Players will be missing out under the new arrangement. Photo / Greg Bowker
As a sports economist, the announcement that the Hurricanes and Crusaders Super rugby franchises will have new operators next year raises a few questions in my mind.
The New Zealand Rugby Union says the arrangements, which involve groups of provincial unions and private investors (including Gareth Morgan in the case of the Hurricanes), are a step forward in terms of putting Super rugby on a stronger financial footing. But will they benefit all the partners in the Super rugby relationship?
There is no question that the NZRU is a clear winner in this process. They get injections of private funds into the Super franchises, which are expensive to run and have been a drain on the union's coffers. They retain full ownership of the franchises, the contracting process and coaching appointments. And they receive all the broadcast revenues that accrue to each nation from the Super competition, which are used to pay the players.
In short, the NZRU retains control of which players can play in Super rugby, what teams they play for and who coaches them. It is a very favourable set-up to the governing body, no question.
Investors can do what they like once they get their player list, but a large portion of ownership responsibility is in fact taken away from them. It is a very different ownership structure from, say, American, Australian or European sports leagues. At least in the A-League, the Wellington Phoenix can employ whoever they want and sign up any player they want.
The other thing that the licensee model does for the NZRU is to allow it to wash its hands of the micro-level management that is often difficult when trying to run the game from a central level. The day-to-day running of a franchise is best done on the ground, and the rationale is that private investors will do the job of running the franchise more efficiently than the NZRU or a provincial-based board could. After all, there might even be some money in it for licensees if they do it well enough.
Licensees can market their teams, keep gate revenues (while presumably paying stadium rentals) and generate deals for sponsorship, including a sponsor's logo on the front of the jersey. Gareth Morgan has talked about player academies as a source of opportunity for licensees.
But what incentives do the licensees have to run a development squad when they run the very real risk of losing those players if the NZRU decides to add them to the contracted players pool? There would have to be some arrangement in place for teams to be able to have first rights to developed talent should they make the grade. Otherwise, player development is a very risky prospect.
The big question for me is how long licence holders will be happy to simply receive players rather than selecting their own. I see it like this: You invest in a business, but you have to use a specific consultant as a condition of the investment. How do you feel, then, when you find out that the consultant has the same relationship with all of your competitors?
In my view, however, the biggest losers in the new ownership structure are the players - at least in terms of the possible alternatives. For them, nothing changes. They are presently contracted by the NZRU, and they will still be contracted by the NZRU under licence arrangements.
If the licensees were able to pay for players, well, the ball park would be very different. Imagine free agency. Or imagine a structure by which players could be paid a central contract by the NZRU, but franchises who really wanted them could pay extra to get them.
Free agency has its critics, but it has fundamentally changed the landscape of sports that have adopted it. Licensees would have a greater incentive under free agency to identify and develop talent. Giving licensees the power to pay players would quite likely make players winners in this deal. As it is, that's one of the least likely things to happen.
Overall, the new licensing arrangements are a first step to many possibilities. Exciting ones, too, if done right. There just has to be a little more loosening of the reins.
Dr Sam Richardson is a lecturer in the School of Economics and Finance at Massey University, and a specialist in the economics of sport.