Posted this elsewhere but this is what I would do with the revenue:
Assuming the NRL is generating enough profit to support itself... I'd put a huge chunk of it into long-term investment in infrastructure and financial assets. We need to generate income outside of pokies, merchandise, sponsorship, crowds and memberships. I don't want short and medium term investments yet. I think we need to get long term investments working for us as soon as possible, and let compound interest be our friend. I think we should be looking at investing:
- 20% of it into junior clubs. The less we have to pay junior clubs to survive the better off we will be. It's a long term spend but I think if we are generating quality players over the years with better infrastructure then our brand will be stronger. $200 million dollars.
- 35% into long term financial assets from many areas - foreign currency, foreign markets, local markets, property, futures, options, gold, currency and the like. That's three hundred and fifty million dollars ($350,000,000). Now, I did some calculations on compound interest, and based on an increase in value of 7.5%, which is less than the usual 10% expected, and over a period of time it will look this:
[*]5 years - $500,000,000 approx
[*]10 years - $700,000,000 approx
[*]15 years - $1,000,000,000 approx
[*]25 years - $2,000,000,000 approx
[*]50 years - $13,000,000,000 approx
That's assuming no dividends are reinvested, which I wouldn't want them to be just yet. That's some serious coin. Use it as a cash cow plus watch the investment expand. Once the second TV deal goes through in 10 years time, start reinvesting dividends into the asset or use the dividend to purchase other assets.
- 20% of the cash can go to the NRL clubs to fix their problems as much as possible. It's not the majority, but $200,000,000 between 16 clubs is quite substantial. It's $12.5 million each. That should clear most debts plus leave enough for small investments.
- 10% goes directly to the NRL. That should be enough to help with running costs, plus leave enough for investment into their own infrastructure such as support staff, more efficient systems, expansion of facilities etc as well as better marketing, advertising etc etc. ($100 million dollars)
- The final 15% gets split between the NSWRL, NTRL, SARL, QRL etc. Again, not a huge amount but it's still $150,000,000. Between the seven state bodies, it's $21.5 million dollars each. That's still a serious amount of money. It's enough to help with junior clubs more if need be, the state competition, pay off debts or invest into the state body itself. Even all of them. For the smaller state bodies that's an even bigger amount of money than what the NSWRL or QRL get due to their sheer size. That's a good thing I think. It means they can market the game and help out the local comp much more effectively.
The biggest investments have to be in infrastructure and assets though. The less we have to rely on outside means the better off this game will be. Look what happened with the pokie tax. It nearly killed us. The Roosters last year? Huge dent in their financial means. We need to be looking almost purely long term with this TV deal in my opinion. The new TV deal in 6 or 7 years time can be used to reinvest in the stuff we missed with the rest of it going back into long term assets. But for the moment, we should be using this generate income not using it for instant gratification and poor, short term purchases which provide no income. I think of this as like the money that Great Aunt left you to invest. I think short term pain with long term gain is the way to go. We are surviving with what we have at the moment, and with some reasonable sized investments of around $12.5 million to the NRL clubs they should be able to get through to 2018.
Without getting too far ahead of myself, assuming the new deal is $1.5 billion in 2018 (based on $500 million the last one, $1 billion this one) or whenever the one we are negotiating expires, I'd probably go:
- 35% to the NRL clubs - between 16 clubs that's nearly $33 million dollars each. Since debts have already been cleared, that leaves a lot of money for a whole heap of stuff.
- 15% invested in assets - $225 million dollars - short and medium term assets. A cash cow if you like.
- 20% to local junior clubs - $300 million dollars - it won't go far, but with the earlier $200 million dollars it's half a billion dollars over 8-10 years, which is money we never had before. Got to remember we are still earning a profit before each deal which is getting used.
- 20% to the NRL - $300 million dollars - use this for club expansion grants, operating costs, player support initiatives etc, as well as more investment into the organisation itself.
- 10% to the state bodies. - $150 million dollars - $21 million dollars each between the 7 bodies.
Deals like these have to be investments not wasted on stupid stuff like new uniforms, referees etc etc.
The NRL as an entity is a business - no more no less. It has to follow the same business models that are accepted as standard, and they are susceptible to the same market and economic forces that all businesses are susceptible too. If there is a downturn in the local economy they feel the effects of it. Which is why we should be investing in both foreign and local markets. It's all about diversification. Both foreign and local, high risk and low risk.
Let's look at a scenario. If there is a local recession, luxuries such as football games are going to be out of the question for the average citizen. Memberships are going to take a massive hit as is merchandise. Luxuries are the first to go in a recession; that's an accepted fact by most economists and theorists - even by the public itself. People have to eat first, find shelter and pay the bills before buying a new jersey. Obviously. Same with pokies. When you are in a recession, you don't gamble your dinner or your weekly mortgage payments. There goes that source of income. If we are so unlucky that a sponsorship deal is up when it hits, then we are unlikely to get a new deal, or even if we do, a new deal at or exceeding the same value as the previous is unlikely. There goes that as a source of funding. At least one club in the sixteen will renew or seek out a new sponsorship deal each year. The NRL every five years or so. So what are we left with? Since merchandise, memberships, sponsorships, crowds and pokies are our major income sources, we are left with very little.
Which is why we diversify overseas and locally, high risk and low risk, and from shares to futures to forex. If it's a local recession, we need to have other forms of income which are safe and not effected a great deal by a local recession which also means going overseas. We also need to have both high risk and low risk investments. Low risk investments will keep the code out of the metaphorical dole line, with areas such as cash and term deposits coming to the fore that provide a guaranteed - albeit small - income. We need to invest enough so we have an insurance package so to speak.
We move along in the risk factor line to areas such as property, shares and the like. This is where most of our investment goes. We invest both overseas and locally. Mainly blue chip companies such as BHP, Intel, Japan Post Holdings and ING (multiple countries), as well as property in both markets (local and foreign) and of all types (commercial, industrial and residential). These should provide almost guaranteed returns most years. A small percentage of the cash foes to high risk investments both foreign and local. Futures and options, high risk companies, hedge funds, emerging markets and the like. The potential for these are enormous, but you wouldn't put the house on it so to speak.
The problem with investing purely in the game is that it is still a business and as described in the scenario above, is still at risk from local economic factors and as the pokie tax has shown, legislation factors. By investing in a diverse number of areas, you lay a foundation where economic and legislation factors effecting the code are limited substantially. Sure, you might lose crowds and memberships with a local recession, but you will still have enough income and assets to pay the bills. An overseas recession is the same thing. You might lose that source of income and that investment might take a beating but you still have the others. Kind of like the player carrying an injury - your teammates will guide you through. I'm all too happy for the majority to go into the code itself - I left just under two thirds of the reported potential revenue as being purely for the code - about $650 million dollars. But I think if we spread ourselves just a little then we don't have all our eggs in the one basket.
We can't limit ourselves to just local markets, bread and butter investments such as shares and property or investing directly into the code. Look at opportunities. If there is a company overseas specifically tailored to sports and is looking for an investor or is a suitable investment then do a deal. Textile company with a solid financial background? Do it. Cheaper uniforms for the clubs and the fans. Limiting ourselves will only get us into trouble. I'm all for investing in the code, which is why I proposed 65% of the revenue from this deal is going straight back into areas that directly affect the code and the brand. But we shouldn't limit ourselves to just focusing on the code without looking outside the square.
That was a big spill. Being thinking about it for a couple of weeks now...
