SA Rugby’s eyes wide shut

Melbourne or Mandela Bay?

The decision as to which franchise gets the 5th Australian-based and 15th Super Rugby franchise, will be announced on October 21 by Sanzar. This has not been a simple bid process in which prospective Super Rugby franchise teams simply respond to the criteria of the bid document (See it here1-sanzar-super-15-application.pdf) in a free and fair selection process, which the press releases trotted out by SA Rugby and the ARU would have you believe about their respective “compelling” bid presentations, state of readiness, financial sustainability and player pool. There is a more complex, dare I say, sinister, cunning and very naive approach towards selecting an additional Super Rugby franchise to participate in the Super 15 tournament from 2011 to 2015 and you can decide for yourself which labels can be attributed to which union.

This is why.

Sooner, rather than later, it will be revealed that the South African rugby administrators tasked with upholding and increasing the value of SA Rugby’s intellectual rugby properties in the international and Southern Hemisphere rugby markets, were duped spectacularly and succumbed to the Australian and New Zealand agendas, so much so, that they will ultimately be responsible for the failure of South Africa to acquire the 15th Super Rugby franchise. It also speaks volumes in endorsing that age old legendary mafiosi statement, “that you do not bring a knife to a gun fight”, which is what SA Rugby did.

And there are two reasons for this that are and will be fatal to the submission of the Southern Kings bid.

The first, is that in 2008 the ARU championed and sold the 3-conference Super 15 Rugby system of 5 Super Rugby Teams for each of the South African, New Zealand and Australian rugby unions, from 2011 to 2015. This was “sold” to all at Sanzar, under the pretext it is more cost-effective, involves less travelling (which SA Rugby was always on about) and especially that local derbies attract higher gate attendances which is key to the fans and especially the paymaster Newscorp and SuperSport vis a vis increased viewership for their advertisers.

Then, the second and most lethal reason, is the agreement signed off by SA Rugby, in May, in which Marinos and Hoskins in Dublin, unanimously agreed with Sanzar, to a 3-way split of the Super Rugby broadcast revenues, because each of the Sanzar partners would now have 5 Super rugby teams apiece in each of the 3-conferences. This had to be agreed upon before going into the proposal to Newscorp re-extending the broadcast agreement through till 2015.

Quite apart from this drop in share of broadcast revenues, for SA Rugby, from 38% to 33.3% which represents a loss of R10 million over 5 years to each of SA Rugby’s 14 unions, for a total of R150 million, it also means that this revenue now fills the treasuries of the NZRU and ARU to the tune of R150 million, which in time will come back to haunt SA Rugby.

In essence that is a spectacular R300 million blunder by SA Rugby, in that they shed R150 million and that the R150 million “donation” went to SA Rugby’s arch rivals. That 3-way split deal between the Sanzar partners, is now etched and reflected into the Newscorp broadcast deal, which sets the precedent in signed-off documents, that ensures that each of the Sanzar unions gets an equal 3-way split of the revenues because each has 5 teams in the Super 15 tournament with 3 conferences.

It is a travesty and of great sadness, that in over 5 years, which is a lifetime for a rugby player, that all the 200 000 Southern and Eastern Cape rugby players, at over 900 schools and over 450 rugby clubs, have had their hopes raised and dashed and raised again, as it is almost certainly game over for the Southern Kings, participating in the Super 15 from 2011 to 2015, as they have been scripted out by Sanzar.

Had Marinos and Hoskins in May tabled the same cooing rationale why the Southern Kings should be included in the Super 15, as they did in their effusive release Friday, which also happen to be the exact reasons and basis for hanging on to SA Rugby’s rightful 38% share of the broadcast revenues and not conceding the 5% and 5th Super Rugby franchise to Australia, SA Rugby would not be in this predicament.

The self-same reasons SA Rugby offered up for the “compelling” bid for the 15th Super Rugby franchise, were as valid in June 2005 when the 6th South African Super Rugby franchise was created, as much as they are now. This did not happen overnight or in the last 5 years, but it has and SA Rugby has spent tens of millions of rands excluding the Southern and Eastern Cape

But here is the real trouble.

I have no doubt that the 60-page Southern Kings presentation is as good as the SA Rugby 2015 and 2019 Rugby World Cup bid document as it is the same SA Rugby team that submitted that presentation, who also did the Southern Kings bid. Only it is not about the document, it is all about having the vision, the savvy, the nous, the street smarts and a deck of intelligence to get to “YES”. They have it and we don’t.

But what happens if and when the Southern Kings lose out to Melbourne on October 21? Who stays and who goes?

I can surely describe a sequence of predictable events and outrage that will occur, but what it does show is that SA Rugby has not planned for this eventuality and established a hands-on crisis management team that will surely have to defuse the conflict that is about to erupt and be waged among SA Rugby’s 14 unions, SA Rugby, the 6 Super Rugby franchises, government, provincial government, broadcasters and sponsors.

There will be no arbitration if Melbourne wins, as SA Rugby themselves agreed to and endorsed a 3-conference, 5-team format for each of the Sanzar partners and that was basically “signed off” and cast in stone, by the unanimous Sanzar 3-way revenue split of the broadcast revenues of the Super 15 TV proposal, which has already been submitted to Newscorp.

The kicker in all of this is that all of this was sanctioned and agreed to by Sanzar’s CEO, who happens to be none other than the self-same acting MD of SA Rugby, Andy Marinos.

The buck stops there.

If there is any opposition, from SA Rugby to Melbourne winning the 15th franchise I can hear O’Neill of the ARU and Tew of the NZRU, saying: “But Andy you as Sanzar CEO agreed to this and signed off on this last year and again in May and it was made a condition of the Expression of Interest and it is included in the broadcast deal to Newscorp.”

You see Marinos and Hoskins should have made it conditional in May this year that SA Rugby gets to keep its 38% share of the revenues and that the 6th South African franchise be the 15th Super Rugby team. SA Rugby should have dropped in their own conditions and riders to retain and increase revenue and especially to ensure that the 6th Southern and Eastern Cape franchise is included, given the sheer size of SA Rugby’s own market, which is more than twice the combined NZRU and ARU rugby markets.

Instead O’Neill knows he has R75 million coming the ARU’s way from 2011 to 2015 that will assist the Melbourne Super 15 and the other R75 million is incentive enough for Tew of the NZRU to back O’Neill on this. Two to one on voting and glances to the head of the table in the direction of Marinos, who not only agreed to this, endorsed it and signed off on this.

The trajectory of these decisions will negatively impact SA Rugby deep into the future unless an immaculate solution is found to embrace the 6th South African franchise and remove conflict and mayhem in South African rugby.

Having spelled out the most likely scenario to face South African rugby on October 21, there still is the immaculate solution to remedy SA Rugby’s Super Rugby dilemma and rid it of this perpetual conflict and cannibalism, but that solution will be for next week.

Super Rugby factoids:

Rugby in the Southern Hemisphere, especially in the Sanzar countries, is principally driven by the capital infusion from Newscorp, which buys the broadcast rights from Sanzar for the Super Rugby Super 14 series, Tri-Nations and British and 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 the financial bedrock on which SA Rugby, New Zealand and Australia build or run their domestic games because a large percentage of the cash then trickles down from the parent union to the respective provincial unions.

South Africa has been in the losing stakes of negotiations from start to finish as there were the 2006-2010 terms and 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. They were entirely and conveniently disregarded by the Australian and New Zealand unions, who railroaded their agendas through and around the SA Rugby delegates, who will be caught in the halogen headlights on October 21 when the 5th Australian-based franchise is announced.

Sanzar would have you believe it is a straight and fair race between Melbourne and Mandela Bay to get the 15th franchise, now that Melbourne’s Victoria Rugby Union, with the assistance of the Australian Rugby Union and the Southern Kings (Border/SWD/EP unions) with the “support” of SA Rugby have submitted their bids in response to the Expression of Interest. (Click here for the real story) 1-sanzar-super-15-application.pdf

On closer inspection the Southern Kings are playing against a stacked deck that was choreographed 18 months ago and set in motion in May with an irretrievable agreement among the Sanzar partners.

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.

The current broadcast deal, as well as SA Rugby and Super Rugby Franchise Participation Agreement with its six 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 August 31. That offer came in an e-mail from Newscorp on Friday night August 27, so the negotiations are well under way around the 3 conference of 5 teams each.

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. In fact SA Rugby should have asked for and received, a greater percentage than 38%, as their delivery of rugby inventory and broadcast value is far greater than New Zealand and Australia combined.

It is not justifiable, especially when one puts the size of the respective rugby markets in perspective and evaluates just how significant a rugby market South Africa is to the Sanzar alliance. Consider the following club and registered player numbers:

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.

So the devastating effect of this 5% concession, is that SA Rugby 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 R2 million a year for the next five years.