R150m gone in 60 minutes!

Last week Thursday, Sanzar (South African, New Zealand and Australian Rugby Unions) met in a watershed meeting in Dublin to discuss the expansion of Super Rugby from 2011 to 2015 in the Southern Hemisphere and especially the broadcast agreement that needs to be tabled to the broadcasters (Newscorp and SuperSport) on or before June 30. Each was represented by Andy Marinos, acting managing director of SA Rugby, Steve Tew, the chief executive of NZRU, and John O’Neill, chief executive of ARU.

Here is an overview of what was and still exists in terms of the broadcast agreement, signed with Sanzar in 2004, which believe it or not, was chiefly brokered by Brian van Rooyen, the then president of SA Rugby. Van Rooyen is an accountant and clearly understood that as South Africa contributed more than 50% of the revenues to the Sanzar partnership, they should rightfully be entitled to a 38% share of the broadcast sponsorship revenues. Proportionately NZRU and ARU each received 32% and 29% respectively of the revenues. This was the precedent set in 2004.

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.

Somehow, and it is hardly surprising, Marinos has been out-witted, out-smarted and out-negotiated in the expansion of Super Rugby. He 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 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 from 2011 to 2015 and it is reverberating across the 14 SA Rugby Unions — his employers — for the moment.

In any other language, this is tantamount to an acting SA Rugby executive officer giving away the family silver, they have no assets, none, other than the broadcast agreements and the goodwill of their trademarks. This is without doubt SA Rugby’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.

SA Rugby’s audit and risk committee meeting on the 12th next month and the Manco meeting on June 19 should be interesting because it is known that at least four Rugby Union presidents are fuming at the gross recklessness and negligence of Marinos in financially exposing SA Rugby and the 14 unions for the next six years and how this situation can be salvaged over the next 10 weeks as it appears further that Marinos’ naiveté is further impacting SA Rugby’s World Cup bid for 2015 and 2019.

SA Rugby is now horrendously caught between promises made to the South African ministry of sport vis-a-vis the Eastern Cape franchise to play in 2010 and the government’s financial guarantee for the RWC in 2015 and 2019, and the opposing bidders of England, Japan and Italy and their respective supporters drawn from the powerful lobby of the top eight rugby nations. They are already flagging the fact that if SA Rugby is unable to look after its own — read the sixth Super Rugby franchise — in a Super Rugby tournament but a scant 2 years away, how is it going to run a Rugby World Cup in 2015 or 2019? The answer is either SA Rugby can table a R3 billion RWC bid but are unable to put together a Super Rugby tournament for their own unions or that this is a deliberate oversight by SA Rugby. Both answers are fatally flawed for SA Rugby and undermines its future.

Worse still for the 14 SA Rugby Unions is that the Currie Cup will have to be re-jigged into a six-team premier division format in 2010, in which the six teams are the six South African franchises, with the top five of these six franchises to make up the five South African teams, which will advance to the Super 15 in 2011. This will be a hard horse pill to swallow for the two unions relegated, so the stage is set for some bruising fighting among the SA Rugby union presidents, finance committee, audit and risk committee, competitions committee and Manco, all just as the British & Irish Lions Tour is under way and with an international media contingent in attendance for the next eight weeks.

The New Zealand and Australian media are trumpeting that O’Neill “has done it again” and vanquished the South Africans. In yesterday’s Sunday Star Times they declare that O’Neill emerged as the big winner after the Sanzar alliance came to agreement this week.

Tew confirmed the alliance will split its future revenue three equal ways. In the previous broadcasting deal brokered with News Ltd in 2004, Australia received about 29%, New Zealand 32% and South Africa 38%. However, with the spoils split three ways, as are costs, that should result in a big windfall for the cash-strapped ARU.

The South Africans still bring in “well over 50%” of the Sanzar broadcasting revenue, Tew said.

“We argued last time that it should have been a third, a third, a third. We ended up conceding some percentage points to get South Africa across the line in 2004.

“I think now everybody agrees the new model is fair. If we fell back to the previous model we would have lost money and we were not willing to do that.”

Assuming broadcasters are at least willing to pay what they have in the past, New Zealand should finish better off than in the past. There’s every indication that will happen, according to Tew. Sanzar has hired well-regarded broker Ian Frykberg to sell the rights.

Perhaps Marinos’ comments to Fairfax Media reported today are more revealing in that they indicate how he has subordinated South Africa to Australia and New Zealand for the next six years.

“If we are going to have any further expansion to Super Rugby we have to make sure that it is good from a rugby perspective and that it can obviously wipe its own face. A sixth team is a reality in South Africa and it has long been on the table with Sanzar that we need to produce and put forward another team out of here. But again, we have to balance that and make sure that we have the player quality and strength to support it. New Zealand and Australia will throw their hats in the ring in the expression of interest too. But again, that’s a Sanzar decision that has to be made in the best interests of Sanzar and the best interests of rugby to make sure that we don’t have a franchise that in a year’s time will fall over because it can’t sustain itself.”

I can tell you now that the Southern Kings franchise stakeholders: the government, the Metro, plus the presidents of Eastern Province, Border and SWD certainly do not share these views and if anything, by SA Rugby surrendering the 15th Super Rugby franchise and R150 million, it has firmly placed the sustainability question of SA Rugby and the 14 unions in front and centre stage as the South African teams are now being asked to do more, with less.