Rugby: NZRU announces record loss

NZRU chief executive Steve Tew. Photo / Getty Images

A record financial loss came as no surprise to the New Zealand Rugby Union (NZRU), which is predicting more pain but a better bottom line over coming years.

The NZRU today announced a loss of $15.9 million for 2009 at its annual meeting in Wellington, attributing it to the impact of the global recession, along with investments in hosting the 2011 rugby World Cup. The latter contributed $6.3 million towards the loss although $4.2 million of that was on paper only due to accounting practices and will be recouped by 2011.

It was the operational loss of $9.6 million that most concerned chief executive Steve Tew, although he was pleased his organisation's frugal approach last year restricted the damage at a time of worldwide financial malaise.

Measures included freezing NZRU salaries and providing no programme for the New Zealand Maori side among other on-field cutbacks.

"We wanted to get the game largely through the pain without too much damage," Tew said.

"If you wanted to make sure that the game stays alive during the worst recession that we've ever had, we believe these decisions were well considered. It (loss) is not a surprise, not a shock, but still a $16 million loss."

The NZRU took the rare step of delving into its significant cash reserves, always an option in times of difficulty, helping prop up grassroots rugby and increasing player payments. Those retained earnings decreased to $59.5 million, of which $46.8 million is cash.

A key drop in income was recorded in the test match budget, where $4.2 million less was earned than predicted.

The revenue-earning test against Australia in Tokyo reaped considerably less than the budgeted venue of Denver which disappeared as an option when the US financial markets collapsed.

Crowd numbers were down at several home test venues, most notably in Christchurch where a less than 17,000 people watched the All Blacks play Italy.

The high injury toll for senior players and All Blacks resulted in a $2.7 million budget blowout, with money funnelled into medical costs, replacement players and the subsequent rise in insurance premiums. Injured All Blacks continue to get paid for 12 months after suffering injuries and a whopping 46 players wore the black jersey in 2009.

Unhedged foreign exchange movements ($2.6 million loss) and reduced interest income ($2.2 million) also made hefty contributions to the loss.

World Cup investment resulted in a $2.1 million real loss, in line with expectations under a deal where the NZRU covers one-third of the losses incurred by Rugby New Zealand (RNZ) 2011, the company charged with delivering the tournament. The NZRU expects to lose all its $10 million capital investment in the company by the time the tournament kicks off.

The $4.2 million paper loss comes from a significant drop in the value of the British pound which has impacted on £18.5 million ($39.7 million) in funds held to meet World Cup hosting commitments. It is one-third of the tournament fee.

The sum was revalued at the prevailing exchange rate as per accounting standards but Tew noted the gain from a deal to hedge the foreign exchange risk cannot be recognised on the balance sheet until the final transaction occurs, which will be in 2011.

Therefore, the $4.2 million loss was a timing distortion, which could occur again this year if the pound drops further. It will be offset in 2011 due to the deal four years ago when £18.5 million was purchased at a "favourable" price, meaning exchange rate fluctuations are effectively nullified.

Tew was buoyed by the five-year broadcast deal signed this month with Sky Television while other areas of NZRU business gave cause for optimism.

"We have now secured a significant chunk of securable income right through to 2015. Also we have (chief sponsor) Adidas right through to 2019 and we think we're in a very good foreign exchange position because we're able to buy euros at an all-time low," he said.

"So we've got certainty of income for a period of time, we've got good reserves and we're still managing our way through a pretty difficult financial time. But change still needs to be carefully managed."

- NZPA