Photo / Brett Phibbs
The Rugby World Cup is as much a business as a sporting event.
The 2007 cup tournament, held in France, generated $941 million in direct revenue from gate receipts, broadcasting, sponsorship and other sources over the six-week period.
This is an average of $157 million a week; Telecom's turnover is less than $100 million a week.
The cup is also far more profitable than Telecom, particularly as far as the International Rugby Board is concerned. The 2007 event generated a surplus of $368 million, of which $330 million or 90 per cent went to the IRB.
New Zealand will incur a direct loss from hosting the event, so the benefits to us will have to be indirect - such as short and long-term boosts to the tourism industry or a lift in national confidence.
From a business point of view, the cup is divided into two sections, the host union and the IRB.
The host union derives all its revenue from gate receipts and has full responsibility for tournament and team operational costs.
It also has to pay a tournament fee to the IRB.
There has been huge media interest in ticket sales because the financial outcome of the event, from New Zealand's point of view, is almost totally dependent on these.
Only 600,000 people attended the 1987 cup games in New Zealand, but 1.6 million tickets are available for this event.
The organisers are aiming to make $269 million from 1.36 million ticket sales.
This compares with ticket sales of $32 million for the 2005 British and Irish Lions rugby union tour, the previous record for a New Zealand sporting event.
Rugby World Cup 2007 in France generated $397 million from the sale of 2.24 million tickets, and Australia collected $225 million in 2003 from total attendances of 1.9 million.
Ticket prices are high because this is New Zealand's only source of direct revenue.
The average ticket price is estimated at $200 compared with nearly $180 four years ago. All the 2011 figures are estimates because forecasts have changed several times since New Zealand's successful bid six years ago.
The host country pays all the costs of the six-week tournament, including travel and accommodation for the 20 teams. It is also responsible for all the costs associated with each game.
As well, the winning bidder now has to pay a fee to the IRB for hosting the event. New Zealand's total estimated costs of $310 million comprise $160 million of tournament expenditure and a $150 million fee to the IRB.
The last four rugby world cups have generated operating surpluses for the host union, but it has become increasingly difficult to achieve this since the tournament fee was introduced in 2003.
New Zealand will record a direct loss from the event, hopefully no more than $40 million, which will be shared equally between the Government and the New Zealand Rugby Union.
The projected deficit does not include capital costs associated with the rebuilding and refurbishment of stadiums and other non-operational costs.
The IRB is the huge winner from the Rugby World Cup - it made a surplus of $42 million in 1995, $151 million in 1999, $180 million across the Tasman in 2003 and $330 million four years ago.
Broadcasting revenue is its main source of income, which is why the semifinals and final start at 9pm to suit the Northern Hemisphere viewing audience.
Broadcasting revenue is becoming increasingly important and is expected to exceed ticket sales income this year.
But rugby has a long way to go to catch up with the Fifa World Cup - last year's tournament in South Africa generated broadcasting income of $3.4 billion and ticket revenue of $420 million.
Money from sponsorship is also extremely important and is the reason the IRB strictly enforces sponsors' rights. There will inevitably be incidents during the tournament when the IRB stops non-sponsoring companies from trying to promote their products inside or close to stadiums.
The cup is a commercial event and the IRB will do everything it can to protect the interests of its broadcaster and sponsors to ensure they re-sign as sponsors for Rugby World Cup 2015 in England and RWC 2019 in Japan.
The tournament fee, which was introduced in 2003 at $37 million, was $150 million in 2007 and is an estimated $150 million this year. This is included in IRB revenue figures and is also incorporated in the host union's costs.
The IRB had total costs of $214 million for the 2007 competition because it pays for all the qualifying games - and 94 countries participated in the 2007 event.
Widespread participation is an important part of its plan to promote the game throughout the world.
The IRB has been successful in this regard. Only 16 countries participated in the 1987 cup, which had a total cumulative broadcasting audience of 230 million. In 2007, 94 countries took part (including qualifying tournaments), and the total broadcasting audience was 4.2 billion.
The IRB's biggest problem is that it is almost totally dependent on the World Cup for its revenue and has to squeeze every last cent out of the tournament.
For example the IRB's total revenue for 2007 - a World Cup year - was $570 million.
But in 2008 and 2009 it had revenue of only $6 million and $5 million respectively.
The IRB is building a big organisational structure at its head office in Dublin, where it does not pay tax, yet the organisation's earnings fluctuate hugely between World Cup and non-World Cup years.
* In 2007, the IRB reported a profit of $343 million.
* The following year it had a $56 million loss.
* In 2009, it lost $90 million.
It is highly unlikely that New Zealand will ever host the cup on its own again as long as the IRB remains totally determined to extract every last dollar from the event.
The International Cricket Council is in a far better financial position because it generates considerable income from ICC World Twenty20, ICC Champions Trophy and the ICC Cricket World Cup.
The ICC also receives fees from member countries.
Over the past four years the ICC has had total surpluses of $510 million, compared with $80 million for the IRB.
Rugby is being played in more and more countries but its finances are less robust than those of cricket, which is confined to a small number of nations but is benefiting hugely from the game's popularity in India.
The clear message to any young New Zealander, who is excellent at rugby and cricket and wants to make a living from sport, is that cricket is likely to be a better choice than rugby.
As far Rugby World Cup 2011 is concerned the best option for New Zealanders is to sit back and enjoy the tournament and put on a good show for visitors.
We are not going to produce a direct financial surplus but if visitors have a great experience, particularly if they receive top-class service at a reasonable price, they will be encouraged to return and bring their friends with them.
Several tourism operators are expecting the cup to generate a significant increase in tourist numbers from the third quarter of next year.
If this is the outcome of a successful tournament then the small deficit, underwritten by the Government and the NZRU, will pale into insignificance.
* Brian Gaynor is an executive director of Milford Asset Management.
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