End result is all that really matters

By Brian Gaynor

Investment


The dismissal of Graham Lowe and Malcolm Boyle from the board of the Auckland Warriors is a powerful reminder that financial performance in sport is just as important as results on the field. This is particularly true in an era of huge player salaries, corporate boxes, sponsorship and lucrative television contracts.

Mr Lowe and Mr Boyle tried to hitch a free ride at the expense of the Tainui but their position became untenable when the Warriors' financial position deteriorated and they refused to front up with any new funds.

Sports fans have been shocked by their sackings but the two directors paid the price of poor stewardship and a weak minority shareholding position.

Auckland Warriors Rugby League Ltd was incorporated on September 18, 1991. Its principal objective was to apply for entry to the Australian rugby league competition. The company was fully owned by Auckland Rugby League (Inc) and company office records show that the original owner's capital contribution was just $100.

The application was successful. The Warriors entered the Australian competition in 1995 and produced a net profit of $63,900 for the October 1995 year. This financial performance was satisfactory but the accounts showed there were big problems ahead.

At the end of the season the Warriors had future player salary commitments of $13.4 million, $5.0 million for the 1996 season and $8.4 million after that. These figures did not include any match incentives or bonuses.

In 1996 the Warriors reported a loss of $473,700 after taking into account a $6.1 million payment from Rupert Murdoch's Super League. The club, which was then chaired by Sir Roger Douglas, was in a precarious financial position. Future commitments on player salaries had swollen to $14.7 million, with nearly $5.7 million contracted for the 1997 season.

At the end of 1996, Parnell barrister Peter Macky replaced Sir Roger and Bill MacGowan replaced the free-spending Ian Robson as chief executive.

They introduced financial disciplines to the Warriors and it reported a net profit of $339,700 for the 1997 year after receiving $5.8 million from Super League. Future player salary commitments at the end of 1997 had fallen to $12.5 million.

In May 1998, the 36 member clubs of the Auckland Rugby League voted to sell the Warriors. Graham Lowe and Malcolm Boyle showed their interest when they registered a company called Setam Investments Ltd on May 27, 1998 with capital of just $2.

A few days later they registered another company called Rugby League People Ltd which was fully-owned by Setam. In September/October Jeff Green, Rick Muru and Niawa Nuri of Tainui joined the board and it made an offer to buy Auckland Warriors Rugby League Ltd for $3.5 million.

Auckland Rugby League welcomed the bid with open arms as its next highest offer was $0.5 million from former Kiwi test player Dean Lonergan. The original plan was for Setam, MDC Investment Holdings and Sky City to own 33 per cent each through Rugby League People. When Sky City withdrew, Rugby League People's 300 $1 shares were divided between Setam and MDC and they now hold 100 and 200 shares respectively.

The unique aspect of the transaction was that MDC Investment Holdings agreed to either arrange or provide the $3.5 million purchase price and all future funding of the Warriors. Graham Lowe and Malcolm Boyle had no obligation beyond the $2 contribution to Setam's capital and Setam's $100 capital contribution to Rugby League People. (The Lowe/Boyle partnership later contributed $100,000 to the Warriors.)

In February 1999, when control of the Warriors was passed to Rugby League People and Graham Lowe became its executive chairman, the club was finalising its financial returns for the 1998 year. These showed a profit of $1,780,000 for the October 1998 year, including a payment of $5.4 million from Super League and $2.3 million from the Australian Rugby League.

Player salary commitments had declined to $8.5m ($5.3m for the 1999 season) but the club's financial position was fragile because the $5.4m from Super League was a final settlement.

Many of the financial disciplines introduced by Peter Macky and Bill MacGowan slackened under the stewardship of Graham Lowe. Expenses, particularly non-team travel costs to Australia, blew out and Auckland Warriors Rugby League Ltd recorded a loss of $4.8 million for the October 1999 year.

This huge deficit included redundancy and restructuring costs of $1 million but excluded any interest on the shareholder loans provided by MDC. The club received $2.4 million from ARL but match receipts and the sponsorship contributions were well below budget.

The poor profit performance in 1999 has been a drain on the company's finances. To date Tainui, through MDC Investment Holdings, has contributed $2 million to the purchase price and $3 million in working capital. A further working capital injection of $2 million will be required in the current year, together with the final purchase settlement of $1.5 million.

At this stage Tainui's financial commitment to the Warriors is expected to be at least $8.5 million and the Lowe/Boyle partnership just $100,000. This is totally out of proportion to their respective shareholdings.

The chairman of any company has to take responsibility for its poor performance and Graham Lowe is no exception. His position at the Warriors had become extremely vulnerable because of its poor financial performance and his deteriorating relationship with Tainui and football coach Mark Graham.

When Mr Lowe called a special meeting of Rugby League People on Tuesday to discuss Tainui's attitude to the sale of its Warrior shares, a $250,000 payment due to Auckland Rugby League and the working capital requirements of the club, the Tainui-appointed directors were waiting.

In an extremely acrimonious meeting Messrs Lowe and Boyle were sacked as representatives of Rugby League People on the Warriors' board. Tainui representative Shane Solomon and Auckland businessman Michael Stiassny replaced them.

Their free ride had come to an end and Mr Lowe's $78,000 salary was terminated. They also learned that a minority shareholder has little negotiating power if it falls out with the majority owner.

The dismissal of Lowe and Boyle is positive for the Warriors. It will give coach Mark Graham a free hand and will allow Michael Stiassny to reintroduce financial disciplines. It also brings to an end the ridiculous situation where a minority shareholder that has made a minimal financial contribution effectively controlled the Auckland Warriors.

As far as Tainui is concerned they have a long way to go before they get a return on their investment. Individuals, including Sir Bob Mahuta, Jeff Green, Warri Ward-Holmes and Phil Pryke, have a lot to answer for. They were common directors of both Tainui Group Holdings and MDC Investment Holdings when the bizarre and extremely one-sided shareholder agreement was signed with Setam Investments.

At least the Tainui now have greater control over where their money is spent. The ARL's decision to cap player salaries at $A3 million a year will have a positive impact on the club's finances, particularly once final contract commitments have been settled with departed players.

The best possible start for the new regime would be wins over the Raiders in Canberra on Monday night and against Penrith in Sydney next weekend.