Cricket's tough financial test

By Nick Smith

Justin Vaughan. File photo / Paul Estcourt
Justin Vaughan. File photo / Paul Estcourt

Outgoing New Zealand Cricket chief executive Justin Vaughan sounds grumpy. He speaks to the Business Herald at lunch on the first day of the second test against Australia and the interview doesn't start well - but not because the Black Caps have managed only 83 runs for the loss of six wickets.

The Herald's correspondent was watching the action for free on a live-streaming website.

"I think that's probably illegal," Vaughan notes tersely, adding: "Piracy on the internet is a big issue for us - but it's difficult [to police] and sporting bodies around the world are facing similar issues."

New Zealand Cricket has bigger problems, however, than members of the Fourth Estate unwittingly contributing to the declining revenue stream of the country's favourite summer sport.

When new chief executive David White takes over the reins next year, he will be faced with conditions that will be the financial equivalent of the green-top cricket pitch the Black Caps struggled and prevailed upon in Hobart.

This year, the organisation will post a loss (against a $2.6 million surplus for 2010/11, a disappointing result in a World Cup year) and will receive nothing from its primary benefactor, the International Cricket Council, because no international competitions are being staged in the 2011/12 financial year.

As well, the wet summer has rained out an unusual number of matches in the domestic cricket competition.

Northern Districts boss David Cooper told Herald sports writer Dylan Cleaver his organisation had taken a "massive hit" on a rain affected home game.

New Zealand Cricket is also facing private sector competition from 20/20 competitions in India, Australia and the UK, which erode the value of broadcasting rights, its primary source of income.

"Now with the Indian Premier League (IPL), we have a competitor for cricket," Vaughan says.

"The vast chunk of the revenue is earned through the national team ... and this is underpinned by broadcasting rights.

"A lot of that value, a good 70 per cent, is revenue from the Indian region.

"The broadcasters in India can opt to show the IPL, perhaps in preference to traditional country-versus-country cricket."

After a decade of steady, consistent growth in broadcasting revenue, cricket boards' income streams are stagnating and, says Vaughan, "if anything, going backwards to a degree in recent times".

The private sector is also competing for the players.

Black Caps captain Ross Taylor, who plays for the Rajasthan Royals, could make $1 million over three years if he played fulltime in the IPL.

This creates a tension between availability for the national side and the players' desire to earn decent money while they are still at the top of their game.

Vaughan says the board is achieving a balance between the players' needs and the national interest. He points to the new eight-year partnership agreement with the game's stakeholders as cause for optimism.

The agreement gives the players a greater share of the profit when the game pulls in cash and guarantees a funding to the sport at a grassroots level. But when times are bad - like this year, and perhaps next - then the players "have to share the haircut", he says. Short, back and sides then this year, fellas.

New Zealand Cricket is an exporter, in the sense that more than 80 per cent of its earnings are in US dollars.

Last year's US dollar revenue "translated" to between 68c and 76c, says the 2011 annual report.

Without the hedging programme, exchange rate levels would have been between 75c and 79c.

"It's tough going [but] we've got a good treasury policy in place and we use advisers to assist," Vaughan says.

More concerning than currency movements is the parlous provincial scene, where only three of the six major associations have significant reserves, Vaughan reports.

"The other three are pretty much hand to mouth, year on year."

The national body remains the largest source of revenue for all six.

It is because of this environment of rising costs and static or declining revenue, that New Zealand Cricket is exploring options to attract private sector involvement in running provincial associations with annual turnover of $2.5 million to $4 million.

A franchise arrangement, similar to that touted for rugby's Super 15, is the immediate focus, but Vaughan is clear - whatever happens, the national body will remain an investor in domestic competition.

The sport needs new money but, recent history suggests it will be lucky to find a buyer.

Cricket Australia sought franchise agreements for two of its eight state teams competing in December's inaugural Big Bash 20/20 competition and did not get a single signature.

Vaughan says Australia didn't get over the line because its ambition was too big for an unproven product.

New Zealand will present a case to private investors that will be "far less than for an Australian state team or a super rugby franchise".

In fact, it's a break-even proposition and it will be up to the parties to leverage additional value into and off the investment.

"We're confident we can build a model on a smaller scale that is more palatable," Vaughan says.

A more distant income stream could come from its commercial partnership with US Cricket, where all the commercial rights have been assigned to a joint-venture vehicle in which New Zealand Cricket is protected from financial risk.

New Zealand provides the intellectual property, administrative experience and players in an as-yet unrealised American adventure involving private investment.

In the near-term, "we've just to manage our way through" to the 2015 Cricket World Cup, which New Zealand will co-host.

"Unlike the Rugby World Cup, hosting a Cricket World Cup is financially beneficial to the hosts," Vaughan drolly notes.

Also, weighing in the body's favour is that broadcasting rights are being renegotiated and prospects will have been boosted by the sensational win against Australia in Hobart.

More important, though, are our opponents during the next eight years.

The biggest earners are Indian tours, followed by England, with Australia a distant third.

The Aussies may pack the stands but they don't attract the same television viewer interest as England or India, Vaughan says, and broadcasting cash is king.

"Next year we have England touring and, the year after, India tours and then we co-host the Cricket World Cup," he says.

"That will be the single event that will provide considerable levels of reserves."

Unless new cash sources can be found, those reserves will be vital to maintaining a healthy financial game.

At a glance

* NZ Cricket will post a loss this year
* Private sector competition is eroding boards' main source of revenue, broadcasting rights
* Three of the major provincial associations survive on "hand-to-mouth" revenue and all six depend on the national body as their main source of income
* NZC continues to investigate new sources of revenue, including semi-privatising domestic cricket and further developing a venture with US Cricket.

- NZ Herald

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