A rugby dream split in pieces

International intrigue and corporate might put the squeeze on New Zealand's hopes of staging the World Cup. JAMES GARDINER and EUGENE BINGHAM investigate what went on behind the scenes.

Right from the start it was about money. What had started out as a festival of rugby during the pre-professional days of 1987 had turned into one of the top four sporting events in the world, a money-making machine.

But from the moment the International Rugby Board accepted the Australia-New Zealand proposal to host the 2003 World Cup, it was clear that the IRB was likely to have to live with a lot less income than it was becoming accustomed to.

The IRB, once a staunchly amateur body of rugby-loving volunteers financed by member unions, derives almost its entire income from the tournament held every four years.

But with matches scheduled in a time zone unfriendly to most of the world's rugby-watching public, next year's competition was expected to yield less money from broadcasters and advertisers than a Northern Hemisphere event. The fact that in the past five years the New Zealand and Australian dollars had lost 20 per cent of their value against the European currencies did not help the profit projections.

Other than broadcasting, the money-making opportunities open to the IRB and its subsidiary Rugby World Cup Ltd (RWC) are from selling sponsorship, package tours including match tickets, and catering and hospitality rights at the grounds.

In every case the revenue from those was always going to be something of a disappointment for rugby officials used to the big grounds, big profits and strong currencies of the "home" unions.

After that it came down to what it could extract from the host unions and what costs it could pass to them.

And it was the combination of the reduced revenues from the main income-generating sources that saw the IRB put the squeeze on the host union Australia and, in turn, New Zealand, the sub host.

The two unions were told they were expected to foot a $36 million bill for costs they previously expected RWC to pay.

Staring down the barrel of a multimillion-dollar loss for its participation in a tournament it was instrumental in starting, the NZRFU cracked.

Elected officials and fulltime executives felt they had pushed as hard as they could in both directions.

They had cajoled and threatened the owners of this country's main rugby grounds to make available as much of their hospitality areas, corporate boxes and catering rights as possible.

At the same time they had gone to the Australian Rugby Union and RWC suggesting that the numbers did not stack up. There was a negotiation which had the Australians agreeing to host the third- and fourth-place playoff, for which they would write a cheque for A$10 million ($12.1 million) to New Zealand.

That deal was thrashed out after a meeting in Singapore in October where NZRFU chairman Murray McCaw, chief executive David Rutherford, rugby general manager Steve Tew and board member Craig Norgate tried unsuccessfully to convince the RWC board that our National Provincial Championship could overlap some World Cup matches to be played in October and November.

The problem, say the NZRFU people, was that RWC's "advisers" did not believe it was possible to stage an NPC match one day followed by a World Cup fixture at the same ground the next.

IRB sources have a different take on the issue. They had commercial concerns that there would be a clash of sponsors, with Air New Zealand, part of the Star Alliance of international airlines, sponsoring the NPC and a competing airlines partnership, OneWorld, lined up as a Cup sponsor.

In the end the NZRFU did not get its way over the NPC. But it decided it could live with that, given that the RWC people put pressure on the ARU to come to the party with the payment for moving the playoff.

The crucial issue, which is at the heart of the dispute, is what happened next.

The NZRFU says the final set of conditions set by RWC arrived after that Singapore meeting and it seemed, once again, that the goalposts had been shifted on the clean ground issue.

In November McCaw and Rutherford were in Britain when the All Blacks were on their tour of Ireland and Scotland. McCaw had a meeting with IRB and RWC chairman Vernon Pugh, QC, at which he says they reached agreement that there would be a compromise over New Zealand's inability to produce the 100 per cent clean stadiums.

But nothing was formalised, so McCaw tried to achieve that by drafting a memorandum after the meeting setting out his understanding of what was agreed. Since then he has had no direct contact with Pugh.

It became clear only last month, when an RWC audit team arrived in New Zealand to examine the grounds, that the definition of "clean" they were working to had not been changed from the documents received before the meeting with Pugh.

Five years ago, when the IRB first considered the tender from the ARU, the world of rugby was very different.

Professionalism had not so much been ushered in as torn through the establishment following the staging in South Africa of the third World Cup.

Expectations were high for the 1999 cup, to be hosted by Wales but with games throughout the Five Nations, of revenue exceeding £70 million ($230 million).

That was achieved and RWC made a £47 million ($154 million) profit, from which it paid a £35 million ($115 million) dividend to the IRB Trust, a big jump on the £11 million ($36 million) dividend it banked after the 1995 Cup.

The invitation to tender for next year's World Cup was issued by RWC in April 1997. Conditions included a requirement to provide RWC with tickets for 50 per cent of the total capacity for each venue. RWC wanted full details of estimates of how much money could be expected to be made from ticket sales for each match including tickets to corporate boxes and suites "to maximum capacity". What that meant is not explained, but another condition was that all venues be confirmed as "clean".

Clean was defined, but the wording was ambiguous. It meant "free of all advertising, concession, vending, distribution erected or otherwise authorised by RWC". No mention was made of corporate boxes or function rooms.

The 50 per cent ticket requirement was also not necessarily as it seemed. While it appears to mean the RWC would take half the ground capacity to do with as it pleased, it is now understood to mean that RWC has first right of refusal of 50 per cent of the tickets but would pay the host union full retail prices for those tickets, which it could then on-sell or allocate.

It appears the NZRFU and the ARU both took that to mean that if corporate facilities were to be provided the maximum that could be demanded by RWC was 50 per cent.

Clearly the two unions saw no impediment in what they had read and what they knew about their grounds to declare in the tender document that all 13 venues were "clean".

The New Zealand venues, however, included two (Wellington and Hamilton) that had not been built and two (Auckland and Christchurch) that were due for substantial upgrade with new stands and seating - and corporate boxes. Dunedin's Carisbrook and North Harbour Stadium were also included but the North Shore ground was subsequently dropped in favour of New Plymouth (under construction), Napier and Invercargill.

In light of what has happened, the ARU-NZRFU tender document is worth revisiting. It talks of New Zealand and Australia's long history as international partners in war and in peace. Endorsements of the bid are attached from Prime Ministers John Howard and Jim Bolger and Australian state premiers.

Australia's Minister of Sport, Warwick Smith, was particularly effusive, writing of the pride and harmony of the transtasman relationship - a "unique partnership, forged in adversity and nurtured in prosperity".

Politics, of course, is politics, but sport is business. And when the NZRFU started doing the sums last year the figures began to look shaky.

Each country would have two pools of five teams in each. The original revenue and cost projections, contained in the bid document, suggested Australia's pool A, containing Australia, would potentially be the most profitable with ticket sales worth up to A$17 million. But the more likely outcome was that it would raise around A$12 million, the same as pool B, containing the All Blacks.

Pools C (in Australia) and D (New Zealand) would raise around A$6 million and A$8 million respectively.

In planning that followed the 1998 announcement by the IRB that the bid had succeeded, beating off proposals from France and Italy, it was agreed both hosts would take on some of the "loss-leaders", the pool games that were least likely to generate full houses. New Zealanders were generally more passionate and less parochial about rugby than Australians and more likely to attend, but Australia, with bigger stadiums, would generate far more revenue from the finals matches.

The crunch came, says the NZRFU, exactly a year ago when what it calls new financial costs were imposed on the host unions.

They included picking up the tab for 250 VIPs and up to 1000 guests of the IRB's major sponsors.

For New Zealand that added $6 million to the union's costs for travel, accommodation and corporate hospitality at every venue for the VIPs alone. This group included presidents of every rugby union in the world along with other sporting officials such as members of the notoriously pampered International Olympic Committee.

Suddenly also, the IRB/RWC was demanding host nations cover the costs of all teams' travel and accommodation, the cost of hiring each venue and that they pay a tournament fee, which in New Zealand's case is understood to be between $6 million and $10 million, with the total extra costs lumped on to both unions estimated at around A$30 million.

But that was only the beginning of the troubles.

Tew says that between March and October last year, the definition of clean changed five times. "In February they were talking about the non-commercial boxes, the ones kept by the stadium owner or the lessee. At Eden Park for example, the Eden Park Trust Board have a box; Auckland Rugby have a box; they are considered non-commercial and would be made available for the IRB's purposes.

"It kind of evolved from there to the point where all boxes would have to be available.

"Along the way there were different versions of what was considered commercial and non-commercial, based on the length of the leases.

"Once we saw the October definition we said, 'Ooh, that ain't possible in New Zealand'."

From its headquarters on the fringe of St Stephen's Green, a leafy oasis in the centre of Dublin, the IRB and its subsidiary companies reign over rugby.

Following the success of the 1987 tournament, the IRB took a firm grip on the World Cup. In 1990, it established RWC to deal with the commercial aspects of the tournament and to make recommendations about the hosts.

Tom Kiernan, a former Ireland captain who served on the IRB and the board of RWC, remembers how the commercial realities caught up with the tournament.

"In 1987 the commercial aspects were very, very low," Kiernan said from his home in County Cork this week. "By 1991 it had grown and it was reasonably successful and then it grew even more."

In the mid-1990s global sports promoter IMG was appointed the commercial agent for RWC, hammering out the pile of contracts behind each tournament.

"It was a question of maximising the various routes through which you can generate money for the game," said Kiernan.

By the time of the 1999 World Cup, the organisation of rugby's premier event was in the hands of a string of entities.

A company called RWC Tournaments was assigned the rights to the tournament and in turn contracted them out to another entity, Rugby Solutions Ltd.

As the host nation, the Welsh Rugby Union was responsible for organising the games and venues, but it was Rugby Solutions which effectively ran the tournament.

Another company, IRB Services, carried out the administrative duties for RWC and RWC Tournaments.

The IRB this week refused to explain the corporate arrangements for next year's tournament, so the Weekend Herald went in search of company records in Ireland.

The Companies Registration Office in Dublin reveals the complex web of businesses linked to the IRB.

One company, RWC2003 Ltd, has apparently been set up to run the tournament in much the same way as Rugby Solutions did at the last tournament. New Zealander Rob Fisher is listed as one of the directors.

Money swirls between many of the companies. For example, RWC appears as a creditor and a debtor to a company called IRFB Services.

Latest accounts for IRFB Services show RWC owes it more than £IR850,000 ($2.2 million). IRB Solutions also has a £IR1.3 million ($3.4 million) long-term interest-free loan from RWC.

RWC has also given a £IR2.4 million ($6.2 million) loan to RWC Tournaments.

RWC sits on top of the piles of companies. Its directors are Pugh, of Wales, former NZRFU chairman Rob Fisher, France's Jacques Laurans, England's Malcolm Phillips and South Africa's Rian Oberholzer.

Ultimate power, however, remains vested in the IRB, which owns the company through another entity, the IRB Trust, and appoints the directors.

A highly political organisation since its first meeting in Manchester 116 years ago, the IRB is supposedly representative of the almost 50 rugby-playing nations affiliated to it.

In reality, it is controlled by an executive council of 22 men from 12 countries, and a representative of the International Amateur Rugby Federation. Each of the so-called foundation unions - Scotland, Ireland, Wales, England, Australia, New Zealand, South Africa and France- have two members and two votes. Canada, Argentina, Italy, Japan and the federation have one.

Traditionally, the "home unions" ruled supreme but in the past decade the Southern Hemisphere unions, with South Africa's return from isolation, have regained some parity.

Until now.

One of the ramifications of the present bust-up is the potential isolation of New Zealand at an international level. New Zealand has been out-manoeuvered.

Australia, led by former Sydney club rugby player and lawyer John O'Neill, has aligned itself with the Home Unions through Pugh, who has chaired the IRB council since 1996.

South Africa has shown where its allegiances lie. SARFU president Silas Nkanunu said this week he hoped the problems would be resolved but if that did not happen South Africa would support Australia's solo bid.

Nkanunu was reluctant to comment further, but did say he believed the issue would not derail relations between the Tri-Nations unions.

"This is a matter between RWC, New Zealand and Australia."

Evidence of the dramatic deterioration in transtasman rugby relations since 1997 was seen in the recent fallout over New Zealand's veto of moves by Australia and South Africa to expand the Super 12 competition.

ARU chief O'Neill accused the NZRFU of treachery, although he has since insisted the World Cup stance is nothing to do with that.

But the Weekend Herald has learned from IRB sources that O'Neill attempted a pre-emptive strike against New Zealand in October last year, approaching Pugh and demanding that New Zealand be dumped as sub host to allow the tournament to be held in Australia.

O'Neill is said have told Pugh that New Zealand's demands in relation to cost recovery from the host were unreasonable, but Pugh would not accept that and told the Australians to sort out the differences or risk having the tournament switched to the Northern Hemisphere.

France was the backup host.

What happened since then to turn Pugh and the other RWC board members around to the idea of Australia as sole host is not completely clear, but O'Neill's cries of treachery have since been echoed on this side of the Tasman.

"We feel bloody double-crossed," said NZRFU public relations manager Peter Parussini.

At NZRFU headquarters in Wellington, there is disbelief that the ARU could have signed the agreement demanded by RWC guaranteeing 100 per cent clean stadiums.

Tew's job had been to work on stadium owners in New Zealand and that involved liaising with his Australian counterparts on their progress, ticking off each issue at each ground as it was resolved.

"I know that a couple of weeks ago they were bloody miles away [from clean]," he said. "We weren't negotiating with the IRB. We were kept informed by the ARU and their view was that what the IRB was asking was unreasonable and undo-able and that they would continue to negotiate."

When the ultimatum came: sign, or lose the tournament, Australia signed.

Tew: "It came as a surprise to us that they signed ... and a disappointment that they didn't manage to get any concessions."

The New Zealand officials do not believe O'Neill's claims that the Australian grounds are 98 per cent clean, although they acknowledge the Australians did make rapid progress in recent weeks and believe they have up to A$10 million of extra funding from state governments to, as O'Neill put it, write a cheque to RWC for any commercial issues they cannot deliver.

One positive outcome for New Zealand of the matter coming to a head is that ground owners and those with contractual rights here have woken up to the fact that if the Cup does not come their rights will be worthless.

"People have realised I wasn't crying wolf when I was negotiating with venues," Tew said.

He acknowledged mistakes had been made but said NZRFU staff had been "too bloody busy trying to fix the problem" to sit down and apportion blame.

As to the future, he said, everyone in New Zealand and from other small rugby countries should be concerned.

"The IRB has expectations particularly around their commercial programme that are going to be virtually impossible for countries our size to fulfil, despite our absolutely best endeavours.

"It's a sad day if we can't host a World Cup."

Columnists from London's Sunday Times agreed, describing the "fiasco" as a full-scale sporting tragedy.

In their view, the game's greatest tournament had sacrificed its finest rugby nation on an altar of greed.