest rugby event outside of the World Cup and Lions tours and a commercial winner for them that they can’t afford to see reduced in importance or regularity.
But in 2026 and 2030, there will be limited available weekends to fit in the Bledisloe.
In those years, the option may be to play an Anzac Day test, but that will come with innumerable problems around player release and impacting Super Rugby.
If NZR wants to maximise the price it can extract from Sky and indeed international broadcasters, it is going to need to gain clarity about what the landscape looks like in every year of the deal.
As Fenton told the Herald earlier this year, when it comes to media rights: “It is a simple equation – if you are in a marketplace you need to be easy to buy, clear and there are obviously options for bundling different modules in different ways.
“There is headroom available to produce a product and package that is better for international consumption.
“Our focus as a code, as a collective of unions, is to make the product compelling and easy to buy.
“From a media perspective, it is fairly simple: if you are a buyer of something, you need to know what you are buying – so clarity is important.”
