The Business of Rugby Part II: Analysing Super Rugby's future

Will Super Rugby Aotearoa become a long-term proposition? Photo / Photosport

Today, a sellout crowd will be at Eden Park to watch the Blues take on the Hurricanes in the second game of professional rugby since lockdown. The revamped Super Rugby Aotearoa competition was borne out of Covid-19 necessity - but what does the future hold for the competition? This is the second part in a series about the Business of Rugby, in which Gregor Paul explores the economics of our national game. Tomorrow: NZ Rugby's new plan for sponsorship income.

The economics of Southern Hemisphere rugby have always been challenging.

Super Rugby began life with 12 teams split across New Zealand, Australia and South Africa and while the competition landed an astronomical 10-year US $555 million broadcast deal in 1995, that was only because the Southern Hemisphere giants had also burdened themselves with astronomical costs in flying players around the world.

Professional rugby south of the Equator has run a perilous financial model since it began 25 years ago – the scale is vast and it needs enormous investment to support the ambitious logistics.

The Business of Rugby Part I: Where has all of NZ's money gone?

Super Rugby and the Rugby Championship have annual operating costs of around $120 million. That's a huge expense just to get the players to where they need to be to play.

But the scale is also its strength, as it gives Southern Hemisphere rugby enormous reach, making it attractive to broadcasters and sponsors and money in has mostly kept up with money out.

That was until teams from Argentina and Japan joined Super Rugby in 2016. That saw overall operational costs lift by 30 per cent but no corresponding jump in revenue and the Australian and New Zealand Rugby Unions have both lost around $10 million in the last three years underpinning their Super Rugby clubs.

Since 2016, big-scale Super Rugby played across multiple timezones has been under pressure.

Crowds have consistently dropped – the sharpest decline being 25 per cent which occurred between 2015 and 2017 when the average attendance fell from 19,163 to 14,436.

In New Zealand there was a further six per cent drop last year and the scale has become the competition's major enemy.

What was once exciting became stale, and last year, a restructuring was agreed for 2021 – a decision made after an attempt to inject a team from Fiji highlighted the out of control economics.

To be considered viable, the Fijians had to show they could generate $10m of income. They got nowhere near, unsurprisingly given that the Blues – New Zealand's financial heavyweight - generate between $10m to $11m a season while the other four New Zealand teams each have estimated turnover of between $7m and $9m.

Fiji were not invited to join and it was agreed the Sunwolves from Japan would exit and the competition would be a 14-team, round-robin.

The Rugby Championship would remain a four-team competition involving New Zealand, South Africa, Australia and Argentina but some of the travel costs would be reduced as the All Blacks will play the Springboks twice at home one year and twice away the next to reduce the travel.

The Springboks and All Blacks may be doing less travelling in the years to come. Photo / Photosport

The outcome was reduced operating costs but with the necessary scale still to command historic levels of revenue.

All of Super Rugby's current and booked income is based on the competition being played across New Zealand, Australia, South Africa and Argentina. NZR was able to strike a $400m broadcast deal with Sky Sport on that premise.

Super Rugby clubs were able to sell and renew sponsorships on that same future concept - selling the premium position on their respective jerseys for between $600,000 to $800,000 a year based on the promised exposure.

And this is why the arrival of Covid-19 and the various travel restrictions and uncertainty about when they will lift, led to NZR commissioning the Aratipu review to determine what the economics would look like if, next year, Super Rugby has to become a domestic or trans-Tasman competition.

Headed by Blues chairman Don Mackinnon, Aratipu has been asked to come up with a financially sustainable competition structure that engages fans, has the ability to evolve and grow as restrictions ease and supports high performance playing aspirations.

Don Mackinnon is leading the review. Photo / Photosport

The review will effectively leave NZR with a Plan B should the intended restructure to a 14-team round-robin be impossible due to closed borders.

And travel restrictions may not be the only barrier preventing Plan A from going ahead. Australia still don't have a broadcast deal for next year and there is no guarantee they will be able to put enough into Sanzaar's pot to meet the operational costs of being involved.

The question NZR needs answered is whether professional rugby's finances can stack up if it has to descale and domesticate Super Rugby?

Will the game generate enough to keep the best players here and with so much of NZR's income linked to broadcast revenue, will a radical change in format lead to Sky Sport reducing their contract offer?

Chief executive of Sky, Martin Stewart, says: "The next 10 weeks will be extremely well received, partly because of scarcity value but also because New Zealanders do like to see local derbies and that local pride and patriotism.

"Beyond that, is it of interest and sustainable to just be a domestic competition? I think that is a bit insular. I think it is important to have an overseas element.

"While the local derbies are massively important if that was it in perpetuity...what will the fans think? And we are only a reflection of the fans."

Sponsorship is the next most important revenue stream and again, it has to be asked, if things change, will businesses still have the appetite and budgets to invest?

Sky TV chief executive Martin Stewart. Photo / Jason Oxenham

Marketing consultant Kevin Malloy says: "All the things that held true about sports sponsorship will hold true again.

"Once we get through the recovery phase things will bounce back and we may well see NZR going after different types of sponsors – companies that did well during the lockdown."

He does, however, believe that if Super Rugby is forced to ignite Plan B, some sponsors could look to renegotiate as the value they have paid is dependent on the original audience they were promised.

And how will the players feel about a competition that would only have New Zealand and maybe Australian teams?

"I think as a general rule, players want to play in matches that they think matter," says Simon Porter, head of major agency, Halosport.

"If the competition has public support, and fans turn out and are behind it, then there is no doubt that's what players want to be involved with.

"Some of the senior players I don't think would miss playing in South Africa."

His view is echoed by Bruce Sharrock of the player agency Esportif, who says the novelty value will create interest this year and keep the players enthused.

But Sharrock points out the Australian sides have been relatively weak in recent years, and a trans-Tasman competition could lack intensity without the presence of the South African sides and Jaguares of Argentina.

"How sustainable will it be playing a domestic competition?," he says. "What will the finances look like three years down the track?"

Rugby has no choice about how to format itself this year and everyone invested in the game is willing to take a financial hit and support the domestic format.

But what we don't know, as Sharrock says, is for how long this goodwill can last and whether the economics of small-scale Super Rugby could stack up beyond this year and next?

Will a New Zealand-only, or even a trans-Tasman competition hold its appeal longer-term for fans and players?

The game needs buy-in from both if the likes of Sky Sport and major sponsors are going to maintain their investment at current levels.

Big-scale Super Rugby looked broken a few years ago, but it might now be the right path for professional rugby in the Southern Hemisphere.