Costs a ticking timebomb

New Zealand Rugby’s books for 2019 tell the tale of an organisation that is indebted to some prudent decisions in the past but needs to look again at its model to guarantee a future.

For all the talk of robust existing cash reserves the reality is NZ Rugby has been treading water for a decade (and longer).

In 2010, its financial statements revealed that total equity was $88.9 million. On Thursday we saw the 2019 total stood at $86.7m.

Covid-19 is going to take a big chunk out of that rainy day fund – potentially tens of millions – and if NZ Rugby ever wants to build it back up to withstand another event like the coronavirus it will have to change its model.

There are two ways forward.

Either you increase revenue (which is why NZ Rugby was so desperate for the money tree it thought the failed ‘Nations Championship’ represented) or you reduce

costs.

Good luck increasing revenue in the post-Covid 19 climate.

And, if you dig into the results released on Thursday, you can see that NZ Rugby’s commercial arm is already firing: it brought in $73m in sponsorship and licensing in 2019, bigger than the broadcast money ($57.4m) and up $5m from a year before. Pat on the back for that team.

So, you then look at costs. NZ allocated $33m allocated to provincial unions in 2019.

The Mitre 10 Cup unions received $27.9m, with Auckland getting the most ($2.79m) and Southland the least ($1.44m). Heartland unions received a total of $5.3m.

If consultants had access to these figures (and McKinsey, the consultants NZ Rugby has been working with, presumably did) they would be like red meat for them.

And it’s not necessarily just the size of

that $33m figure that the consultants would look at, but whether there is any duplication at provincial level with other parts of the New Zealand rugby ‘‘ecosystem’’ (for example, at Super Rugby level).

To be clear on this: this is not what I’m recommending but rather the result of some hard-won experience after working within the media in Australia and New Zealand for the past 15 years.

And also to be clear on NZ Rugby’s commitment to provincial rugby, the $33m allocated last year is 37 per cent of their expenditure from operating activities. That’s a significant amount.

However, these are clearly challenging times that put the entire business model under pressure.

One solution would be to say, ‘‘let’s cut player wages’’.

It’s not that simple. Under its collective employment agreement with the NZRPA,

NZ Rugby sets aside about 36.5 per cent of ‘‘player-generated revenue’’ for players.

NZ Rugby had total income of $187m in 2019, most of it deemed ‘‘player-generated’’, so the pot was sizeable.

It is likely to decrease in 2020 but NZ Rugby knows it can’t go too hard on wages, certainly at the top level, or the next flight to Tokyo will be taken up by All Blacks.

As a result, the provincial unions are in a tough spot.

They know that NZ Rugby has hitched its wagon to Super Rugby instead of a return to the NPC and that their competition has been neglected for an age.

They could also point to the $94m in ‘employee benefits’ NZ Rugby paid out in 2019 and ask if the national body is also due for a trim.

But equally, they might be getting an anxious feeling that there are more challenges ahead for provincial rugby.