SANZAR’s Rolling Boardroom Maul

Rugby in the Southern Hemisphere, especially in the SANZAR countries is principally driven by the capital infusion from Newscorp who buy the broadcast rights from SANZAR for the Super Rugby Super 14 series, Tri Nations and British & Irish Lions Tours.

These rights are then syndicated out to countries around the world so Newscorp recoups its investment and then profits from the selling of on air advertising in various markets.

This in essence is singularly the financial bed rock on which SA Rugby, New Zealand & Australia build or run their domestic games as a large percentage of the cash then has a trickle down effect by the parent union to their respective provincial unions.

Consequently, this is of the highest priority in terms of revenue generation to each of the SANZAR partners and you would imagine that there would be a high degree of due diligence and preparation done by each of the SANZAR unions to safeguard their stakeholders investments and interests. Come the end of this column you will be able to draw your own conclusions on what the “dereliction of fiduciary duty” means in South African parlance.

Before entering into the 2011-2015 negotiations with the broadcaster, there was and still is a need to provide a coherent tournament structure in each of the the 3 SANZAR partners and then amongst each other. This started some 18 months ago and very quickly it became apparent amongst the SANZAR delegates, who around the boardroom table and tele-conference calls, had a grip and the street smart savvy of where SANZAR is headed with Super Rugby, to attain the best deal for their country.

South Africa have been in the losing stakes of negotiations from start to finish as there were the 2006-2010 terms & conditions set in 2004, which were agreed that year and also set the precedent for the division of the broadcast revenues for the Super 14 competition et al. and then were entirely & conveniently disregarded by the Australian & New Zealand unions, who railroaded their agendas through and around the SA Rugby delegates, who will be caught in the halogen headlights on the 31st October 2009.

Some background. SANZAR, the three-nation grouping of South Africa, New Zealand and Australia, which runs the Super 14 competition, boasted a 25% increase in revenues on the old contract when announcing a new TV rights deal late in 2004.

The original $555 million 10-year deal signed when rugby union went professional was structured to compound by 7% annually, rising to $82 million in the final year, yet when the new five-year contract of $323 million was announced for the 2006-2010 Super Rugby tournament, the SA Rugby Union declined to say it was actually less than the final five years of the old deal.

So what will SA Rugby say when its next contract is signed for the 2011-2015 broadcast deal with Newscorp, as their silence is deafening, given that they will not have their 6th franchise participating in Super Rugby and that they have surrendered R150m to the Australians & New Zealanders?

The current broadcast deal, as well as SA Rugby’s Super Rugby Franchise Participation Agreement with its 6 franchises, expires on May 30 of the 2010 season. This meant that SANZAR’s new and proposed competition structure was scheduled to be in the hands of one of the rights holders, News Limited, by June 30 and they were in turn, to respond with a counter offer by the 31st August.

As it happens, an e-mail from Newscorp came in on Friday night the 27th August, so the negotiations can now commence in earnest.

News Limited owns the rights in Australia, New Zealand and Britain. The rights in South Africa are controlled by the SuperSport network, who are making record profits with their aggressive expansion plan under their CEO Imtiaz Patel and are concerned about keeping their exclusivity intact and away from any other satellite broadcaster, or SABC, hence the delayed tape broadcast deal SuperSport has with SABC over the Test matches.

News Limited’s half-owned Australian pay TV network, Fox Sports, is also making profits and New Zealand’s Sky Channel values Super 14.

So there is the expectation from SANZAR for there to be an increase on the last 2006-2010 deal especially as SANZAR are increasing the number of games from 91 to 120. Increased content will then be the principal driver of any rise in rights fees negotiated by the international sports agent Ian Frykberg, who is again representing Sanzar.

The number of Super 14 games will rise from 91 to 120 yearly from 2011, when it becomes a Super 15 competition with an additional Australian franchise, rounding off 5 franchises in each of the SANZAR entities.

This is an absolute certainty, as you will see later, as the Australian Rugby Union CEO John O’Neil danced rings around SA Rugby administrators over the past 18 months relying on their inability to stand fast on the terms & conditions set in 2004 and subsequently attained two enormous concessions at the expense of South Africa.

The first concession is that O’Neill got Hoskins and Marinos of SA Rugby to agree that the 15th Super Rugby team from 2011-2015, be the 5th team in the Australian conference, using the supposed logic of each of the three geographic conferences to have 5 teams each, which delivers an economy of scale for flights, travel accommodation and jet lag.

On the basis of that argument, in early May in Dublin, the ARU’s O’Neil, with the backing of NZRU’s Steve Tew, then got SA Rugby’s Hoskins and Marinos to agree that there be an equitable split of revenues of 33.3% each, on account of the fact that each of the SANZAR partners has 5 teams each in the 3 geographic conferences of South Africa, New Zealand & Australia and they agreed to it.

This is in spite of the fact that South Africa contributed more than 50% of the revenues to the Sanzar partnership, and should rightfully be entitled to at least 38% share of the broadcast sponsorship revenues. Proportionately NZRU and ARU each received 32% and 29% respectively of the revenues, which was the precedent set in 2004. So why on earth change it? SA Rugby should have in fact asked for and received, a greater percentage than 38%, as their delivery of inventory and broadcast value, is far greater than New Zealand and Australia combined.

The revenues in this instance were $323 million and this would remain the base from which to negotiate north of this number, for the 2011 to 2015 Super Rugby window, especially with an additional rugby inventory in each of the three Sanzar markets for the broadcasters to sell to advertisers, plus factoring a CPIX increase of 10% a year for the next five years, or using the agreed 7% of the existing deal.

Over the next 60 days – the 31st October is the date on which the 15th Super Rugby team will be announced – it will be revealed that SA Rugby has been out-witted, out-smarted and out-negotiated in the expansion of Super Rugby. SA Rugby have failed to secure a position for the sixth South African rugby franchise, the Southern Kings, for the next six years and agreed to concede SA Rugby’s share of the broadcast revenues from 38% to 33% (by 5%) to make it a tidy third for each of the Sanzar partners.

The devastating thunderclap of this 5% concession, in rands and cents, is that Marinos has surrendered R150 million in revenue that should have come to SA Rugby and its 14 Rugby Unions, from 2011 to 2015, benefiting each of them by R2m per annum for the next 5 years. Show me a single rugby union in South Africa that is not desperate for R10m each. Now this cash goes the “enemy” for them to develop their domestic set up at the expense of South Africa.

Even Griquas are scratching to pay off a R3m loan at R30,000 per month to SA Rugby and this would have wiped their slate clean, not to mention the other unions struggling to fuel growth in their respective regions.

The Presidents of Griquas, Boland, Border, Eastern Province, SWD, Griffons, Leopards, Pumas, Falcons, Free State & the Lions, should declare to SA Rugby Pty Ltd’s Board that SA Rugby has seen fit to surrender capital rightfully due to them and must in turn respond with how the Board will recover this and duly compensate them for this loss. No wonder the SA Rugby Presidents Council wants to dissolve and is in the process of dissolving the SA Rugby Pty Ltd, who have effectively burned R250m of shareholders – read 14 Unions – cash in the last 2 years.

This is without doubt SA Rugby Pty Ltd’s greatest philanthropic gesture ever, to New Zealand and Australia and one so culpable that it defies belief.

Put the size of the respective rugby markets in perspective to evaluate just how important South Africa is to the SANZAR alliance:

1. South Africa: 1010 clubs and 512 000 registered rugby players.
2. New Zealand: 595 clubs and 140 000 registered rugby players.
3. Australia: 848 clubs and 83 000 registered rugby players.

Sanzar opened negotiations with News Ltd before its June 30 deadline and Newscorp had 60 days to respond and did so at the 11th hour on Friday night.

Murdoch, an Australian, and you do not have to guess where allegiances lie, is a major shareholder in Sky New Zealand and News Ltd on-sells the rights to the Kiwi pay TV provider which in turns broadcasts rugby to its New Zealand subscribers.

New Zealand Rugby Union boss Steve Tew confirmed that “an email from News came in on Friday night” and that it contained a “headline figure”.

“I can’t afford to release any details. It would breach our contract. We won’t be negotiating in the media on this one and all I can say is we have received an offer or contract from News. We need to go through the fine print and that process could take some time as it is a lengthy and complex agreement.”

Tew said he and his equivalents in Australia and South Africa, John O’Neill and Acting MD Andy Marinos, were scheduled to assess the detail of the deal this week in Brisbane after Australia has decided on their representative Super 15 team from Melbourne today.

SANZAR has one of three options:

1. to accept (not a good negotiating counter offer),
2. try to bump up News Ltd’s offer, or
3. try to sell the rights to another broadcaster (which will never happen).

The second option, unless News Ltd has offered an extremely tasty sum of money (which happened once only in 1995), is the most likely outcome, given the lack of competition in the New Zealand pay TV market and the flat Australian market.

Unlike the last renegotiation, when the original 10-year agreement brokered in 1995 was renewed in 2004, Sanzar has differed in its approach of the sale of the broadcast inventory and rights, in hoping to make the summation of the parts greater than the whole.

News Ltd bought every competition on offer in December 2004 through to 2010.

This time SANZAR iis selling Super rugby, the Tri Nations and domestic competitions separately. South Africa sold their domestic competition to SuperSport 24 months ago, much to the chagrin of their SANZAR partners. Also on the table are free to air, pay TV and internet rights, in an unbundled sales package.

“That’s why this deal could take some time,” said NZRU CEO Steve Tew. “But this is a step in the right direction.”

On to the Super 15 franchise candidates, of which there are two. The one is sure fire winner and the other a casualty as a result of the parent body’s incompetence.

The VicSuper15 syndicate, which will be rubber-stamped by the Australian Rugby Union next week Tuesday, will lead Melbourne’s bid for the vacant Super licence from 2011-2015.

SANZAR will decide the winning bid, which will join the Super rugby competition in 2011, on the 31st October. This is a no contest. See the Expression of Interest Bid criteria HERE 1-sanzar-super-15-application.pdf

The VicSuper 15 group are so far ahead of the Southern Kings so called bid and preparation, that they already have the ARU fighting tooth and nail for them, have their required $20m per annum cash in place (total $100m over 5 years) and have launched their website with the points table and conferences all good to go from 2011-2015.

Is there the similar support for the South African Southern Kings from SA Rugby, or have they been left out to dry again? This is a catastrophe for rugby in South Africa as it has been managed with the aplomb equivalent to a Mugabe-esque election. A disaster of epic proportions.

Pop in at http://www.vicsuper15.com.au/ and then to http://www.southernkings.co.za/ and draw your own conclusions of which franchise is ready, willing and able. There is no room for some welfare argument anymore. This is the pitched hard nosed battle ground of rugby where countries win or lose around the board room table. South Africa had a sampling of this, in losing the RWC 2015 & 2019 bids last month and it will be deja vu come the 31st October.

This matter of the 15th Super Rugby franchise, which will eventually leave the SA Rugby Union, out in the cold, in a complete and total quandary, starting the 31st October, then in November, with a 6th South African Super Rugby Franchise, the Southern Kings, with no one to play, no fixtures and no tournament to play in for the next 6 years.

Expect this to erupt into a full blown war of attrition again, only this time SA Rugby will not have the R30m cash to burn to keep the Southern Kings out. There will be new role players called in, in a process of intervention and the administrators of rugby will be up for scrutiny.

A quick review of the Presidents Council Minutes in 2005 and 2006 will reveal that the Presidents Council decision to have a 6th franchise still stands, has never been rescinded and that the Super Rugby franchise agreement for 2006-2010 is still valid.

What this means is that there will be a fierce, on-going, rolling-board-room-maul at SARU’s Presidents Council, with SA Rugby Pty Ltd, from November 2009, all the way through to February 2010, in which accountability will be placed at the feet of respective SA Rugby employees and a new leadership is voted into SA Rugby in February 2010 to sort out this mess.