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Roar Rugby Project part 2: Follow the money - the challenges of funding the game at all levels

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Roar Rookie
10th December, 2021
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The Roar Rugby Project aims to document the challenges and opportunities facing rugby at all levels across the nation by tapping into the breadth and depth of The Roar readership’s experience.

Last week’s introductory launch detailed an overview of the challenges facing the game, and in future weeks there will be articles on the need for constitutional change, the support required the community and professional rugby, and improving the quality and consistency of refereeing.

This week’s article canvasses the challenges of raising sufficient revenues to cover the costs of rugby clubs in Australia.

One of the great benefits of being an accountant is the love and warmth with which you are greeted when you join a new club. In addition to the hands-on experience gained in a few stints as Treasurer, I can also look at the finance of rugby through the eyes of a corporate advisor and banker.

Irrespective of how much work I did, it was only a couple of chapters in one club’s history, with my experience restricted to the challenges of the time and the people I worked with. To some extent most readers’ experience will be similarly limited. The purpose of this article is to hopefully encourage readers to share their club’s successes, failures, risks, and challenges.

There will be a critical mass, be it 50 or 100 or more, where we will have covered all the challenges and opportunities facing clubs in Australia today. While it is relevant, I am leaving the subject of what Rugby Australia (RA) should, and shouldn’t, be doing for community rugby, until the fifth article in three weeks’ time.

More relevant today is the fact that RA do not believe they generate sufficient revenue to support community rugby. So instead, we will also look at how they might increase their revenue.

You can’t pretend to be a financial expert without providing a disclaimer. I have been doing this sort of thing for over 40 years and my proof-readers suggested I try and simplify my terminology. I have done my best but please feel free to ask questions in the commentary, I will do my best to answer them. Don’t be put off about asking a “silly” question, in any audience the same concept usually needs to be explained several ways to cover all levels of financial knowledge.

Club Finance 101 – the basic rules

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Businesses fail because they are undercapitalised or poorly managed, or both. Clubs continually ride that line, run by volunteers on a not-for-profit basis, with few assets and usually no capital.

While rugby is not a business, income must exceed expenditure with cash surpluses carefully allocated to asset sinking funds, a rainy-day buffer and investment in the clubs’ activities. Where possible playing membership costs will be reduced to ensure they are not excessive.

Most readers will be members of clubs that have had good cycles and bad. Success is usually tightly correlated to the strength and depth of the committee, and the amount of support it secures from the membership. No club will have sustainable on field success if it is poorly run.

Continuing losses will result in the club failing, unless the membership votes to remove the committee, or otherwise acts to financially support the club.

(Photo by Kenta Harada/Getty Images)

The Rugby Club Financial Model – what comes in and what goes out

Unlike business shareholders, club members are not owners of the club, merely custodians. They do not get a return on profits and their main role is to ensure the committee is pursuing the club’s objectives while remaining solvent.

Typically, a business should start with an analysis of its market and customer segments, and projects potential sales of its existing and planned products and services. It can then determine the amount of working capital (cash) and overhead expenditure required to support that level of revenue. Its directors will determine whether there is a sufficient return to the owners, and further iterations may be required.

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Many businesses adopt a simpler, but less effective, method by looking back to last year and then adjusting for changes in the environment. In my experience community organisations, such as a rugby club, work in a similar manner.

Typically, they will use the experience of prior years to confirm the costs to be incurred to meet their constitutional objectives and review their regular calendar of fundraising events and projects to ensure that the expected revenues will cover costs with a small surplus.

A rugby club is firstly concerned with covering the annual running costs of fielding teams, recruitment, and coaching. In addition, they will need to look at other periodic costs such as new jumpers or new equipment. A few clubs will also have their own grounds requiring maintenance and improvements.

In terms of revenue, they will rely on the continuing support of core members and sponsors, as well as the relatively predictable returns from an annual calendar of events including match day takings.

Most clubs can, and do, run for years on the smell of an oily rag, hovering around breaking even after covering these core costs. When under stronger management those clubs might be more aggressive, pursuing revenues to invest in expanding the reach and activities of the club, or to build new infrastructure. These plans will be communicated to both members and the local community to gain their support.

At other times clubs will move ahead of themselves, taking risks to either turn a club around or dramatically increase its success. Commitments are made in advance of the revenues being received. There will be many examples where good management, with member and community support, succeeds.

Probably more often, when poorly managed, a club will move into a cycle of failure until members intervene.

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Building rugby revenues – we always need more cash

Any rugby club will basically look at increasing its revenue through membership, match attendance and game day takings, sponsorship, merchandise, functions, and fundraising.

There are only 4 types of rugby customer:
1. core supporter
2. wants to be persuaded
3. can be persuaded
4. not interested, which is most Australians, not having played rugby or been close to someone who has.

The fastest way to leverage revenues is to increase membership, it is the path to sustainability. At the same time, it builds the depth and breadth of expertise and support for the club. Yet most clubs have no plans or discipline around building membership.

The core supporter is at most games and functions, is a long-term sponsor and hopefully a member of your club. Clubs need active focus on developing and implementing plans to identify who is in categories 2 and 3 and move them up the ladder to become a core supporter.

There are always ‘walk ins’, players or rugby supporters who move into an area and actively seek out a club, but you still need to ensure they do not join another club.

The importance of culture – what is important, and how we get things done

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Basically, building revenue is a matter of the disciplined approach to making a series of sales. Unless your club is the only team in town, even core rugby supporters must choose your club over others.

The leverage provided by your club’s reputation amongst members and the community is the difference between smooth running success and the enormous hard work of failure.

The importance of vision, mission, values, and the consequent culture of the club in attracting members and customers is often misunderstood or underappreciated, sometimes ignored, and sometimes ridiculed.

Nobody has the time to individually persuade people to come to your club in sufficient numbers, they need to be drawn in, like moths to a light.

It’s your turn – time to Roar

It would be great to hear of the successes your club has had in making itself financially resilient.

Just as important is hearing about failures, and your ideas about why that happened and how it could have been avoided.

Perhaps you have some ideas that you think would be successful for your club or another.

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Professional Rugby Finance 101 – the rules are NOT different

It is generally understood that the professional game should also be operated on a NFP basis, breaking even over the four-year RWC cycle, after investing in the growth and promotion of community rugby.

Instead, RA has operated as a significant deficit over the 25 years of professionalism, running down the value of goodwill and squandering the RWC 2003 surplus.

Some would argue RA is bigger and more complex, but the financial model is no different to a large diverse rugby club, albeit covering many clubs, both community and professional. There are the same for categories of customer, and the sources of revenue are very similar.

While continuing to manage Australian teams and international relationships, RA delegates much of the other responsibilities to state unions, super rugby franchises and others. While retaining a significant obligation for funding them, RA earns insufficient revenue to do so.

A more widespread view would be that community rugby is neglected rather than delegated. Possibly the complexity and geographic dispersion is just too hard to manage within the existing governance structures and managerial capability.

Either way there is insufficient investment into grassroots to sustain the game, and in response the grassroots have turned away from professional rugby. What is the point of professional rugby if it cannot operate profitably, and financially support community rugby which provides both its players and its customers?

If RA was a business or a rugby club, owners or members would have voted in a new committee by now.

TV broadcast rights – virtual match attendance, it’s like a Zoom meeting

Whether pay TV or internet streaming, subscriptions and ratings are merely a surrogate for match attendance. Most subscribers would have an interest in attending the games if possible , and are following their team and monitoring other teams in the competition.

Given the significance of broadcast rights to RA financial success it surprises me that they take so little interest in building the TV audience. Equally amazing is the lack of interest of the broadcasters in building match day attendances.

The complete failure of the NRC is hardly surprising given the lack of interest in creating a competition that would attract a game day crowd. Only broadcasting one game per week drastically limits the opportunity of building an audience interested in attending games.

The Professional Rugby Financial Model – is there enough to pay for both professional and community rugby?

A business is usually operated by its directors for the purpose of earning a profit for its owners or members. In the case of RA there are no owners, the directors have no clear purpose in operating the organisation and are accountable to nobody.

I think it is reasonable to assume RA’s budget process might look like this:
• Major revenue items such as broadcast, sponsorship, and other commercial rights are multi-year arrangements and are relatively predictable in advance
• Seasonal revenues for match attendance and other commercial activities are estimated. Based on the comparison of strategic plan objectives for 2016 to 2020 to actual results, I would be very concerned that the estimates are optimistic.
• RA ’s core costs are then estimated, seemingly on a “last year plus new staff and initiatives” basis and including distributions to super rugby franchises and state unions.
• Presumably RA considers its “core costs” to be professional rugby and administration while community rugby costs are optional.
• Presumably when projected revenues do not materialise there will be no money for community rugby development. Instead, the common perception is that community rugby is now required to contribute levies to support professional rugby’s costs.

To meet its objectives a better approach would be to proceed as you would with your local rugby club, estimating the total expenditure required to achieve its objectives for growing and promoting all rugby in Australia and determining what revenues must be earned to cover them.

These revenue targets must be achieved with detailed plans to achieve them. If for some reason there is a shortfall, that should inform next year’s budget, with a shortfall covered through debt. Let’s face it, even though RA is not investing in community rugby it is still “coming up short” and being forced to borrow anyway.

The primary objects of Rugby Australia are:
a) to act as “keeper of the code” of the Game of Rugby in Australia from the grassroots to the elite level; and
b) to foster, promote and arrange Rugby throughout Australia.

There is no option to not invest into community rugby because you are unsuccessful generating the surplus revenues required.

Time to Roar again – are you ready to support professional rugby?

I feel I have drifted into the “wants to be persuaded” sector. I am tired of being taken for granted, being offered inappropriate and long since redundant membership packages, and being encouraged to donate by being a “supporter member”.

It is this disregard for the rugby community that irks me most and is alienating large sectors of the supporter base. There is so little value in the highly priced products offered to the supposedly high net worth rugby supporter.

If professional rugby is to succeed, and provide funds to community rugby, it will require your support. What type of customer you think you are? What type of promotion do you think would encourage you to attend professional rugby matches, subscribe to broadcasts and by sponsor products?

Rugby Australia’s Financial Hole – how to lose money and keep digging

It appears to me, that since 2003 RA has been mainly concerned with pursuing the large number of Australians not interested in rugby, at the expense of alienating those close to the game. RA and its affiliated states and franchises now appear to be substantially in debt and operating with an annual deficiency.

The RA Constitution and manner of operation is different from both a business and a rugby club, without any of the built-in controls. There are no owners or members to hold the board accountable and ensure that RA is achieving its objectives and managing its finances.

The big balance sheet financial challenges are to refinance current debt, maximise the windfalls expected from the 2025 Lions and 2027 RWC, and invest them wisely in the growth of the game to make it financially resilient.

Debt, Windfalls, Lessons Learned and other myths – the new Part 3

A second disclaimer: I did not want this article to be too long, and this subject is too important to gloss over quickly. So now there will be seven articles, at least you will have plenty to read over the festive season.

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