http://leagueunlimited.com/article.php?newsid=19587
News Limited today received a report of summary findings of the forensic investigation by independent accounting firm Deloitte into the salary cap breaches by the Melbourne Storm Rugby League Football Club.
As a result of Deloitte's report, News Limited estimates that the total value of salary cap breaches by the club between 2006 and 2010 is up to $3.170 million, an approximate 83% increase on the original NRL estimate of $1.735 million.
This amount could be lower or higher because players, managers and other third parties opted not to provide information to Deloitte or News Limited during the investigation. However, News Limited believes it is most unlikely that the amount will be materially lower.
The breaches are significantly higher than first estimated by the NRL in each year between 20062010, including in 2007 and 2009 when the Melbourne Storm won the NRL Premiership.
The original estimated breach for the 2010 season by the NRL of $700,000 has blown out to a possible $1,027,968, an increase of 47%. This amount could be lower or higher if further information is provided.
The estimated likely excess of player financial commitments over the salary cap of $4.1million for 2011 is $1.325 million, and again, as not all parties have fully co-operated this number could be higher or lower.
Player financial commitments for 2011
Based on information available to it, Deloitte examined the club's financial commitments to the proposed top 25 players to be paid for the 2011 season. Player commitments for 2011 are those required to be included in the club's top 25 salary cap calculations under the NRL rules.
The Melbourne Storm has financial commitments in place with players for 2011 of possibly $5,425,188, which is $1,325,188 in excess of the salary cap of $4.1million. These calculations are based on work performed by Deloitte as at 4 June 2010.
Recent NRL Salary Cap Changes
On 22 June 2010, the NRL announced an increase in the salary cap of $100,000. If this change is taken into account, News Limited expects that the Melbourne Storm is forecast to be a possible $1,225,188 over the salary cap in 2011.
The 2007 and 2009 Premierships
There have been media reports that people associated with the club believe the NRL should reinstate the 2007 Premiership, based on a belief that the estimated breach of the salary cap in 2007 was about $273,000.
Those calling for the reinstatement of the 2007 Premiership have noted that the club's salary cap breach in 2007 was similar to the breach by the club in 2003 of $261,912 and that the penalty for that breach was a fine of only $130,956.
Following the forensic investigation, it is News Limited's view that the actual breach in 2007 was an estimated $551,032, 110% higher than the breach in 2003.
Similarly, News Limited now believes that the actual breach in 2009 when the Storm won the Premiership was an estimated $964,877, higher again than the breach in 2007.
Combined with the fact that the breaches occurred over 5 years, the findings made by Deloitte reinforce News Limited's view that the penalties were appropriate.
NRL Contracts and Side Letters
In certain cases, the Storm appears to have maintained a dual contract system with formal contracts lodged with the NRL supplemented by side letters between the club and some players that guaranteed additional payments and benefits.
A file containing three side letters of offer to three players was obtained by News Limited from a file retained by the former acting CEO of the Storm Matt Hanson.
The side letters include amounts to be paid to the players that are well in excess of the amounts in the contracts for the same players that were lodged with the NRL.
The letters include guarantees of payments to the players via third parties. A guarantee of a payment to a player via a third party should be counted under the cap.
All three letters are signed by former Storm CEO Brian Waldron.
It has not been established whether the players who received these letters, were aware that the additional commitments in them were not disclosed by the club to the NRL nor if they contributed to the club breaching the cap.
It is not known if other players received or signed side letters offering them payments and benefits in excess of their formal NRL contracts.
NRL Contracts and Letters of Offer
Other additional payments were discovered by comparing letters of offer provided to certain players with the formal contracts of these players that were lodged with the NRL.
Methods of Payment
Based on the forensic investigation, News Limited believes that many of the additional payments and benefits to players were either not disclosed or were recorded but not accurately described in the club's books and records.
The main method of payment involved the club arranging for third parties to employ and/or pay players. The third parties issued invoices to the club for amounts described as donations or consulting fees. The club paid the invoices and they were recorded in the accounts as donations or consulting fees and not as payments to players.
Other methods and structures that have been identified included:
- Guaranteeing the value of third party agreements, where these could not be sourced for a player by the club;
- The provision by sponsors and other third parties of fully serviced and maintained motor vehicles to players or player family members;
- Providing gift vouchers to players. The vouchers were purchased by the club using frequent flyer or credit card reward points that were accumulated by club managers. A register recording the distribution of gift vouchers was found during the investigation;
- Providing rental assistance to help players pay for residential accommodation;
- Airfares for personal travel by players and their immediate family members that were paid by the club;
- Providing other benefits such as payments for a boat and media training for players;
- Underwriting and guaranteeing payment of an amount equal to the value of a television broadcasting contract for a player so that the player would be paid regardless of whether the television contract materialised.
Parties interviewed
Coach
Melbourne Storm coach Craig Bellamy was interviewed by Deloitte on 17 May 2010.
News Limited does not believe that Mr Bellamy was aware that the club was in breach of the NRL salary cap or that he knew what amounts individual players were paid, either by the club or by third parties.
Player Interviews
On Friday 14 May, at Deloitte's request, the club set up appointments so that Deloitte could interview certain players individually at appointed times on 17 May. None of the players turned up for their interviews that day.
Further requests by Deloitte to interview those players have either been ignored or declined by the player or their manager/agent.
In two cases, a player manager/agent agreed that Deloitte could interview their client but subsequently no arrangements were made by the manager/agent for the interviews to occur.
A number of player manager/agents requested Deloitte to provide a list of documents sought in writing to which Deloitte subsequently received no response, with the exception of one player manager of a former Storm player.
Deloitte made numerous subsequent efforts to secure the cooperation and involvement of those players via letters and email requests to player managers/agents and through representations made to players via club employees, including the club's acting CEO Frank Stanton.
Deloitte provided individual player manager/agents with a Confidentiality Agreement that obliged Deloitte to maintain confidentiality of any information provided by the player or their manager/agent. This Agreement was accepted by the Rugby League Players Association. None of the players or their manager/agents agreed to sign the confidentiality agreements or agreed to further requests for interviews.
A further meeting between Deloitte and most players was held at the club on 9 June at which Deloitte again sought cooperation from the players and asked the players to provide copies of their NRL contracts, copies of any letters of offer from the club and copies of any other agreements between players and any third party. Deloitte has not received any of the documents requested.
Director Interviews
Three of the independent directors of Storm (i.e. those directors not connected to News Limited), namely Dr Rob Moodie, Mr Gerry Ryan and Mr Peter Maher declined to be interviewed by Deloitte.
Deloitte interviewed the other independent director Ms Petra Fawcett. News Limited does not believe that Ms Fawcett was aware of the club's salary cap breaches, or that she was aware of the payments to players through third parties.
News Limited does not believe that Dr Rob Moodie was aware of the club's salary cap breaches, or that he was aware of the payments to players through third parties.
There is no evidence that Mr Gerry Ryan and Mr Peter Maher were aware that payments to players through third parties could have contributed to the club breaching the cap.
The News Limited connected directors who have served on the board between 2006-2010 Peter Jourdain, John Webster and Craig Watt were all interviewed by Deloitte. News Limited does not believe that any of those directors were aware of the club's salary cap breaches or that they were aware of the payments to players through third parties. Craig Watt who remains a director of the club has also been available regularly for questioning by Deloitte throughout the investigation.
The News Limited connected director and acting CEO Mr Frank Stanton was also interviewed by Deloitte and has participated in regular meetings with Deloitte to respond to questions and provide information throughout the investigation. News Limited does not believe that Frank Stanton was aware of the club's salary cap breaches or of the payments to players through third parties.
Executive Interviews
Offers to attend a voluntary interview with Deloitte were extended to Brian Waldron, Matt Hanson, Paul Gregory and Peter O'Sullivan. However none of these people agreed to be interviewed. Hanson attended an initial meeting and agreed to answer written questions. Cameron Vale was interviewed by Deloitte on 20 May 2010.
Background
On 22 April 2010 the National Rugby League found that the Melbourne Storm Football Club had breached the salary cap by an estimated $1.7 million over 5 years between 2006 and 2010.
The NRL stripped the club of its 2007 and 2009 Premierships, its 2006, 2007 and 2008 Minor Premierships and all competition points for 2010, and fined the club $500,000 and forced it to return $1.1 million in Premiership prize money. Melbourne Storm has commenced proceedings challenging the imposition of those penalties. The NRL is defending those proceedings.
The Investigation
Deloitte was appointed by News Limited to conduct a forensic examination of the club's financial affairs on 22 April, 2010. A team of 5 investigators from Deloitte began work at the club's premises the next day. The investigation was concluded on 6 July 2010.
Deloitte interviewed 18 people; 16 people associated with the club and two people from the NRL. A large number of people, including players, player managers and agents, independent directors of the club and third parties declined to be interviewed or provide information to Deloitte.
The findings are therefore based on information provided during the interviews and on a wide ranging and comprehensive review of the club's accounts, electronic records and hard copy documents at the club and some found elsewhere. In total, electronic records produced by 28 people that were stored on hard drives, back-up tapes, desktops, laptops and portable media devices were part of the original scope of the investigation with the records pertaining to 12 people analysed in further detail.
In total, more than 163,000 individual documents were reviewed as part of the investigation.
In conducting the investigation, Deloitte has interpreted the NRL rules and regulations as published in the relevant periods of the investigation. Deloitte are not NRL salary cap auditors and therefore their conclusions may not be the same as those reached by the NRL Salary Cap Auditor where possible, Deloitte have sought to clarify any matters with the NRL Salary Cap Auditor.
A detailed report from Deloitte has been issued to News Limited. The report includes a number of schedules detailing payments to players and a detailed description of the assumptions used by Deloitte in interpreting the NRL Salary Cap Rules.
Deloitte has also provided News Limited with copies of letters, emails, email attachments, contracts, letters of offer to players and other records that are evidence of the findings.
Background Information obtained by News Limited
News Limited believes it is important to provide background information about the salary cap breaches by the Melbourne Storm.
On the basis of that information News Limited understands that:
one practice that contributed to the salary cap breaches involved the club arranging for third parties to employ and/or pay players. These third parties issued invoices to the club for amounts described as donations or consulting fees and the club recorded payment of these invoices in their accounts as donations or consulting fees and not as payments to players;
a small group of senior managers, who were responsible for the commercial and financial operations of the club, orchestrated and concealed these third party payments;
some of these senior managers worked collaboratively in certain cases so that payments and other benefits provided to players were not disclosed to the NRL and could not be detected by internal or external auditors or by the NRL salary cap auditor.
Jayco
News has obtained a copy of an email dated 24 July 2007 from the club's then chief financial officer Cameron Vale addressed to an independent director of the Melbourne Storm, Gerry Ryan. The email was copied to then Storm CEO Brian Waldron. Mr Ryan is also the founder and managing director of Jayco. Jayco is a sponsor of the Melbourne Storm.
An attachment to the email purports to describe what News believes to be three options by which payments could be made to Jayco to reimburse Jayco for payments that may have made by Jayco to players.
The options outlined in the attachment include:
- Melbourne Storm invoicing Jayco for an amount for sponsorship of $150,000 in 2008 but not receiving the amount
- Companies related to Jayco invoicing the Melbourne Storm after paying the players
- Melbourne Storm invoicing Jayco for an amount for promotional costs of $150,000 in 2007 but not receiving the full amount.
No evidence was found that Ryan or Jayco made payments to players as referred to in the email, or that they were aware that payments to players made in this manner could have contributed to the club breaching the cap.
No evidence was found that Ryan or Jayco were aware of other payments or the provision of benefits to players through third parties that could have contributed to the club breaching the cap.
Ryan declined to be interviewed as part of News Limited's investigation of the salary cap breaches.
No evidence was found that any players were aware that payments made in this manner could have contributed to the club breaching the cap.
Unity Foundation
Unity was a charitable foundation that obtained funding from donations and sponsors between 2006 and 2008. The Storm was among the organisations that contributed to Unity.
On 14 September 2006 Brian Waldron wrote to the NRL salary cap auditor requesting a special concession under the cap so that players could be paid amounts totalling up to $200,000 by Unity in exchange for the players providing services to Unity. The NRL rejected Waldron's request.
News has obtained a copy of an email dated 12 December 2007 from the club's then chief financial officer Cameron Vale to Brian Waldron describing how I think we can get back under the Cap with salary variation.
Attached to the email is a document that appears to describe how the formal contracts for 16 players could be varied so that the club's official payments to those players would be reduced in order to bring the club back under the salary cap in 2008. No evidence was found the players were aware of this.
The document shows proposed methods as to how the players would be paid the difference by third parties. These methods include:
- Payment of the difference by the Unity Foundation
- Requests of players to take pay cuts or be paid by Gerry, believed by News Limited to be a reference to an independent director of the club, Gerry Ryan.
The total amount by which the formal contracts with players would be reduced is shown in the email as $336,000, suggesting that the club expected to be $336,000 over the salary cap in 2008. Ultimately, the estimated breach for 2008 was found to be $306,508.
No evidence was found that Ryan or Jayco made payments to players as referred to in the email, or that they were aware that such payments could have contributed to the club breaching the cap. No evidence was found that Ryan or Jayco were aware of other payments or the provision of benefits to players through third parties that could have contributed to the club breaching the cap.
Evidence was found that shows that certain Storm players were paid by Unity between 2006 and 2009 to carry out community development work. News has information that the Storm provided funding to Unity and recorded the payments in the club's financial records as donations.
Unity issued 20 invoices to the Storm between 2006 and 2008 for amounts totalling $145,000. The club paid the invoices. Of the 20 invoices issued by Unity, 17 actual documents were found. Of these, 15 invoices were described as donations.
Further analysis of emails indicates a further amount totalling $85,000 was paid by Unity to certain players.
The Unity Foundation is now in liquidation. In May 2010, the liquidator wrote to the club asking for details of payments by the club totalling $134,000 between August 2006 and September 2009.
The liquidator has also written to two current players, Greg Inglis and Cooper Cronk, asking them to return wages they received as employees of Unity because the liquidator believes that players did not provide any services to Unity.
No evidence was found to support the liquidator's allegations and no evidence was found that the players were aware that payments made in this manner could have contributed to the club breaching the cap.
News has also obtained a copy of an email dated 13 June 2008 from the club's then CEO Brian Waldron addressed to Peter Maher, a director of Storm. In the email, Waldron expressed concern about the delay in payments to some players by the Unity Foundation for cadetships with the Foundation.
The email states: The situated [sic] is also complicated because both players were prepared to make contract variations in 2007 on the understanding this would be offse4 [sic] by the cadetships.
No evidence was found that the players were aware that payments made in this manner could have contributed to the club breaching the cap.
No evidence was found that Maher was aware that these payments to players through Unity could have contributed to the club breaching the cap. No evidence was found that Maher was aware of other payments or the provision of benefits to players through third parties that could have contributed to the club breaching the cap. Maher declined to be interviewed as part of News Limited's investigation of the salary cap breaches.
The Unity Foundation was formally established in 2006. Its predecessor entity received support from St Kilda Football Club at a time when former Storm CEO Brian Waldron was CEO of St Kilda Football Club.
No evidence was found that officers of the Unity Foundation or the St Kilda Football Club were aware that payments by the Storm through the Unity Foundation might contribute to a breach of the salary cap.
The McManus Group
Andrew McManus is a director of Andrew McManus Presents Pty Ltd, New Breed McManus Events Pty Ltd and Andrew McManus Presents (International) Ltd.
Evidence was found of transactions in which entities in the McManus Group invoiced the Storm on a monthly basis for consulting fees which the Storm paid. The invoices were coded in the club's balance sheet under a code for General Accruals.
The then financial controller of Andrew McManus Presents, Jerry Pannu, sent and received emails from the Storm's then CFO Matt Hanson in September and November 2008. Among the emails found was a reconciliation of amounts invoiced to the Storm for consulting fees and amounts paid to Storm players as salaries.
The reconciliation includes a column of figures under a heading Invoiced to Storm next to a column of figures under a heading Received from Storm. The amounts in the two columns are identical. Adjacent to these figures is a column that lists the names of 11 players and amounts paid to them as salary.
Nine Storm players are identified as having received payments using this method between May and September 2008.
The players are
Michael Crocker, Cooper Cronk, Dallas Johnson, Anthony Quinn, Cameron Smith, Steve Turner, Ryan Hoffman, Antonio Kaufusi and Matt Geyer.
Additional transactions were identified for two players in which entities of the McManus Group paid the players amounts totalling $198,000 in 2008 and 2009 after being invoiced directly by the player manager/agents representing these players. The funds paid to the players in this way were then re-invoiced by the McManus Group to the Storm using the description consulting fees.
No evidence was found that Inglis or Slater were aware that the payments made in this manner could have contributed to the club breaching the cap.
Evidence was found that the Storm paid the McManus Group amounts totalling $800,000. This matches the total amount the McManus Group paid to players. The invoices issued by McManus entities that were paid by the Storm were described as for consulting fees.
One of the emails between Jerry Pannu and Matt Hanson is dated 29 September 2008 and includes the statement from Mr Pannu I will pay the players tomorrow.
No evidence was found that the players were aware that payments from Andrew McManus Presents or its related entities were being funded by the club or that the players would have been aware that such payments could have contributed to the club breaching the cap.
Mr McManus declined to be interviewed as part of News Limited's salary cap investigation and did not provide any documentary material to investigators.
No evidence was found that Mr McManus knew about the payments or was aware that payments by entities associated with him could have contributed to the club breaching the cap.
No evidence was found that Pannu or any staff of Andrew McManus Presents or its related entities were aware that these payments to players could have contributed to the club breaching the salary cap.
In July 2009 the NRL salary cap auditor asked Matt Hanson and Paul Gregory from the Storm for details of all payments and invoices issued to the Storm by the McManus group. The invoices provided by the club to the NRL did not include the invoices later found that were described as for consulting fees.
Instead, the invoices provided by the club to the NRL included descriptions relating to specific event expenditure such as hospitality packages for the Melbourne F1 Grand Prix, the Spring Racing Carnival, hire of a marquee and digital signage rights. However, no payments in the Storm records were found that matched these invoices.
No evidence was found that Andrew McManus, any McManus Group company or any of their staff were aware of these invoices or their use in this way.
NRL Contracts and Side Letters
The salary cap breaches were contributed to by side letters between the club and some players.
News obtained three side letters that show amounts to be paid to players that are well in excess of the amounts in the contracts for the same players that were lodged with the NRL.
The side letters obtained by News were from the club to three players; Greg Inglis, Billy Slater and Cameron Smith.
All three side letters are signed by the club's former CEO Brian Waldron.
The side letter to Greg Inglis is signed by Inglis and by his manager/agent Allan Gainey.
The side letter to Cameron Smith is signed by Smith and his manager/agent Isaac Moses.
The side letter to Billy Slater is not signed by either Slater or his manager/agent George Mimis.
Neither Inglis, Smith, Slater, Gainey, Moses or Mimis agreed to co-operate with News Limited's investigation of the salary cap breaches.
No evidence was found that these players or their managers were aware that payments under these side letters were not disclosed to the NRL or could have contributed to the club breaching the cap.
Gift Vouchers
News has obtained a copy of an email dated 31 March 2010 from Paul Gregory, the then chief financial officer of the Storm addressed to an administrative assistant at the club about how to account for a gift voucher given to a player. In the email Gregory says The Cap Auditors will not even see the list as it is not on the books
.
Gregory declined an offer to attend an interview as part of News Limited's investigation of the salary cap breaches.
No evidence was found that the gift voucher provider or the administrative assistant at the club was aware that the provision of gift vouchers to players could contribute to a breach of the NRL salary cap rules.
No evidence was found that Storm players were aware that the supply of gift vouchers could have contributed to a breach of the NRL salary cap rules.
Motor Vehicles
Storm has access to a fleet of motor vehicles provided by Suzuki.
The Storm maintains a register of the vehicles including the names of Storm employees that had use of the vehicles. No players are recorded as having use of the vehicles, and use of the vehicles by players was not disclosed under the NRL salary cap.
However, an email dated 4 March 2009 from a financial accountant at the club to Matt Hanson asks Hanson how to record vehicles provided to players. The email states in the past we have put one in as the CFO's car.
Other emails and records indicate that vehicles were provided to immediate family members of one player.
No evidence was found that Suzuki, Storm players or the financial accountant at the club was aware that the provision of vehicles to players could contribute to the club's breach of the NRL salary cap rules.
Other independent directors and Storm staff
News Limited does not believe that either Dr Rob Moodie or Ms Petra Fawcett were aware of payments or the provision of benefits to players through third parties that could contribute to the club's breach of the NRL salary cap rules.
With the exception of Waldron, Hanson, Gregory, O'Sullivan and Vale, News Limited does not believe that the Storm's other staff were aware of payments or the provision of benefits to players through third parties that could contribute to the club's breach of the NRL salary cap rules.
