In Part IV of the Business of Rugby series, Gregor Paul unpacks the hidden dangers in New Zealand Rugby's existing revenue model — and reveals plans for an innovative new way of watching the All Blacks.
In the 25 years since rugby turned professional, Sky TV has spent close to $2 billion buying broadcast rights to own New Zealand's premium rugby content.
That investment has been the foundation of New Zealand Rugby's balance sheet and will, presumably, be so again between 2021-2025 after Sky won the rights with a $400 million offer, estimated to be about a 30 per cent lift on the current deal.
Between 2016 and 2019, broadcast income averaged 35 per cent of NZR's total income, but for the first time it wasn't the biggest source of revenue for the national body.
• The Business of Rugby Part I: Where has all of New Zealand Rugby's money gone?
• The Business of Rugby Part II: Analysing Super Rugby's future
• The Business of Rugby Part III: Are the All Blacks about to sell their soul?
Broadcast contracts are not linear — they fluctuate depending on the volume of content — and with the All Blacks only playing three home tests in 2019, viewing rights income was $57.4m while sponsorship and licensing revenue was $72.9m.
In the same four-year period, sponsorship income has totalled $258m against the $308m brought in from broadcast rights.
Sponsorship has steadily grown in the last four years, much of it coming after an improved deal — believed to be worth $120m over five years — was struck with AIG in 2016.
New sponsors have also been found in this period, with Vodafone and Gatorade coming on board, while established partners such as Steinlager, Ford, Air New Zealand and Weetbix have all been retained.
Given that broadcast and sponsorship income accounted for 70 per cent of all revenue last year and almost 80 per cent in 2016, the question has to be asked - do these two sources of income have future growth prospects?
Liam Napier: Sold out crowd sends lesson to NZ Rugby
Patrick McKendry: Rugby's triumphant return a blessing
On the question of sponsorship, NZR chief commercial officer Richard Thomas accepts that there is potentially a saturation point – that there is a limit to how many brands can be associated with the national team — but he doesn't believe that point has been reached yet.
"From our point of view it is a balancing act," he says. "The ideal would be to have fewer, bigger sponsors because you can reach a saturation point of diminishing returns if you have too many.
"But I don't think we are at that point. The appeal of our brands remains strong and there is still untapped value there."
The decision in 2012 to brand all the national teams — Sevens, Juniors and NZ Māori — as All Blacks has not been universally popular with fans, but from a commercial perspective, it has created a larger and more valuable inventory to sell to sponsors.
NZR has also built playing schedules for the various 'All Blacks' teams in different geographic territories in the last few years — particularly trying to gain recognition in the US, Canada, South America and Japan.
As revealed by the Herald on Monday, this has paved the way for NZR to potentially sell the naming rights to all their national team jerseys to one investor — possibly a major US or Japanese advertising agency — which can then on-sell to targeted sponsors.
It is understood that NZR has priced a five-year deal to one investor at $300m over five years.
And just as there is growth potential in sponsorship revenue, so too is there untapped broadcast revenue to be won.
Once Australia has a broadcast deal in place for 2021, Sanzaar will look to sell rights for Super Rugby and Rugby Championship into Europe, Asia and North America.
That money will then be split between the Sanzaar partners and so NZR could see another $20m-$40m a year in broadcast revenue from those deals — depending on how negotiations go — to add to the estimated $80m a year it will be banking from Sky.
But the real untapped market are the territories where rugby is an emerging sport, especially those regions which have strong rugby-following ex-pat communities.
Some commentators say that these territories — the whole sports rights market in fact — is considerably more valuable now because of the ability to stream content through internet-driven apps and the quality of mobile devices which means consumers can watch wherever they like.
But technology has not changed the market — it has enabled the market: improving distribution capacity and provided the consumer with greater choice in how and where they watch content.
This is why Sky Sport chief executive Martin Stewart believes that none of the technological improvements and associated lower price points will particularly matter if the content isn't compelling.
People have to want to watch, he says. They have to be emotionally invested in the game, their team, the competition and the outcome.
Capture the hearts and minds of the fans and the audience will come and there are two key reasons now why NZR has the potential to exponentially grow its broadcast income.
The first is that since the arrival of Stewart as Sky CEO in early 2019, the relationship between NZR and its broadcast rights holder has shifted from combative and adversarial to collaborative.
That has put the fans at the centre of every decision and enabled both Sky and NZR to see more clearly that they are mutually aligned in their goal to grow rugby's footprint and popularity.
The second change is that Sky, having purchased the OTT platform RugbyPass last year, now has the ability to work with NZR and Sanzaar to grow interest in non-traditional rugby territories.
The Herald understands NZR is analysing the economics of building a global app through which they would sell All Blacks content.
Potentially, that would allow them to more effectively win revenue from fans in non-traditional territories where there are currently not major broadcast deals in place.
But Stewart feels that targeting those hard to reach markets with just All Blacks content would fail to deliver the true value embedded in those territories.
"RugbyPass picks up a big chunk of the rights for the rest of the world...territories in Asia and part of Europe [excluding UK, France and Italy]," Stewart says.
"The rugby markets there are driven partly by ex-pats and those ex-pats are mainly Brits, South Africans, Australian and Kiwis. Those three other countries are much bigger.
"What RugbyPass is therefore, and the reason why we bought it, is an opportunity for us as Sky NZ to work with Sanzaar and other rights holders — Six Nations and other leagues — to promote rugby more broadly on a global basis.
"What it also does is give the All Blacks an opportunity, under the extent to which they are allowed under the Sanzaar agreement, to also expose their brand on a global basis.
"The All Blacks brand is massively important. They are the most famous rugby team on the planet. But the Six Nations outranks Sanzaar on pure eyeballs in other territories because again population – there are more people from those countries or who claim heritage from those countries.
"So you need everything. It is not just one thing that helps grows rugby — you need to have all those teams, all those leagues together.
"RugbyPass is a platform we can work with NZR to promote the All Blacks...Kiwi rugby if you like, because it is exciting to watch."
In the broadcast world content remains king and in that respect, NZR is wearing the crown.