Huge price to pay for loss of series
A record $63 million was spent on player salaries in 2018, constituting easily the union’s
largest cost.
Gone is the Nations Championship concept, and with it, a giant $30 million hole has reappeared in New Zealand Rugby’s balance sheet.
Whether the idea of playing a mini-World Cup every year was good, bad or indifferent, it was certainly going to be lucrative, as it had secured $12 billion of funding that would have equated to a minimum 30 per cent increase in broadcast revenue for all those involved.
NZR understandably voted in favour of the proposal, partly because it believed, and still does, that the international game needs to be invigorated, but more because it has forecast that unless the financial picture dramatically changes, it will lose $30 million in the next five years.
Such doomsday predictions have been made before by the union as they are intended to serve more as a worst-case scenario than a stark warning. In the past decade, NZR has been able to continuously alter the financial picture through a combination of cost cutting and improved revenue flows by playing extra tests, winning more sponsorships and granting merchandise licences.
The Nations Championship, had it been given the go-ahead, would have fixed everything, but now soon-to-depart chief executive Steve Tew is staring into his hat aware there aren’t many rabbits left for him or his successor to pull out.
A record $68 million of revenue was secured last year in sponsorship and licensing, but it’s hard to believe this can continue to be a growth area for the union as both must be close to saturation.
There are 28 sponsors, not including broadcast partners, listed in the NZR annual report, and if that’s not considered a full house, it can only be one or two more companies away from being so.
Domestic tests continue to sell 100 per cent of their tickets, while playing additional games is a calculated risk that has started to hurt. The All Blacks lost and drew the revenue-generating games they played in 2012 against England and Australia, lost the big money spinner to Ireland in Chicago in 2016, lost the third Bledisloe test in 2017 and arguably damaged their chances of victory in Dublin last year by playing an extra test in Japan two weeks earlier.
There’s the added perception problem that continuing to send the All Blacks around the world to play for cash contradicts NZR’s insistence that player welfare sits high on their agenda.
A record $63 million was spent on player salaries in 2018, constituting easily the union’s largest cost and highlighting how difficult it will be to make effective savings.
Wage inflation is being driven by the global market and that pressure is not forecast to ease, meaning whatever cuts NZR can make in other parts of the business in the next five years, these are likely to be offset by the increased costs of player retention.
Complicating the picture is the relative weakness and uncertainty about the trading power of the New Zealand dollar.
A significant proportion of NZR’s revenue — their two major sponsorship deals with AIG and adidas, as well as some of their broadcast income — is paid in foreign currency and the balance sheet reflects the wisdom of having hedged those deals at rates they wouldn’t be offered today.
Even if NZR is able to negotiate improved terms with AIG and adidas when the current deals expire, the actual value may be no higher, or even lower, if the New Zealand dollar continues to trade where it is.
So it would seem that, without the Nations Championship, there are only two big levers for NZR to pull in its quest to fill its $30 million hole.
The accounts show $8 million was spent on funding the women’s game last year, a number that has to keep rising if the national body is committed to building a domestic professional competition while also supporting the growth of international competitions.
At the moment, though, women’s rugby remains a financial black hole with money pouring out and next to nothing coming in.
Women’s rugby needs a bootsand-all commitment if it is ever going to attract sponsors and broadcasters, and while it’s a risk to go down the “build it and they will come” avenue, NZR can’t continue to invest millions in player retainers and highperformance programmes when the Black Ferns have no annual competition and only a handful of tests and provincial unions are not compelled to fund and support a female team.
The second lever is the negotiation of the next broadcast agreement and this, now the Nations Championship is no longer happening, has taken on even greater importance in determining NZR’s financial future.
It’s not so simple as to say now there is genuine competition in the market, NZR simply plays Sky and Spark Sport against each other to ramp up the price.
The two companies shouldn’t be confused as having the same ability or ambition, as one has invested in covering the full gambit of rugby in this country from the club game and first XV through to the All Blacks, and the other, while saying it’s in the market for content, has so far only cherry-picked the highest profile event of all — the World Cup.
Sky chief executive Martin Stewart has been painfully honest that the company, under a previous regime, didn’t always treat its customers well, but there is no question NZR has had solid gold treatment, as the broadcaster has pumped an estimated $1 billion into rugby since the game went professional.
NZR, for all that it must safeguard the game’s financial future, would be ill advised in the run-up to the next rights negotiation to not consider the true value of Sky’s commitment to invest in all levels of the game.
NZR is understood to be considering splitting its broadcast assets into component parts rather than selling the whole lot as a package as it has previously done, and while it is entitled to sell rights how it likes to whom it likes, it will have to ask itself whether Spark Sport has the interest or ability to spend tens of millions of dollars covering provincial and Super Rugby.
That question is hugely relevant because, if Spark Sport is awarded the next rights to the All Blacks, what will that mean for the value of provincial and Super Rugby coverage?
Sold separately, what will they be worth, as Spark Sport may in fact have no interest in bidding for them and hence the competition NZR is relying on to hike the price doesn’t actually exist.
There’s also a harder-todetermine effect of the consumer potentially having to buy separate subscriptions to watch different elements of rugby and the impact on various broadcast assets.
Life would have been a lot easier had the Nations Championship been given the green light.