Peter Lyons: Economic lessons for World Cup

The move to professional rugby has resulted in a more crowded fixture list. Photo / Richard Robinson

Opinion

An official from the New Zealand Rugby Union (NZRU) explained the proposed Super 15 rugby competition on television recently.

He stated that the viewing public need to appreciate that the proposal means All Black stars will not be part of the domestic provincial competition.

The NZRU seems to be ignoring the realities of operating in a commercial environment.

Several years ago a Tri-Nations final was held in Dunedin between the All Blacks and South Africa. In the preceding week the All Black coach, Graham Henry, was quoted lamenting the fact that many seats at Carisbrook remained unsold.

The implication was that if there was not a sellout crowd then Dunedin could be jeopardising its chances of hosting future internationals. At the time I wrote an article comparing this to KFC threatening its customers for not buying enough chicken.

The NZRU is a monopoly. It displays much of the arrogance of a monopoly but in reality its market power is limited and would appear to be eroding.

Although it has a monopoly over commercial rugby in New Zealand, its business is actually entertainment. This industry is highly competitive and very susceptible to decline during a recession.

Any business must serve the needs of its customers if it is to succeed. The fact that a Tri-Nations decider struggled to fill a traditional stronghold like Carisbrook suggests that customer loyalty is not boundless.

For an official of the NZRU to state that customers need to adapt to a new product like the Super 15 would be like KFC stating that it no longer offers its traditional recipe and customers will need to buy its new chicken curry. Such commercial arrogance is usually punished in the marketplace.

I teach at a boys' secondary school in Auckland. The school has a proud rugby tradition as a battler in the premier competition.

The other day I did a quick straw poll of my classes asking them what they would be prepared to pay for World Cup rugby tickets to the final. Although this poll was highly unscientific there were three distinct divisions. There were the ardent supporters, the vaguely interested and the indifferent. The groups were of roughly equal size. This is the commercial reality that the NZRU doesn't seem to appreciate.

The pre-eminence of rugby in our national psyche has been slowly changing over the past few decades. This has enormous implications for the NZRU which appears to see itself as the only seller of an essential product with a guaranteed customer base. Some of the challenges to rugby's pre-eminence are the influx of migrants with other sporting interests and the huge growth in entertainment options for consumers. The lack of success of the All Blacks at World Cup level has also had an impact.

There has also been a glut of rugby products with numerous tests and various levels of competition for the viewing public. This has created a jaded disinterest amongst many potential viewers.

The implied arrogance in the announcement of a Super 15 competition is disconcerting. Where is the market research, the customer surveys and the viability studies?

The advent of professional rugby has created an abundance of fixtures. The result has been what economists describe as diminishing marginal utility. Too much of something reduces its value.

Seeing the same few teams playing each other over and over, year in and year out, can create viewer apathy, particularly when some of the competitions lack any feeling of traditional rivalry.

The diehards will always watch but this doesn't create a growing market.

It has been said that four million Kiwis are behind the Rugby World Cup in 2011. This is not the case.

The vast majority of New Zealanders probably wish the NZRU well in hosting the event just as they would wish any Kiwi well in such an endeavour. This does not translate into four million paying customers.

The NZRU is a monopoly but its domestic customer base is fraying. Like any business it needs to monitor the preferences of consumers and seek to grow its market. Poor marketing strategies, inappropriate ticket pricing and an aura of commercial arrogance would be a disaster for the 2011 World Cup.

* Peter Lyons teaches economics at St Peter's College in Epsom.