Tensions between New Zealand Rugby and the Players' Association over the proposed Silver Lake deal are escalating after the national body accused the country's leading players of demanding "untenable" payments at the expense of the community game.
Mediation between NZ Rugby and the Players' Association concluded on Tuesday following the seventh day of lengthy talks spread over the past three weeks. The parties are understood to be no closer to an agreement on the proposal to sell 12.5 per cent of NZ Rugby's commercial rights for $387.5 million, with Silver Lake valuing NZ Rugby at $3.1 billion.
Last Thursday the Players' Association, led by chief executive Rob Nichol and president David Kirk, the All Blacks 1987 World Cup-winning captain, presented revenue-raising alternatives to the NZ Rugby board and the 26 provincial unions, who are poised to vote on the Silver Lake proposal at the annual general meeting in Wellington this Thursday.
The Players' Association alternatives include debt servicing - raising a $150 million revenue bond at four or five per cent interest - or selling a five per cent stake in commercial rights to private investors.
The Herald has obtained NZ Rugby's response to the Players' Association presentation circulated among the provincial unions on Tuesday. Addressed to Nichol and Kirk, signed by NZR chief executive Mark Robinson and chairman Brent Impey, the exhaustive 10-page letter attempts to debunk those alternatives but also reveals the extent of the major standoff facing the Silver Lake deal.
While there was broad support and acknowledgement from leading All Blacks about the need to support the grassroots on Thursday's call, the NZR letter suggests the Players' Association modelling was inconsistent with that sentiment.
As part of the collective bargaining process, NZ Rugby is seeking to reduce the players' share of revenue from 36.5 per cent - a figure that has stood since 2013. This appears the major sticking point.
The Players' Association also hold concerns about NZR selling 12.5 per cent of future revenue, and how issues such as the transfer of image rights will be worked through.
"NZR have quantified the surplus the players are seeking beyond an assessment of needs at over $100 million through to 2025," the NZR letter says. "This position and, therefore the proposal, is untenable to NZR."
The $100m surplus is conditional on Silver Lake delivering their revenue increasing projections.
The Herald understands the Players' Association has plans to make direct contributions from the player payment pool to the provinces, regardless of whether the Silver Lake deal progresses.
All professional players accepted significant salary reductions due to the Covid-19 shutdown last year, and remain on five per cent retainer and savings cuts this year which in some cases amount to $15-20,000.
The Players' Association has also used $10 million of its cash reserves and notes every cent will be needed in the on-going fight to retain leading talent.
The NZR letter says the natural expiry of the collective employment agreement gives both parties the chance to reassess their respective needs and in good faith reach a fair position.
The letter says: "NZR believe that no single part of the game can be treated in isolation of the needs of all of rugby, so that the player payment pool cannot be viewed as separate and sacrosanct versus community rugby. This is all particularly relevant when the partnership is considering a fundamental paradigm shift in revenue generation."
NZR suggests that today 80 per cent of costs are attached to the professional game and the proposal from Silver Lake is a chance to address this imbalance.
"The Silver Lake distribution is a cost associated both with revenue generation support and with NZR receiving capital today, that enables us to underwrite the long-term financial security of the wider game."
Should the proposal progress, Silver Lake is believed to take a six per cent return on their potential $387.5m investment each year, with that figure rising to 12 per cent over the course of the deal.
"NZR therefore believes it is entirely appropriate that player payment pool should be based on NZR's share of revenue rather than the 100 per cent of gross player generated revenue as proposed by the players. This player modelling shows a lack of appreciation of the entire rugby system and the underinvestment in the community game.
"The consolidated approach modelled by the NZRPA effectively increases the players share to 41.78 per cent of NZR revenue, a share that can only come from funding that would otherwise go to supporting all of rugby across New Zealand.
"This approach creates a further imbalance of funding in the game and results in excess surpluses to players, while the financial health of NZR and community rugby suffer."
NZR says it has provisioned over $300m in player payments over the next four years.
"We do not consider the players need more than this quantum during that period. After payment of all these costs, the NZRPA modelling shows a surplus of over $100m on top of these payments. This is not tenable to NZR and we question why it is needed.
"This under-investment has over the last decade seen ever increasing challenges at community rugby level. NZR acknowledges the professional game and the revenues generated by it have thrived and delivered exceptional results on the field over this same period. But it is critical in looking forward to take a full view of the health of rugby in New Zealand and set investment requirements with that all of rugby view."
In addressing alternative revenue-raising proposals presented by the Players' Association, who worked with BDO global accounting, NZR say they do not meet objectives in terms of raising enough capital to make critical investment into community rugby.
"We seek clarity as to whether the Silver Lake proposal as tabled by NZR is in fact still 'live' in the view of the NZRPA. If the players fundamentally do not believe this proposal is right for rugby in New Zealand, then we question why we are continuing to mediate and negotiate on the proposal on the basis that the NZRPA will support the deal if the right financial terms can be agreed for the players.
"NZR asks that the players assess their position as presented by the NZRPA and review the trending funding imbalance between professional rugby and the 270 professional player cohort, with the needs of the wider game and the communities the length and breadth of New Zealand."
Despite the impasse blocking the Silver Lake deal, the Players' Association is confident a resolution on the collective agreement will be reached in time but they also believe such a pivotal moment in rugby's future should not be rushed.