RUPA encouraged before Rugby Australia meeting

Glad to see you still have your sense of humour, Gatesy.

Maybe it’s time for RA to either properly corporatise and list on the stock exchange, or to establish a nationwide membership system, wherein all members would have the opportunity to have a say in the running of RA. So they should run as a for profit entity, and pay tax, meaning less money? They currently have a national membership system. The state unions.

Nope. No doubt terrible news for those taking delight in RA's difficulties. https://www.smh.com.au/sport/rugby-union/revealed-the-cash-buffer-to-see-rugby-through-the-next-three-months-20200402-p54gjv.html Rugby Australia is drawing on $11 million in cash reserves to survive the next three months of the coronavirus shutdown as it finally broke an ugly deadlock with the players union over pay. ….. Along with the standing down without pay of 75 per cent of the RA non-player workforce, 30 per cent pay cuts to 15 senior executives and a 50 per cent cut toCastle's salary, it will allow RA save the game from insolvency, until July. ….. In further good news, major partner Qantas, the Wallabies' front of jersey sponsor, confirmed it would honour its two-year deal with RA. A Qantas spokesman confirmed their partnership, which came under significant pressure amid the Folau saga over the past two years, was renewed at the end of last year and would run until the end of 2021. So apparently solvent until the under of FY 19/20 without any product, or prospect of it between now and then.

You're conflating issues. RA's current issue is that they cannot earn their 2020 revenue. The broadcast deal relates to 2021. COVID19 may be an issue in 2021 if broadcasters are adversely affected by this. Can't bid for TV rights if you have gone bust. But likewise, Foxtel are in a precarious position already. Will they be around in 2021? Not much good having a signed broadcast package with a defunct media company.

From what I have read it has invested in some real life assets and has a lot more substance to offer than Australian rugby and the NRL Not quite. They basically had enough product so they could provide tenants to Marvel Stadium (Vic Clubs) on poor deals to the clubs as part of a deal that enabled the AFL to own the stadium after 25 years. Not feasible for RA without the ability to play about 55 matches a year at one stadium. Likewise for the NRL as their clubs are too spread. Worked for AFL as no club is more than 35km away from Marvel, and even then only one club was more than 10km away. The AFL management weren't competent because they inherited a competition that suited this arrangement. Australian Rugby has owned at least two facilities. Concorde and Ballymore. Both have been financial drains for their owners due to government stadium policies and lack of potential tenants to share the costs among.

How about merging the Reds and the Waratahs?

"Should also highlight if they have a bank credit line, which I guess they can utilize to pull down to meet ongoing daily costs – effectively as a cash mgmt tool, is potentially in danger. Bank Credit Dept’s will not be comfortable with extending credit to any organization that can’t provide up to date financials signed off by external auditors."

There's the rub. If the directors cannot state that they believe the organisation to be solvent and able to meet its obligations they cannot sign (if they want to keep their house, their car and their first born) and neither can the auditors. Potential lenders lose interest quickly absent this type of documentation. This week NAB and ANZ came up with a half billion dollar credit facility to the AFL. From what I have read it has invested in some real life assets and has a lot more substance to offer than Australian rugby and the NRL. You can bet the bankers wanted way more than a sincerely drafted statutory declaration to prove they were up to date with ASIC, the ATO, their electricity supplier, the council rates, their SP bookie and the wharfies union - and had demonstrably competent management to keep that status going. Australian rugby certainly cannot meet that (bolded) criteria either. It will be fun watching the reaction of the entitled Qantas Harmless Wallabies when they hear what salary their employer is able to offer them for doing nothing this year, all 40, 65 or 123 who were given a contract.

Couldn't agree more Muglair. My impression of RA is that as a relatively niche sporting organisation it has operated under a self constructed veil of secrecy, without being subject to the same degree of accountability that shareholder organisations face. Maybe it's time for RA to either properly corporatise and list on the stock exchange, or to establish a nationwide membership system, wherein all members would have the opportunity to have a say in the running of RA. Whatever, RA has failed to drive up participation and supporter numbers, surely one of its major KPIs. Additionally from what I have seen over quite a number of years it has never sought to address the ignorance around the code from the overwhelming majority of sports fans in this country. In my experience when people gain even a limited understanding of the code they realise that it is a game that has much to offer the viewers (and I certainly include Super Rugby in that).

It is important to remember that the COVID-19 Pandemic erupted onto the Australian sport scene slightly after the financial issues arising from the difficult RA negotiations with Foxtel, and to a lesser extent Optus. By that time, RA was already set on a course of financial uncertainty without the surety of AUD$57.0 million p.a., or an agreed lesser negotiated amount, from the sale of its broadcast rights. The media reported that RA achieved a financial turn around from the loss of 2017 (AUD$3.8 million deficit) to a profit in 2018 (Rugby AU recorded a net surplus of AUD$5.2 million, aided by a $14.9m net expenditure reduction primarily due to reduced funding allocated to Super Rugby, player costs decreasing, and a reduction in administrative staffing and overhead costs ) including two significant decisions; a. The decision to cut the Western Force from the Super Rugby Competition b. The decision not to contribute support to the Sunwolves beyond 2020 (a joint decision with other countries) (Remember that the 2017 and 2018 results were generated in a regime that included AUD$57.0 million p.a. from Foxtel) RA itself always forecast that 2019 (Provisional Loss of AUD$9.4 million) would be a tough year financially due to the following programming issues; c. RWC 2019 in Japan and d. the reduction in domestic Tests in 2019 that contribute significant funds to RA To add insult to injury, the Israel Folau fiasco represented another unforseen extraordinary expense. Accordingly, in my mind, a loss for this financial year was a foregone conclusion. The extent of the loss was the only remaining question? I note that RA is still pinning some hopes on the Domestic internationals proceeding against Ireland and Fiji in July 2020. These fixtures must be classifed as unlikely given that the 2020 Olympic in Japan have already been postponed until 2021 and there is talk that the 2020 Tour de France and Wimbledon may be cancelled RA now finds itself in "the perfect storm" represented by a convergence of RA Board decisions made in January/February 2020 regarding media negotiations with Foxtel and Optus, reduced income from domestic internationals in 2019 and 2020, the Israel Folau settlement and now the closure of all rugby due to the COVID-19 Pandemic until further notice. As reported by Bluesfan, the bottom line will only plummet further if Foxtel puruse the return of payments already paid to RA for undelivered broadcast product? RA definitely cannot be held accountable for the pandemic but Rugby in Australia was already on a difficult course before 1 March 2020 when COVID-19 began to really bite. A number of media sources are suggesting a Federal Government or a Rugby Union (governing body) bail-out? If the only source of rescue is private equity (media is already discussing Andrew Forrest as a potential backer) RA better brace itself for some forensic Due Diligence which will be brutal in the pursuit of a bargain deal or at least value-for-money. Corporate Due Diligence will cut straight through the COVID-19 effect and go straight to the underlying operations before the extraordinary event, focussing on the potential for a new media rights deal. From my experience, private equity investors thrive when they smell "blood in the water" The landscape will definitely be reset when the revenue for 2021 and beyond is accurately determined . Either way the game, as we know it, is heading for further massive changes and the executive of Rugby Australia will come under intense scrutiny and may be the first casualties? Any incoming equity invetsor will need to control the Board and have a ma jority say in the management of the investment

What order will the extinction occur. Raelene, NRC, Rebels, RA or Super rugby. It is only a matter of when and what order.

We are all (including RA it seems) mixing up a few different concepts. My understanding is that one of the fundamental issues is the basis on which accounts are prepared. Usually they are issued on the ‘going concern’ basis meaning that the company will continue to operate business as usual. Both directors and auditors sign off on this. Given RA has committed liabilities moving forward it would be critical to have certainty over the income expected in 2021. Having rejected the Foxtel deal there is no certainty that a TV deal will generate sufficient income to cover projected costs. If, as rumoured, the Foxtel deal may have been insufficient to cover committed expenditures this would be a real problem in signing off the accounts. The second issue is solvency. The directors must sign a declaration of solvency at the date the accounts are signed. Clearly they believe there is a risk that they are, or at risk of being, insolvent as they have sought “safe harbour” advice. They have declined to say that they would qualify to be protected by the “safe harbour” provisions, although as per the quoted article RA directors seem to have noted that the Government has acted to protect directors against insolvent trading actions. I think it would be fair to conclude at this date RA is likely insolvent. It would seem reasonable to expect that players will be asked to accept pay cuts for the next three months of 30-50% in line with management. After cutting back other costs and cancelling contracts for services not required then I expect RA expects to be solvent, that is it can pay all of its debts as they fall due for the next three months. That would mean a new broadcast deal would need to be signed off in the next three months to allow the auditors and RA directors to conclude that RA is solvent and able to sign accounts on a going concern basis. It is important to note that the directors might determine they are solvent if they have a reasonable belief that alternative funding will be available from sources such as a World Rugby loan, government funding or bank finance. That might only kick the can down the road given the financial performance of rugby (attendance, ratings, membership etc) which will leave RA hopelessly in debt. If they are unable to do so then the members of RA (state unions, SR franchises and RUPA) have some big decisions to make about the future of the game in Australia. The most important will be the governance structure and determining “ownership” of the game of rugby in Australia.

I do feel sorry for RA as the organisation is financially weak and is unlikely to survive a tsunami like COVID-19. At the end of last year after the RWC I thought that it can only get better, however I was wrong . I do have some schadenfreude to see Cameron Clyne leaving RA in such a wonderful position after all the unpopular decisions he was forced to make (that is not of much use today is it) and the valuable unsolicited advise that he provided to Twiggy on how to manage a downturn. Tough times but I expect Twiggy will survive.

What product? They can't play any rugby champ.

No one wants the product. Not spectators nor broadcasters care for their product due to its elitism and corporatisation of the sport. Their are few decent athletes playing the game. Players like Beale who can’t tackle are our beacon players. Castle and her PC stance has divided players and supporters. Shame as the wallaby brand was held in such regard just behind cricket. Everyone once had a wallaby jersey now no one cares if the wallabies even play. A revolution is required. Get rid of RA

It appeared to be unusual that the AGM could proceed without accounts being completed, qualified by the auditors or not. Usually accounts need to be provided in advance. While that is often honoured in the breach by many volunteer boards and committees in rugby clubs it should be surprising that RA, a large organisation with paid management, could not comply. Not a problem though with the good old RA Constitution which protects board and management from any interference. Clause 4.2(c) provides the perfect shield: "It is not necessary for a notice of an annual general meeting to state that the business to be transacted at the meeting includes the consideration of accounts and the reports of the directors and auditor, the election of directors and the President and Vice-Presidents, the appointment and fixing of the remuneration of the auditor of the Company or any other business which under the Corporations Act ought to be transacted at the annual general meeting." I wonder whether the full statements will ever see the light of day. Given the very large gap between 2016 strategic plan objectives (not targets set last year) and actual achievements on important benchmarks like attendance, membership, TV ratings etc I was wondering how they would report. By not reporting? While the directors can enjoy safe harbour if trading insolvent, they do not seem able to do much else. They are now seeking to set up some task force to figure out what to do. All of the employees and resources of RA, the state unions and SR franchises have apparently come up with not much apart from avoiding communication. Then they hand it off to the experienced volunteer rugby people to solve it. That is, the people who should be on the boards of these organisations in the first place.

Exactly, so you can’t sign

Think the following statement is the key: "He said there were no insolvency concerns coming out of 2019 until the virus outbreak reared its head. "Directors need to ... know what [their access to cash and reserves] looks like for the next 12 months before they’ll sign off on those [accounts], so it’s not unusual for accounts to be finalised and not signed for a period of months after," McLean said. "The first deadline is the 30th April to sign those, but in this current environment we’ve been advised it’s not one month, it might be two or three. Once the board and directors have a clearer picture that provides certainty we will be a position to finalise this conclusion and then finalise the statements and allow KPMG to complete the audit." So key question is are they currently solvent today especially if they have to repay monies to Foxtel? Probably right on the line where they are counting every penny vs cash outflow. My assumption would be is that they are burning cash just keeping the lights on e.g. meeting salary costs, paying rent etc - all the basic infrastructure with what appears is currently zero income - bar sponsorships and how long will Qantas keep that going? Starting off from a point where they burnt through reserves last year due to the WC (NZ Rugby did the same) and now this whammy - some very tough discussions around cash position with Directors/Auditors. Should also highlight if they have a bank credit line, which I guess they can utilize to pull down to meet ongoing daily costs - effectively as a cash mgmt tool, is potentially in danger. Bank Credit Dept's will not be comfortable with extending credit to any organization that can't provide up to date financials signed off by external auditors.

How can they state the company will be solvent through to the end of 2020 given the current uncertainty?

Concur Bf, I am a director on a couple of companies, nowadays you sign some serious declarations for the regulators One of which is that you believe the company to be solvent and able to meet its obligations. Looks like a stand off between directors and auditors right now

I said yesterday that potentially RA is currently insolvent or close to insolvent - effectively that appears to be confirmed by Article in the SMH today: "McLean confirmed the board needed up to three months to be sure the business was a going concern before the directors could sign off on the financials. He revealed directors had accessed "safe harbour" advice from outside consultants, which are provisions under the Corporations Act that allow directors to seek protection from individual liability if a company is trading insolvent while they seek a restructure. The federal government recently extended the safe harbour provisions to help businesses deal with the coronavirus outbreak." "Castle also declined to say whether broadcast partner Foxtel had asked for some of its first quarter payments to be repaid, as the competition was suspended two weeks before the end of the quarter. " So to keep RA solvent etc - cuts are going to have by necessity be brutal. That they can't return cash to Foxtel, indicates cash reserves must be extremely low and accordingly they need to hoard what cash they have to pay for day to day costs and keep head above water till 2021 or at best last quarter this year. Then the big question for 2021 will be: 1. Can Oz sustain 4 teams or will they be forced to merge Rebels/Brumbies? 2. Nail down next TV rights negotiations - however if Foxtel is asking for cash back and looking (again according to SMH) to pull out of A League coverage. Then they are probably in just as bad cash position as RA and the idea that they can afford to pay over the odds money for Rugby rights - might be going out the window. Castle effectively played a high risk strategy to maximize $$ in TV rights by creating competition for the rights between Optus/Foxtel - but unfortunately bathwater had gone out the window with C19. Effectively she deserves a bonus if she retains current level of income basis probable balance sheet issues for Optus and Foxtel post C19. Feel very sorry for RA - strategy appeared to be going well and looked like they could recover pretty well from a dire 2019 and then this disaster occurs. Hard to run a business and not be smashed by something like C19 - RA will not be the only sporting org or business that is currently looking a month to month proposal in regards insolvency.