The Roar Rugby Project: Part 7 – Why professional Rugby must be profitable and how RA has failed to respond to challenge

The Roar Rugby Project aims to document the challenges and opportunities facing rugby at all levels across the nation in the following articles. We are looking to Roarers’ experience as players, officials and supporters to find new solutions for the problems that have dogged the game over the last twenty-five years.

1. Introductory launch – an overview of the challenges facing the game
2. Financing rugby- revenue challenges all community and professional rugby
3. Debt, Windfalls, Lessons Learned, and Other Myths – Refinancing RA losses
4. Governance – The need for constitutional change
5. Supporting community rugby
6. Tiers or Tears – competition structures for Professional Rugby
7. Losing money made easy – Professional Rugby must be profitable
8. A Story of Neglect – There is no game without a Referee
9. Women and Sevens – The leading edge of development

I would think the objective of investing so much money into professional rugby would be to generate sufficient profits to invest back into professional rugby, completely fund and grow community rugby, and put some funds away for a rainy day.

Rugby Australia is failing dismally, making losses even though community rugby contributes to its costs. The simple solution to address losses is that a business can increase income or reduce costs. Rugby Australia has not, over the years, successfully responded.

It appears they believe the only action they need is the periodic negotiation of major sponsorship and broadcast deals, justified by new, and doomed to fail, competition formats. Their new strategy is to start selling assets to cover current and future losses.

There is no evidence they comprehend that the value of those broadcast and sponsor contracts are tied to the week-by-week hard slog of promoting rugby matches and increasing the number of bums on seats. Worse, there is no alarm at, or urgency to address, falling attendances and ratings each year. Then they are “taken by surprise” when broadcasters and sponsors make lower offers at the next negotiation.

There is no evidence that they have any discipline or capability around controlling costs or delivering rugby in an efficient and effective manner. The only exceptions have been frantic cost cutting in response to liquidity crises during the last decade.

How to increase income

Too much emphasis has been placed on competition formats, stars and broadcast rights, and a revenue strategy revolving around negotiation of the next sponsorship or pay TV deal, both subject to cyclical supply and demand.

While they are significant and important income streams, Rugby Australia has neglected its supporters and the opportunity to sell match tickets, memberships, and merchandise. This is an enormous lost opportunity and might even be the difference between loss and profit.

Admittedly, this does require a great deal more discipline and continued focus compared to negotiating broadcast and sponsorship contracts every three to five years. However there appear to be more than enough employees across Rugby Australia and its subsidiary franchises to achieve a better result.

Nor do I see any evidence that Rugby Australia, its broadcasters, and its sponsors recognise the mutual benefit in increasing the number of rugby supporting customers. Despite the clear common objective of maximising support, all three groups appear to act independently, without common purpose, or accepting obligation to the others.

Last week I went down a coal mine looking for canaries. There are clear problems with the current competition formats and I tried to spark discussion on what might be better formats, and how they could be promoted. Without a lot more market data is very difficult to sensibly discuss alternative formats and we certainly never got around to solutions for the question of promoting games.

1. How would you promote your home games in the 2022 Pacific super rugby competition?
2. If the NRC was to be held in 2022, how would you promote all home games against interstate competition in your city?

The hazards of decentralised professional rugby

There has recently been significant press speculation and statements from Rugby Australia on centralising control of professional rugby. In my view this is long overdue, but whether the proposal is sound and within its capability to execute, remains unannounced.

I would presume that planning is well advanced and, given the lack of protest from the states, has their support. I suspect that support, coupled with the delay in announcement, is tied to the expected private equity investment windfall. They all need cash too.

In part 2, I proposed that there were many similarities in managing rugby at each level, whether the Wallabies, the five SR clubs, the eight NRC clubs, and the 950 community clubs. Rugby Australia has persisted with the historic structure of managing all levels of rugby through a relatively autonomous state-based structure.

In my experience it would be unusual for a trading business to attempt running five largely identical trading subsidiaries, allowing a manager in each state complete autonomy to do their own thing. Rugby Australia operates professional rugby and has control over how the Wallabies are managed and promoted. Its Super Rugby franchise clubs are SME businesses with similar management and promotional challenges.

All six organisations are highly exposed to poor on-field performance and/or poor management. It only requires a couple of seasons negative performance to create a significant financial exposure as the prospects of a quick turnaround are limited by a contracted playing group, poor management and negative membership and sponsorship sentiment.

Unlike a failing SME business, which can just become insolvent and be removed from a corporate register, Rugby Australia is expected to bail out a failed franchise. It has limited options because it has a continuing obligation to SANZAAR, broadcasters, sponsors, and supporters to field that franchise team next week or next season.

In effect, Rugby Australia guarantees the losses even though it has no influence in the management or strategic direction of a franchise. At one time or another over the last 25 years, each franchise has been funded or bailed out, often without any enduring concessions as to how the franchise will be managed and controlled in the future.

I would not be surprised if there is franchise resistance to Rugby Australia having significant visibility over deteriorating financial position or operational performance. This limits its ability to mitigate the risk and consequently, like most other insolvencies, there is an unpleasant surprise when it is too late to implement a cost-effective turnaround, with good prospects for success.

Benefits of centralising control and operations

I have previously written an article on how the ARU, when on its financial knees in 2014, looked to cuts its costs, one of which reported in the media was centralising administration of the states and Super Rugby franchises.

Andrew Kellaway. (Photo by Getty Images)

I think this was a logical objective with significant upsides in terms of efficiency, cost savings, increased revenues, and supporter (customer) satisfaction.

Despite these potential benefits the ARU planned, what I presume was the lowest cost strategy, to centralise administration in the Queensland Reds organisation. This was a haphazard and not well thought out strategy which met, understandably, considerable resistance from the other states.

Then the 2015 TV windfall just allowed RA to abandon the centralisation strategy and it reverted to increasing its own cost base without any increase in efficiencies or revenue generation. There is no visibility over the extent to which franchise administrations have increased or decreased financial efficiency.

While using the Reds platform was unlikely to be the answer (they subsequently went broke and were bailed out), centralisation should have delivered following benefits:
1. Best-practice systems, procedures and frameworks can be made available for the various generic activities undertaken by each club,
2. Enhance revenue potential for membership, sponsorship and match attendance through sharing successful strategies and new ideas
3. Increase efficiency, reduce costs, and control risks
4. Administration costs per franchise are significantly reduced
5. Universally understood frameworks are in place to monitor off-field administration and management performance.

Centralising rugby

I believe the 2014 proposal did not go far enough and should have included rugby operations.

There have been obvious, and related, problems integrating players from five franchise teams into Wallaby squads each super rugby season:
1. significant variations in strength and conditioning, with many players below the required standard for international Rugby
2. franchise teams pursuing different game strategies and tactics depending on their own strengths and weaknesses
3. players with skills suitable for super rugby, and their franchise team strategy, but without the skills required by the Wallaby coach

While New Zealand stand as an example of independent franchises being able to act within a common framework, influenced by NZRU, I don’t see this working in Australia.

Professional rugby is highly technical, but also requires significant interpersonal, coaching, and management skills. There will be very few directors across six organisations who are well qualified to set strategies and make decisions in these areas. Presumably most of the CEOs and senior management are in the same situation.

How many decisions have been made over the last 25 years based on unqualified opinion, personal preferences, and other agendas?

At national level it seems to me there is a need for some oversight by expert panels with a significant level of transparency over strategy, issues, and information. Open and robust discussion and exchange of ideas will maximise and maintain our expertise and enable knowledge to effectively flow down through development pathways into community rugby.

Recommendations regarding individuals, appointments, reviews and termination are obviously confidential communications with the respective management and directors.

I can’t really comment on detailed structure and reporting lines, but it presumably will address issues of succession and supervision:
1. the best coach to be in charge of the Wallabies, and the next five most highly regarded coaches appointed to the super rugby franchises, or possibly Wallaby assistants.
2. a pathway for coaches with a potential to coach at Super Rugby level
3. common strength and conditioning strategies throughout professional rugby
4. significant cooperation between the Wallaby coaching team and each super rugby franchise
5. establishing community rugby development and coaching pathways that dovetail with professional rugby

Obstacles to centralised control

As noted above the 2014 proposal failed, and press speculation was that the Waratahs and Rebels were uncomfortable ceding control to the ARU and the Reds. I would be surprised if the Brumbies and Force did not have the same views.

Maybe behind the scenes, the Reds did not want to risk their current success by diluting their resources or sharing their IP to prop up other franchises. More likely they saw an opportunity to fund a considerable expansion of their own organisation.

One size rarely fits all, sometimes a problem with externally imposed, and predetermined solutions. Each of the other franchises had its own history, culture and personality together with a unique responsibility for the health and growth of rugby in its franchise state.

Despite the advantage of economies of scale, sometimes circumstances dictate bending solutions around the unique needs of each franchise.

One obvious risk was that it was unclear whether the Reds platform and organisation were either ‘best in class’ or able to be scaled nationally. The choice appeared to be based on the Reds’ financial turnaround, without considering whether it was due mainly to its on-field success.

Any successful strategy will require addressing the needs and concerns of all stakeholders from an operational, financial and governance perspective. A significant amount of collaboration and negotiation is required to agree and identify every aspect of each club’s operations that can be either centralised or more efficiently administered using Rugby Australia best-practice frameworks or models.

There is a need to be judicious about what functions can achieve an economy of scale and be centralised, which typically include functions like finance, IT, insurance, and risk management.

In other areas such as membership, marketing and sponsorship, policy development and strategy might be centralised, but with accountability for implementation left at local level using common best practice procedures and platform.

Conclusion

Assessing Rugby Australia’s proposal is impossible until it is released, probably as a fait accompli.

Community Rugby will again be left to survive off what is left over, and it is essential that Rugby Australia provides sufficient transparency over its intentions and what the performance criteria will be.

Presumably this will be part of a five year year strategic plan, with the funding and benefits for Community Rugby clearly articulated.

In the worst-case scenario, I would be pessimistic if the proposed centralisation had features like:
1. reduced accountability of Rugby Australia directors so that, like the NRL commission, they can appoint themselves.
2. creation of a professional rugby commission such that commissioners have control of revenues from professional rugby, without clearly defined obligations to community rugby.
3. vague objectives and strategies for the growth and promotion of community rugby.