So, where does all the money go?
February 10, 2007
The NRL's protracted sponsorship negotiations with Telstra have raised fresh concerns about News Ltd's involvement in the game, writes Andrew Stevenson.
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AdvertisementTEN years after the debut of Super League in Australia, media giant News Ltd still has a finger in virtually every piece of the rugby league pie. News sits on the top, as the half-owner of the NRL, in the middle, as the controlling owner of the Melbourne Storm, North Queensland Cowboys and Brisbane Broncos, and watches from lucrative seats on the sidelines as the half owner of pay-TV broadcaster Fox Sports.
The rugby league war brought the game to its knees in Australia and ran up huge corporate losses for News Ltd. But it delivered the company much of what it had sought - popular sporting product for pay TV and a seat, or three, at the decision-making table.
But the cost. The paper trail reveals the extent of News Ltd's exposure, with the company taking shares worth $560m in Super League Pty Ltd, which in turn holds shares totalling $130m in National Rugby League Investments, the vehicle for News Ltd's 50 per cent share in the NRL.
When peace was declared and the NRL established - with the game's fan base in tatters, public attention distracted at best and News Ltd facing open hostility from many quarters for its role in hijacking the game from its traditional owners - the idea of actually making a profit from the game was a long way from anyone's mind.
The Nine Network had bought the rights for the game from spare change left on top of the drinks cabinet; salary contracts were locked in at hyper-inflation levels from the bidding war between the ARL and Super League; merchandise sales were dribbling; and the internet was the province of geeks and "early adopters".
Throw forward to 2007 and much has changed. Down slightly on the record year of 2005, crowds are strong and reflect the game's increased reach. Sponsorship receipts are up 100 per cent over the past five years; licensing revenue is up 86 per cent. Finals crowds have grown and State of Origin remains a financial bonanza. The new broadcast deal, which begins this year, delivers an extra $40m into the NRL's coffers, almost doubling the previous arrangements. In 2007 - dependent upon a satisfactory conclusion of negotiations with Telstra for sponsorship, internet and mobile-phone rights - the NRL partnership stands to receive revenue in the order of $126m.
The next question is: what does it cost to run the NRL? Financial statements lodged for the company with the Australian Securities and Investments Commission reveal costs have risen steadily, from $60m a year in 2002 to $72m in 2005. The Herald understands 2007 will prove a more expensive year, with a new team on the Gold Coast and grants to clubs rising. Projections for yearly costs are in the order of $99m, leaving an operating surplus of $27m.
So where does the money go? That is the question being asked by many in the game, including former head of the Rugby League Professionals Association, Tony Butterfield. Revenues are booming but the salary cap grinds on and Butterfield says players are feeling "ripped off and unappreciated".
"The [broadcast] rights continue to go up, sponsorship and merchandising revenue is up, so where's the money? That's the question and the clubs are not asking it," he said. "Huge areas of the game are really struggling at the moment and I think it's a watershed period. But I think the clubs need a kick in the guts for basically letting down the entire rugby league community."
Complications over the negotiations with Telstra - with Nine and Fox claiming ownership of images the telco wants to broadcast to hand-held devices - have increased angst about News Ltd's role in so many levels of the game and the attendant conflicts of interest.
News Ltd and the ARL share first dibs on the surplus, with both partners taking $8m out of the game each year. The ARL then petitions the NRL Partnership Committee - comprised of three members from News Ltd and three from the ARL - for extra funds for development, an amount that this year is expected to approach the $7m mark.
NRL chief executive David Gallop is emphatic News Ltd can not, and is not, taking more out of the game.
"News are entitled to take $8m each year," he said. "Some years, they've not taken their full $8m and, therefore, there is an entitlement still owing. Some of that entitlement has been paid back.
"We've been totally up front for the last couple of years with the clubs and players' association about the game's financial picture. We're showing them the figures and I don't think you could have said a few years ago that they had access to that sort of information.
"If you look at our track record, we've increased our development spend, we've increased the club grant and we've also increased the salary cap. I would think people in the game accept how hard we've worked at getting that balance right."
Gallop denied any stash of money was being accumulated, saying: "We're hoping to make a bit of a surplus next year but we're going to need that because the game's revenues actually flatline over the next few years because we've done our television deals and our sponsorship deals. We're conscious our costs are increasing at a greater rate than our revenue over the next five years."
Sell phones: Telstra has the know-how but will have to pay for images
THE technology already exists to bring TV-quality coverage of this year's NRL season to your mobile phone. But technology is only one part of the picture.
Rights are the other and, as Telstra and the NRL (and its broadcast rights holders, the Nine Network and Fox Sports) continue to haggle over the fine print of a new five-year deal, footy fans can safely keep on talking without being interrupted by pictures and commentary.
Telstra's deal will be strictly limited by a 24-hour "holdback", a window of protection the NRL granted its broadcasters during 2005 rights negotiations. If the telco wants to show anything more than highlights inside the holdback period - either on mobiles or the internet - it will have to purchase the rights from the broadcasters.
But the next time the NRL sits down to negotiate rights it will be a different story. The percentage of mobiles capable of running streaming vision currently sits at 14 per cent of the market; by year's end, predicts technology and communications analysts Ovum, that figure will have doubled to 30 per cent.
The value of mobile rights is set to rise as the number of new-era phones rockets but the relationship between phone companies and broadcasters is tricky as both try to work out the impact mobile technology may have on home-viewing times.
Amanda Hutton, general manager, products and services at 3 mobile - which has this summer offered live cricket coverage for $5 a month - argues the two need not be at war.
"We certainly don't see ourselves as a direct competitor to Channel Nine when it comes to the cricket coverage and I don't think Nine views us as a direct competitor," she said. "From our perspective, I think they can sit side-by-side."
Hutton would like to get her hands on the NRL rights but 3's pockets aren't deep enough, trumped by Telstra's capacity to pay for sponsorship and internet rights concurrently. That means more money for the NRL but the cost of exclusivity is exposure, she argues.
"Sporting codes are much better to get out to their fan base and should be 'telco-agnostic' with the content available to customers of all telcos," she said.
The fact that 3 mobile's biggest day with the cricket was the first day of the Ashes may indicate a limit to the attraction of live and extended viewing. Vodafone content manager, Keith O'Brien believes less is more.
"Our customers have told us they basically have five minutes of downtime in the day. Mobile TV is the perfect application for that and sports news is perhaps the most popular channel," he suggested.
O'Brien believes, when it comes to the NRL, most fans want live scores delivered to their handset and highlights of the action. "Does a consumer want to sit down 24 hours later and watch a replay of the game? I'd say it's unlikely," he said.
Andrew Stevenson
THE PAPER TRAIL
REVENUE 2007
Broadcast rights:
Sponsorship, internet, mobile: $15m
International TV/radio: $5.5m
State of Origin/finals: $22m
Merchandising revenue: $1.5m
Total: $126m
EXPENDITURE $52m
Club grants:
Administrative expenses: $10m
Marketing expenses: $14.5m
Football expenses: $22m
Occupancy expenses: $0.5m
Total: $99m
SURPLUS: $27 millionNews Ltd and ARL take $8m each.
DISBURSEMENTS:
ARL then applies for further development funding, estimated to be $7m for 2007.
KITTY: $4 million¡ Estimates based on published NRL accounts for 2005, media releases and other sources. The NRL Partnership, the controlling entity of the competition, publishes no accounts.
$82 million
