The viability of teams participating in the NRC

The ARU’s announcement of a third tier competition to commence in 2014 is a real positive for Australian rugby. I am going to attend as many matches as I can and watch every televised match.

In order to develop more depth in the professional levels of Australian rugby we need as many players as possible competing in more highly competitive matches.

The NRC will allow us to test the best amateur players among professional players.

I hope the competition is a great success, as we need it to be a permanent part of the rugby landscape.

However, there is so much detail for the ARU and Bill Pulver to sort out and there is not a lot of time in which to complete that work to avoid disorganisation in the first year of the competition.

The earlier it is determined how many teams will participate and which teams will participate, the earlier a draw can be finalised. Each team will need as much time as possible to organise coaches, their playing roster and approach sponsors etc.

The two questions surrounding a third tier competition have always been; which teams should participate and how can the costs be covered?

Which teams should participate?
No matter the answer to this question, not everyone will be happy. We all have our own ideas on who the participants should be – existing clubs, geographically based teams or the second XV from each Australian Super Rugby franchise.

The ARU have decided to allow for any of those options and other possibilities by opening up applications to any party and then selecting participants based on capabilities judged against a range of criteria.

That also means any club in Australia has the opportunity to participate in the competition, if they meet the criteria.

The ARU have got it right with this approach. They are determined to establish a national competition so have made it clear at least one team from Canberra, Melbourne and Perth must be included.

They have also acknowledged Sydney and Brisbane need more than one team, given those two competitions produce the majority of professional players in Australia, but the model also allows for teams from other locations to participate such as Adelaide, Newcastle or country teams if they can meet the criteria.

The ARU know the success of this competition in the future relies on the teams participating being viable. There is no point in cobbling together teams together to participate that may not survive in the long term.

I suspect the ARU will use a cascading selection system based on who applies and how well they meet the criteria, with preferences along the following lines to get a minimum of eight viable teams (although the ARU has made it clear they are open to up to ten teams in the competition if they are all viable):

Priority one – three joint venture teams in Sydney; two joint venture teams in Brisbane; and one joint venture team in each of Canberra, Melbourne and Perth – a minimum of eight teams.
Priority two – two additional joint venture teams regardless of location.
Priority three – existing clubs entering stand alone teams if not enough teams in the first two categories meet the criteria.
Priority four – teams entered by Super Rugby franchises if there are any spots remaining.

As an example of what I mean by a cascading system, if there are no joint venture teams that apply from Perth that meet the criteria, the ARU would then consider an application from a standalone club in Perth if they meet the criteria and if there were no other teams from Perth that meet the criteria, they would consider a team entered by the Force.

In this way clubs can decide who participates. If enough clubs get together to form viable joint venture teams those teams would be the participants in the competition.

If clubs don’t want to join together or can’t put together enough viable joint venture teams then they can hardly complain if any existing club fills any remaining spot in their own right by meeting the criteria and demonstrating they are a viable option.

That would mean if only two joint ventures are formed in Sydney that meet the criteria, an existing club such as Sydney University may be the next team selected if they meet the criteria.

I see no reason not to allow a standalone club to participate in those circumstances. Every club has the same opportunity – it’s up to each club to determine their own destiny.

We need strong, viable teams in this competition – not teams cobbled together that may not survive.

What do I mean by viable?

At the end of the day it means economically viable.

All the other criteria are important but each team must show they are economically viable and can fund their ongoing participation in the competition.

The ARU have done a great job to get Foxtel to pay for television rights for the competition.

While it would be good for there to be some free-to-air exposure for the competition, if the ARU insisted on free-to-air coverage and the free-to-air networks were not prepared to pay for the rights, the competition wouldn’t be able to proceed at all.

This fact demonstrates the cold hard reality of this competition – the ARU can’t afford to fund it so without the broadcasting revenue and viable teams that can fund their portion of the costs, the competition may not get off the ground and if it does, may not survive – just like the previous ARC.

What are the costs for each team?
The ARU have said they will use the broadcast revenue and expected sponsorship revenue to cover the costs of travel and accommodation for teams, referees and the costs of administering the competition.

The teams that participate will have to fund the costs of players, provision of grounds, coaches and other staff.

This is to be a professional competition so all players will be paid – the ARU and RUPA are still negotiating the minimum level of payment for players.

Details such as whether the minimum level of payment will be different for players contracted by a Super Rugby franchise and uncontracted players and whether there is to be a salary cap for teams or not are still to be announced.

Until all the details are announced by the ARU we won’t know for sure the level of costs each team will have to fund. However, most people I’ve spoken to are working on expectations of around $400,000 per season.

How can any team fund these costs?
This is the key question for any team wanting to participate in the competition.

The revenue for each team will come from gate receipts, sponsorship, merchandise sales and memberships.

There are very few clubs that have existing grounds that can host reasonable sized crowds and are suitable for television coverage so the arrangements each team has to make for a suitable ground will have a big bearing on costs.

The costs of staffing the ground will also have a big impact on revenue. If the ground owner has to cover those costs, the team may have to pay a share of ticket revenue to the owner and may not earn a share of revenue from the sale of food and beverages.

If there are eight teams in the competition each team will play a minimum of seven matches – a minimum of three at their home ground and possibly four.

Only if a team makes the finals can they rely on any revenue from extra matches, so their budget will have to be based on three or four home matches per season.

If there are ten teams in the competition each team would be able to budget on a minimum of four home matches per season.

Who knows what size crowds will come to watch the matches but achieving crowds of 5,000 for each of four home matches at an average ticket price of $15 would produce $300,000 per season in revenue.

Kids under 15 would probably gain free admittance and be in addition to those crowd numbers. Are those achievable numbers? I suspect they may be optimistic.

I’m uncertain what teams could achieve in merchandise sales to supporters or from the sale of season memberships so I’m not even going to try and put an estimate on those.

What could each team generate in sponsorship and what could a team offer sponsors?
Clubs may claim they can offer sponsors exposure to crowds of 5,000 and by extension, let’s say 10,000 supporters.

With eight teams in the competition each team should feature in at least one televised match per season but may expect two televised matches per season.

That depends on who is selecting the matches to be telecast – Fox will naturally want to televise the teams performing best more often.

It will be hard to estimate viewer numbers and it may be hard to show sponsors value for their money, particularly in the first year with so many unknowns.

If you accept $300,000 in revenue can be raised from gate receipts, each team would need to raise $100,000 from sale of merchandise, sale of memberships and sponsorship.

That sounds like a big ask to me so teams may be talking to benefactors as well as sponsors.

Teams that make the finals could obviously generate additional revenue and may even be able to operate profitably but that’s not an assumption to base a budget on.

Any club or group of clubs serious about participating in the competition in 2014 will have to take a bit of a leap of faith to underwrite the costs of participation if the levels of revenue I’ve discussed can’t be achieved.

Hopefully the costs of a team participating in the NRC can be contained to around $300,000 per season, which would make the revenue equation a little more palatable.

Disclaimer: I am a coach at University of Queensland but am not, and have not been, involved in any discussions regarding the club’s interest in participating in the competition or not.

The views expressed in this article are my personal views only and I have not discussed the contents with any member of the club.