Rugby for sale

Professionalism has made our national game a commercial juggernaut. But, as with any sport, there are winners and losers, finds EUGENE BINGHAM in the first of two reports.


On the shores of the Mediterranean, surrounded by castles, Ferraris and playboys, the New Zealand Rugby Union schmoozed with the most influential figures in world sport.

It was the eve of the World Cup, but the NZRFU was on a joint mission with its South African and Australian counterparts in the principality of Monaco, preparing for an off-field duel.

People with the power to control the development and financial health of nearly every major professional game played on the planet had come to the Sportel Monaco conference, an important opportunity to wheel and deal over television rights.

For the Southern Hemisphere rugby elite it was a chance to gather intelligence and make contacts for vital talks influencing the future of rugby.

Next year, they will sit down with Rupert Murdoch's News Corporation to renegotiate the US$550 million ($903 million) broadcasting deal which has shaped southern rugby for the past eight years. The deal, establishing the Tri-Nations and Super 12 competitions, has made rugby more flush than could have been imagined in the liniment and sweat-infused changing rooms of the amateur era.

Rugby Inc is a multi-million dollar enterprise in New Zealand. Globally, it generates billions. The switch to professionalism after the 1995 World Cup has created a commercial juggernaut, gathering more pace than Joe Rokocoko zeroing in on the line.

The problem with juggernauts is they tend to leave behind roadkill. And in the world of rugby, the death toll is becoming an embarrassment. The 50-plus scorelines at this World Cup show the gap has not closed on the field.

Just as importantly, the divide between the rich and poor off the field is broadening to a canyon. A clue to the disparity is that while New Zealand was networking at Sportel Monaco last month, its neighbours in the Pacific were scraping together every cent just to get to Australia.

But it is not only the inequalities between nations causing headaches. There is concern about the rapacious behaviour of some entities within Rugby Inc. Business once easily conducted in a gentlemanly manner is now hammered out.

Has professionalism developed a culture of greed in rugby?

At the highest level of the game, the controlling body makes no secret of its desire to cream profits during the World Cup. It gives the International Rugby Board a one-in-four year opportunity to make money, and in the 16 years since the tournament's humble beginnings, it has become spectacularly successful - commercial income grew from $9.2 million in 1987 to $194 million in 1999.

Following the money trail is difficult. Searches through company records in Ireland, where the IRB is based, reveal a complex corporate structure. Shares are held in trust by a firm of Dublin lawyers. Money and loans flow through a string of companies such as RWC Tournaments, International Rugby Development Ltd and IB Tournaments. The accounts of one company, IRFB Services, reveal that the 23 staff employed by the rugby headquarters were paid $3.1 million, an average of $135,000 each.

To learn much more about the finances of the Cup itself is impossible - the IRB-controlled company which runs the tournament is registered in the tax haven of the Isle of Man.

Boasting by Australian chief executive John O'Neill has exposed how nicely his union will do out of the Cup, thanks to his own bargaining prowess. Under original terms, the Australian Rugby Union's profit was to be capped at $52 million, but in a new deal brokered by the former banker the host union will pocket about another $15 million.

In New Zealand, where board bungling cost the country the chance to co-host the Cup, the Australian windfall would be enough to make the rugby union cry - if it were not for the fact that the rugby bean-counters here have never had it so good.

Under the stewardship of new chief executive Chris Moller, a former manager at dairy firm Fonterra, the NZRFU is committed to making a buck out of rugby any way it can. Record income last year of $91 million enabled the union to post a record $9.8 million surplus. Almost 50 per cent of the cashflow comes from Murdoch's News Corporation. The sponsorship contract with adidas provides another huge chunk.

In recent years, shrewd moves enabled the union to find other revenue streams and it is on the lookout for more. When it re-signed the adidas contract last year, some things previously included in the deal were freed up for the union to "sell" elsewhere.

As a result, it has signed sponsorship deals with ball-maker Gilbert and beer brand Steinlager, whose name now appears on the All Blacks training gear - no-go areas under the old deal.

Moller says the union has its eyes on other money-making ventures - more sponsorship deals and unspecified opportunities from new technology.

There are good reasons for seeking other forms of income, he says. For one, a large chunk of the NZRFU money is earned in US dollars. Though it has locked its currency exchange at a good rate for now, if the dollar remains high, it could have a huge impact on the budget.

Looming more ominously is the renegotiation of the broadcasting rights. As a measure of the risks involved, the NZRFU has built up a $50 million war chest to cover itself in the event of any significant cash collapse.

It is a prudent move. Murdoch's companies have been slashing deals with sports bodies the world over. Lachlan Murdoch, News Corp's deputy chief operating officer, says rugby should expect a "haircut".

Charlie Charters, a former TV rights salesman who is now involved with Fijian rugby, says one of the problems with broadcasting payments is they are so fickle.

"It completely defies logic," says Charters. "There is no actual value - no bricks and mortar. I sold tournaments in countries like Indonesia and Thailand, where I could get half a million US dollars for them one day and $10,000 six months later."

But an international media and commercial rights adviser, Jean-Paul de la Fuente, says the market for major events and competitions remains healthy. And he believes Southern Hemisphere rugby is a premium event.

"Certainly, the variety and quality of rugby is still the best in the world," says de la Fuente, who runs the London-based company Deureka and acted as a consultant to the NZRFU in 1999-2000.

"It eclipses anything the Northern Hemisphere can offer with the exception of some outstanding England tests and the odd frisson in France."

He also believes that the New Zealand union is in a strong position since the All Blacks remain the world's No 1 rugby icon.

"I cannot even imagine any major rugby competition without New Zealand at the heart of it."

As part of the preparations for the renegotiations, the NZRFU is carrying out a competitions review with its provincial unions. Under Murdoch's "more for the same" philosophy, it is expected News Corp will want the South African, Australian and New Zealand unions (who operate under the banner Sanzar) to extend the Super 12 season, maybe with more teams. Reports this week have suggested the introduction of a Japanese team.

An extended Super 12 could see it overlap the National Provincial Championship - something Moller does not rule out.

"All options are on the table. That's not to say I'm favouring one but nothing is ruled out. If you are to be able to provide more content, then some, but not all, of the options require different types of games to be played."

Not that Sanzar is putting all its eggs in Murdoch's basket, and de la Fuente believes the NZRFU should also consider giving itself options outside the Tri-Nations arrangement.

"Play within Sanzar and achieve the best deal. But also free the NZRFU from the shackles of the previous deal so that new and special initiatives built around New Zealand rugby can be promoted," says de la Fuente. "Become the spearhead for the game in the US."

He advocates a "media rights window" where different broadcasters buy separate rights rather than having one owner obtain exclusivity.

Moller says part of the reason for going to Sportel Monaco was to make contacts with other broadcasters.

"While we have first obligation to negotiate with News, if we are unable to reach a position that is satisfactory to Sanzar then we are entitled to go to other broadcasters."

And from what the mission to Monaco learned, there is an appetite among other broadcasters for rugby. Part of the attraction is the market rugby offers. In the case of the All Blacks, adidas can capitalise on the pulling power offered by the black jersey to make commercial gains internationally.

"adidas has commented that only in Brazil do you get such a powerful link between a nation and a sporting team as you do in New Zealand," says Dr Steve Jackson, an associate professor at Otago University's school of physical education.

When it comes to the World Cup, top corporates clambered to get a piece of the high-income audience that advertisers believe rugby appeals to. Companies like Heineken, Visa, Qantas and British Airways are sponsors. Right up to the tournament eve, Rugby World Cup Ltd continued to sign new deals with companies such as Suncorp, Telstra and Lloyds TSB.

Television advertising slots are going for a premium. In Australia, co-host broadcaster Seven Network has reportedly booked $35 million of commercials over the six weeks of the tournament.

In 1999, the IRB earned $122 million from broadcasting rights, $49 million from sponsorship, $8 million from hospitality, and $5.8 million from tours. For this year, the IRB has revved up its profit-making capability. In the area of tour packages, for instance, it has made crucial changes intended to direct more from package sales into its coffers. Previously, Rugby World Cup Ltd contracted out the rights to sell packages. This time, it set up a business with Qantas and British Airways, Rugby Logistics, to sell directly.

By most accounts, the arrangement has been a disaster, although the IRB has done well, pocketing money from royalties for hundreds of tickets that were not even sold.

Travel companies in New Zealand given the rights to sell the packages on behalf of Rugby Logistics have been frustrated by the process. After waiting months to find out if their bids were successful, the companies were contacted in November and given a few days to sign a thick contract. They also had just days to pay hundreds of thousands of dollars each into Rugby Logistics' London bank account. The money was non-refundable and amounted to the royalties on the share of tickets they had been allocated.

Under the contract, the agents were forbidden from disclosing the size of the royalties, about $1000 for finals tickets.

In August, the agents' ability to sell packages was undermined by O'Neill, who appeared in the media telling New Zealanders about the size of the royalty and suggesting it would be cheaper and easier to buy tickets in Australia over the internet.

The agents were appalled by O'Neill's actions, especially given his position on the IRB. Some believe O'Neill was deliberately tapping into the New Zealand market because, after the losses of the Bledisloe Cup and the Tri-Nations, he feared the Australian rugby public would have less interest in World Cup games.

The agents believed their contracted rights to sell exclusively in New Zealand had been trampled, but the attitude they have faced from the IRB is: we've got several floors of lawyers - go ahead and sue us if you like.

As a result of the ticketing fiasco, about 60 per cent of the seats allocated to New Zealand were returned or sold at a hugely discounted rate. One company sold about 5 per cent of its allocation for one weekend of games which had been expected to be a sell-out.

Getting people to talk on the record about their experiences is tough. "I don't trust these guys and the guerrilla tactics they have used," said one source. "I wouldn't be surprised if they would even stop people at the gates just to spite the travel agents the [ticket-holders] dealt with."

The same fear exists in New Zealand, where some believe the NZRFU is ruthless in its business dealings but do not want to speak out.

One area where the NZRFU has been publicly aggressive is in the protection of its trademarks and intellectual property.

Canterbury International, which had enjoyed a long relationship with the union until the adidas deal, came under attack over its sale of Invincibles jerseys. After an ugly public spat, the company and the union reached an out-of-court settlement last year.

Moller says the union is simply being commercially prudent.

"I wouldn't describe it as aggressive. It's just like if you have got a house, you are not going to take kindly to someone else trying to invade that property and do things to it."

Especially when the house is a house of gold.

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