Wage war and spiralling costs push provinces towards breaking point

Rugby bosses haven't taken any pleasure watching the Warriors implode. It turns out they're wrestling with financial dramas of their own.

Unlike league, provincial unions are not battling to stay under the newly-imposed salary cap - they are battling to stay solvent.

The introduction of four new teams to this year's Air New Zealand Cup has left more unions competing for players and invoked classic supply and demand economics with labour costs escalating to crippling levels.

Some unions have seen costs rise by almost 40 per cent because they say the pay demands of players have reached unprecedented levels.

It is the mid-tier bracket that has benefited most, with individuals on the fringe of Super 14 squads now demanding almost double what they wanted last year.

One union used the example of a starting player they were paying $20,000 a season last year being offered $65,000 by one of the newcomers to the division to illustrate the inflationary pressures in the market.

Compounding difficulties is the new collective agreement which has bumped the minimum wage from $10,000 a season to $15,000.

When players with a couple of years' experience learn that newcomers are on $15,000, they increase their demands accordingly.

Contractual arrangements also have to be factored in. Unlike in previous years, when unions used players on a pay-per-play basis, squad members now have to be paid a guaranteed retainer.

Bay of Plenty chief executive Paul Abbot said: "The new premier division with four more teams has resulted in spiralling player costs.

"What we are seeing is mid-tier players - players who are maybe in a Super 14, 28-man squad - commanding an increase of between 75-100 per cent. Agents get in touch saying 'we have talked to other unions and they value player X at this level'.

"Players who have been involved at Super 14 or development level are very attractive. There aren't many with that kind of experience."

Ironically, wage bills are climbing to dangerous levels despite the introduction of a salary cap this year - assuming the Commerce Commission doesn't block it. The cap was put in place by the New Zealand Rugby Union partly to help disperse talent across the unions but also to put the brakes on player costs.

But the decision to set the cap at $2m has rendered the mechanism redundant. Only Auckland, Canterbury and Wellington spend anywhere near $2m on their players and with All Blacks carrying reduced value on the balance sheet, no union has shed players or cut payments.

Instead, the major unions continue to spend big, while the rest have been forced to live beyond their means.

The reality for smaller unions is that they are seeing increasing sums of money going out, with no corresponding increase in revenue. There are fears that, unless there is a slowdown, someone could go bust.

But as Northland chief executive Tim Hamilton said: "No one wants to be an also-ran in the new competition. We all feel the pressure to live up to the expectation and be a successful part of this competition.

"We've put in place good development structures but the reality is that everyone looks at your top team and makes judgement from there."

The double whammy for the unions is that their costs are rising at a time when they can no longer plan with any degree of certainty about their income.

The new tournament will start with two leagues of seven, then split into a top league of six and a second league of eight with knockout rounds to follow.

Teams, therefore, don't know how many home games they will host. That scenario makes it hard to budget as home gates generate a significant portion of every union's income. Sponsorship deals, too, are harder to seal when there is uncertainty about the fixture list and levels of exposure for respective brands.

Auckland have already said they will have to drop ticket prices for games against the likes of Manawatu and Tasman Bay as they don't offer the same value as games against Canterbury, Wellington and Waikato.

Taranaki's chief executive Paul Easton accepts the situation is challenging but said the professional rugby landscape has always been littered with obstacles.

"This is an ongoing challenge and not so different to the ones we have faced ever since the game went professional. We have all signed up to the new competition and need to look at new ways to increase our revenue."

None of Easton's counterparts would disagree with his assessment. They all, however, know that saying and doing are not the same thing.

Most unions already have a full complement of sponsors. Most unions already have marketing initiatives in place to boost ticket sales and most unions are looking to maximise revenue by using their facilities for corporate and conference functions.

Revenue growth, it seems, will only be exponential. Attacking the bottom line will prove a better strategy in balancing the books.

The great hope is that with players moving to long-term retainers, some of the heatwill come out of the market next year.

But Hamilton was cautious: "Players' expectations are way above where they have been," he said.

It would be naive to think those demands are going to drop in the immediate future. And it would be even more naive to believe that rugby is immune from the financial disasters that have beset its rival code.

-HERALD ON SUNDAY