AFRWeekend article
Problems with the NRL funding deal go back to a deal John Grant struck with Bart Campbell in December 2015. Kate Geraghty
by John Stensholt
The trouble for rugby league, Australian Rugby League Commission chairman John Grant and the governing body's toxic relationship with the 16 NRL clubs, can all be traced back to a fateful announcement in the first week of December last year.
Back then, in what Grant termed an "emotionally charged environment", management agreed to to fund each club to the tune of 130 per cent of their total player payments from 2018 onwards.
It was a landmark deal. But while a heads of agreement was signed, and the deal loudly trumpeted at the time as saving the clubs' financial bacon forever more, negotiations over terms dragged on for the best part of 12 months before Grant and the commission pulled the deal from the table on November 23.
Since then, all hell has broken loose as Melbourne Storm chairman Bart Campbell, who struck deal original deal, has led the charge to dump Grant.
But the simple fact is that the original agreement was dumb, extremely unaffordable for the NRL and one of the biggest strategic mistakes made in the almost five-year history of the independent commission now running that game.
It is also one, with the clubs calling for Grant's scalp, that threatens to come back to bite them. But it is also one rugby league's management desperately need to extract themselves from. Even if it is entirely their own fault for agreeing to it in the first place.
There are two main problems for the NRL.
The first is that its balance sheet is already stretched. This is because it wants to invest in shoring up its base of grassroots players and participation; and it needs to invest up to $100 million over five years in its digital business when it takes over the online running of the game from Telstra about this time next year. That comes after pouring a good $30 million in propping up four clubs, failing to sell the Newcastle Knights this year and the accusation from many clubs and commentators that running head office is costing too much anyway.
Aligning interests
The second is that in agreeing to the 130 per cent deal it aligned the players' interests – a new collective bargaining agreement needs to be signed next year – with the clubs. That is a dangerous combination for a governing body.
In 2015, the NRL made an $18 million loss. It is likely to post another loss this year and there is a real possibility it will post another negative result in 2017. It is a far cry from 2013, when it announced a $50 million profit and was flush with funds after negotiating a record $1 billion broadcast deal in 2012. The league has a sustainability fund that was worth about $52 million in October 2015, but there are concerns it may have been raided in the past 12 months to shore up the league's finances.
The 130 per cent funding deal agreement last December came at a time when then NRL chief executive Dave Smith had walked away from the game or fallen on his sword – depending on the version of the controversial TV rights negotiations that infuriated Rupert Murdoch that you believe – and Grant had headed off a previous move by the clubs on his position.
NRL clubs, upset at the way TV talks had initially moved (the NRL eventually clinched a $1.8 billion five-year deal with Nine Entertainment Co and Fox Sports), had threatened Grant's position as he moved to become interim CEO. The 130 per cent claim was struck and peace was set to reign.
But of course it couldn't, because the deal was simply unaffordable.
The AFL, the richest sports code in the country, has never offered to pay its clubs more than the 100 per cent of total player payments. Modelling it did a few years ago suggested that every 1 per cent increase promised to the clubs would cost the AFL $12-18 million annually. Ratchet up the percentage above 100 per cent and multiply it by a five- or six-year term of a TV deal and the money going to the clubs is enormous.
Wisely from a strategic and financial point of view, the AFL has a "disequalised" funding model. That means "poorer" clubs get more funding than the wealthy ones. That helps prop them up, and usually keeps them onside with head office. The NRL struck a deal to fund all its clubs the same amount, meaning all 16 clubs' interests were completely aligned.
Player payments
Then there is the question of what the NRL players stand to be paid. Agreeing to pay the clubs a set amount far exceeding the total player payments meant the clubs' interest, getting more money from the NRL, was completely aligned with the players' interest of getting higher salaries.
Suddenly instead of having the clubs on its side in CBA negotiations the NRL will have the clubs siding with the players or not worrying what player salaries and the total payment package gets set at. It doesn't matter to the clubs, they were set to get 130 per cent of player wages no matter what.
They could tell the players they were happy to pay them more, safe in the knowledge the NRL was going to pay them that 130 per cent. (The AFL, meanwhile, also has a CBA negotiation to do but has not promised any big specific funding packages to clubs – or the players.)
The NRL is now wisely backing away from the 130 per cent deal at rapid rate. But that doesn't excuse the governing body from the ham-fisted way it dealt with the matter in the first place. It signed a heads of agreement with the clubs, so it is understandable they are angry at the league and want Grant's scalp – a move they see as the only one they have as a protest at the NRL's mismanagement.
While in the short term there is the move to ditch Grant to deal with, the longer-term game is for the NRL and the 16 clubs to thrash out a deal. It has to be done.
It will be tough, but should not be impossible. Then both parties could get on with the task of bringing in revenue to the game, not just relying on the big bucks of a TV deal to save the day every five years. That truly would be a win-win situation
Read more: http://www.afr.com/business/sport/w...ub-funding-deal-20161201-gt2cwy#ixzz4RqOwSfcY
Follow us: @FinancialReview on Twitter | financialreview on Facebook
Problems with the NRL funding deal go back to a deal John Grant struck with Bart Campbell in December 2015. Kate Geraghty
by John Stensholt
The trouble for rugby league, Australian Rugby League Commission chairman John Grant and the governing body's toxic relationship with the 16 NRL clubs, can all be traced back to a fateful announcement in the first week of December last year.
Back then, in what Grant termed an "emotionally charged environment", management agreed to to fund each club to the tune of 130 per cent of their total player payments from 2018 onwards.
It was a landmark deal. But while a heads of agreement was signed, and the deal loudly trumpeted at the time as saving the clubs' financial bacon forever more, negotiations over terms dragged on for the best part of 12 months before Grant and the commission pulled the deal from the table on November 23.
Since then, all hell has broken loose as Melbourne Storm chairman Bart Campbell, who struck deal original deal, has led the charge to dump Grant.
But the simple fact is that the original agreement was dumb, extremely unaffordable for the NRL and one of the biggest strategic mistakes made in the almost five-year history of the independent commission now running that game.
It is also one, with the clubs calling for Grant's scalp, that threatens to come back to bite them. But it is also one rugby league's management desperately need to extract themselves from. Even if it is entirely their own fault for agreeing to it in the first place.
There are two main problems for the NRL.
The first is that its balance sheet is already stretched. This is because it wants to invest in shoring up its base of grassroots players and participation; and it needs to invest up to $100 million over five years in its digital business when it takes over the online running of the game from Telstra about this time next year. That comes after pouring a good $30 million in propping up four clubs, failing to sell the Newcastle Knights this year and the accusation from many clubs and commentators that running head office is costing too much anyway.
Aligning interests
The second is that in agreeing to the 130 per cent deal it aligned the players' interests – a new collective bargaining agreement needs to be signed next year – with the clubs. That is a dangerous combination for a governing body.
In 2015, the NRL made an $18 million loss. It is likely to post another loss this year and there is a real possibility it will post another negative result in 2017. It is a far cry from 2013, when it announced a $50 million profit and was flush with funds after negotiating a record $1 billion broadcast deal in 2012. The league has a sustainability fund that was worth about $52 million in October 2015, but there are concerns it may have been raided in the past 12 months to shore up the league's finances.
The 130 per cent funding deal agreement last December came at a time when then NRL chief executive Dave Smith had walked away from the game or fallen on his sword – depending on the version of the controversial TV rights negotiations that infuriated Rupert Murdoch that you believe – and Grant had headed off a previous move by the clubs on his position.
NRL clubs, upset at the way TV talks had initially moved (the NRL eventually clinched a $1.8 billion five-year deal with Nine Entertainment Co and Fox Sports), had threatened Grant's position as he moved to become interim CEO. The 130 per cent claim was struck and peace was set to reign.
But of course it couldn't, because the deal was simply unaffordable.
The AFL, the richest sports code in the country, has never offered to pay its clubs more than the 100 per cent of total player payments. Modelling it did a few years ago suggested that every 1 per cent increase promised to the clubs would cost the AFL $12-18 million annually. Ratchet up the percentage above 100 per cent and multiply it by a five- or six-year term of a TV deal and the money going to the clubs is enormous.
Wisely from a strategic and financial point of view, the AFL has a "disequalised" funding model. That means "poorer" clubs get more funding than the wealthy ones. That helps prop them up, and usually keeps them onside with head office. The NRL struck a deal to fund all its clubs the same amount, meaning all 16 clubs' interests were completely aligned.
Player payments
Then there is the question of what the NRL players stand to be paid. Agreeing to pay the clubs a set amount far exceeding the total player payments meant the clubs' interest, getting more money from the NRL, was completely aligned with the players' interest of getting higher salaries.
Suddenly instead of having the clubs on its side in CBA negotiations the NRL will have the clubs siding with the players or not worrying what player salaries and the total payment package gets set at. It doesn't matter to the clubs, they were set to get 130 per cent of player wages no matter what.
They could tell the players they were happy to pay them more, safe in the knowledge the NRL was going to pay them that 130 per cent. (The AFL, meanwhile, also has a CBA negotiation to do but has not promised any big specific funding packages to clubs – or the players.)
The NRL is now wisely backing away from the 130 per cent deal at rapid rate. But that doesn't excuse the governing body from the ham-fisted way it dealt with the matter in the first place. It signed a heads of agreement with the clubs, so it is understandable they are angry at the league and want Grant's scalp – a move they see as the only one they have as a protest at the NRL's mismanagement.
While in the short term there is the move to ditch Grant to deal with, the longer-term game is for the NRL and the 16 clubs to thrash out a deal. It has to be done.
It will be tough, but should not be impossible. Then both parties could get on with the task of bringing in revenue to the game, not just relying on the big bucks of a TV deal to save the day every five years. That truly would be a win-win situation
Read more: http://www.afr.com/business/sport/w...ub-funding-deal-20161201-gt2cwy#ixzz4RqOwSfcY
Follow us: @FinancialReview on Twitter | financialreview on Facebook
