The news that revenue growth was underwhelming didn’t come as any surprise.
The idea that Silver Lake – theUnited States fund manager brought on as an equity partner in 2022 - would discover new and innovative ways to make money never appealed as likely.
Like all private equity investors in sport, Silver Lake essentially offers one trick: To try to up the value of existing broadcast deals.
But finding out that spending was on the rise and that the costs of running the business were proving difficult to contain did come as genuine news to the provincial unions and other stakeholders.
Keeping a tight handle on costs had been a hallmark of former chief executive Steve Tew between 2008 and 2019.
It wouldn’t be fair to characterise his tenure as austere, but spending was focused on maximising core investments, while peripheral spending was tightly managed.
Whether this is still happening certainly seems worthy of further investigation as NZR, which posted a $47 million loss last year, gets ready to reveal the accounts for 2023 in a couple of weeks.
More specifically, it needs to be asked how much NZR is paying for external help – be it consultants, professional services or new bodies and their respective executive teams and directors – and by extension, whether greater scrutiny is needed on how all these additional services are affecting senior NZR staff workloads?
Spoiler alert – but any investigation into this is going to discover that NZR now has 25 board directors on the payroll and is paying – directly or in partnership with other national unions – for four different chief executives and four different executive teams.
The total annual cost to NZR in salaries and fees for this is likely to be between $10m and $12m.
It has also spent an estimated $10m in the past four years on external professional services – be it on Silver Lake transaction costs or specific reviews.
In the past four years, NZR has become like a wedding cake, with layer upon layer of new entities being added, and yet there remains a strong appetite to outsource work to external experts and consultants.
Perhaps the beginning of this process of paying for external help began in 2019, when the world’s biggest consultancy firm, McKinsey, was commissioned to review how the professional landscape could be restructured to save money and improve efficiency.
It was, by all accounts, a stunningly comprehensive report that identified ways in which NZR could be $46m a year better off through a combination of cutting costs and advancing revenue projects.
It is believed NZR paid $1m for the report – fair value given the thoroughness and potential savings it identified – but it was effectively put in cold storage because it was filed in early March 2020, just days before the country shut down due to the Covid pandemic.
In 2021 NZR paid PWC to conduct an independent review of the proposed equity deal with Silver Lake.
It is estimated that work cost $250,000. Another $250,000 was paid to PWC a year later to conduct a second report when the Silver Lake deal was revised.
Both reports recommended in favour of doing a deal, although they were significantly different and the first, in the opinion of most financial analysts, would have seen NZR now teetering on the brink of insolvency if it had been approved.
In the second PWC report, it was also revealed that a total of $8m would be paid out in Silver Lake transaction fees – $4.5m to investment bank Jefferies, with the rest, presumably, going on legal and other costs, with unidentified NZR staff receiving annual bonuses of between 9 and 12 per cent of their annual salaries.
As part of the Silver Lake transaction, of the initial $200m invested, $38m was ring-fenced to set up New Zealand Rugby Commercial (NZRC) – the company created to house and manage the game’s revenue-generating assets such as broadcast and sponsorship contracts.
NZRC now has a chief executive – Craig Fenton – and five other executive staff, plus a nine-strong board of directors.
The total costs of the executive salaries and director fees is not known, but to help estimate, it’s fair to compare them with the published costs of running NZR’s executive and board.
The 2022 NZR annual report shows that $881,000 was paid in directors’ fees, with the 10-strong executive team being paid a total of $4.8m.
In early 2023, an external review – estimated cost $300,000 – was commissioned into NZR’s governance structure.
The money was not excessive, and the project was vital, but eight months after the four-strong panel, led by experienced director David Pilkington, produced its findings, NZR and the provincial union are still trying to come up with their own compromised recommendations – rendering the expenditure somewhat worthless.
Next week, a new chief executive of Super Rugby will be unveiled and asked to lead a newly formed commission that has seven directors.
This commission, despite having a chief executive and board, will have no responsibility for managing Super Rugby Pacific’s “Major Matters” – which include the number of teams, broadcast negotiations and initiatives such as player drafts.
Nor does this body handle the logistics of Super Rugby because this is still done by Sanzaar, to whom NZR still pays an annual fee so it can pay its chief executive. Effectively the commission is there to turbo-charge the marketing of the tournament.
It is understood this has also been outsourced, with the reviewer asked to report back to a steering group made up almost entirely of NZR staff.
The terms of reference for the review identify that the $1m McKinsey report will be heavily relied upon to help form the findings.
And last month, the provincial unions announced they had independently secured a sponsorship with Gallagher Insurance.
Adding it all up, it seems that in the past four years a new company has been formed to manage the commercial side of the game and handle the money.
Throw in that Silver Lake is due a $10.5m interest payment this year and that $8m has been given to Rugby Australia in lieu of a broadcast-sharing agreement and there is no secret about why costs have been hard to contain.
But there is a need for someone to justify how all this additional expenditure is helping grow and develop the game.
Gregor Paul is one of New Zealand’s most respected rugby writers and columnists. He has won multiple awards for journalism and has written several books about sport.