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|  | rugby league .. NRL in trouble
« Thread Started on Feb 7, 2009, 9:13pm » | |
Tough times ahead as crisis hits clubs
Adrian Proszenko | February 8, 2009
PARRAMATTA chief executive Denis Fitzgerald says he is open to offers to privatise the club amid fears some NRL teams may not survive the global economic crisis.
The financial downturn has already had a severe impact on rugby league, with several clubs reporting that sponsors have either pulled the pin or are struggling to fulfil their commitments. While there are no current expressions of interest in buying into the Eels, Fitzgerald confirmed privatisation could be an option to ensure the club weathers the financial storm.
"Sure, we're open to that possibility, or part thereof," Fitzgerald told The Sun-Herald.
"There's a big question mark over [whether teams survive]. Clubs will possibly have to opt out of the NRL or more seriously look at a joint venture.
"They may even have to look at private ownership, although that hasn't proven to be overly successful in terms of dollars.
"Manly won the comp, but I don't think [co-owners] Max Delmege and Scott Penn made a profit.
"It's tough at Souths, with [co-owner] Russell Crowe instituting various measures to save on costs."
Leagues clubs, for so long the lifeblood of Sydney teams, are already near breaking point due to the impact of the new smoking legislation and poker machine taxation. A survey of 34 leagues clubs - seven of them licensed NRL leagues clubs - conducted by accounting firm PKF last year found revenue had fallen $56 million (6 per cent) over the past four years. The report, commissioned by Leagues Clubs Australia, also revealed:
* 41 per cent of clubs face financial distress based on EBITDA (earnings before interest tax, depreciation and amortisation);
* In 2004, 70 per cent of leagues clubs posted a net profit, while only half that number were expected to do so in 2008;
* For 10 clubs, five of which are NRL associated, the financial distress is labelled "serious" or worse. Should they collapse, 2230 jobs will be lost and senior league funding will fall by $7 million.
The figures clearly underline the need for NRL clubs to pursue other revenue streams to ensure their survival. However, sponsorship dollars, another crucial source of income, are increasingly hard to secure in the current climate.
The Bulldogs are resigned to starting the season without a major backer, the Panthers' sleeve sponsor is in administration as is ISC, the company that outfits half a dozen NRL sides. Several clubs contacted by The Sun-Herald confirmed some sponsors are also struggling to pay up.
The good news for the NRL is that it has extended agreements with major sponsors Harvey Norman, Toyota, VB and Bundaberg Rum. About 80 per cent of the game's revenue - from broadcasting deals and major sponsorships - has been locked in until 2012. "Right now, we've had no indication from any of those major sponsors across the game that they're going to change their investment based on economic circumstance," NRL marketing manager Paul Kind said.
But what if those companies can't afford to pay?
Harvey Norman boss Gerry Harvey said he had every intention of continuing his long-time association with rugby league. But the retail king admitted that, if things got really tough, the bottom line would come before his love of league.
"At the end of the day, love goes out the door," said Harvey, whose retail chain sponsors the State of Origin series.
"Love stays around as long as it can, but when it becomes desperate, even love goes out the door.
"We haven't reached that stage, we're nowhere near that. We wouldn't pull anything out of rugby league, I wouldn't think, because we're closely wedded.
"If things got desperately bad it could be a different story, but we're not at that stage."
Harvey said all companies were cutting costs and sports sponsorships were in the firing line.
"Charities, sponsorships, wages, advertising, general costs - they are the five things that everybody looks at," he said. "Across the board, most people are looking at those sort of things and saying, 'This will be a pretty difficult year for all sporting bodies and charities.'
"This would be one of the most difficult years in the last 20, I'd say."
Even players are nervous. Several have contacted Rugby League Professionals Association boss Matthew Rodwell to check on their entitlements should their club fold.
Fitzgerald, meanwhile, said the best way for players to secure their future would be to take a pay cut. The Parramatta supremo caused a stir last year when he called for the salary cap to be lowered. His opinion hasn't changed.
"That would be terrific," Fitzgerald said. "Obviously that's the major part of our costs in terms of player payments. There's just not enough money to keep things going the way they were.
"I think it should come down progressively by 20 per cent over three years."
Instead, the cap will rise slightly this year, by $100,000, and there are no plans for it to go backwards.
"I don't think lowering the cap is an option," NRL chief executive David Gallop said. "In terms of clubs, our salary cap system is more important than ever and thankfully we didn't listen to those who sought to undermine the importance of it over the years."
Sydney clubs in particular are struggling and some may not be able to spend up to the limit of the cap. As far back as May last year, Dragons boss Peter Doust indicated that financial pressures may prevent the joint-venture club from spending to the limit. Recent global developments are unlikely to improve that outlook.
And even though the Panthers group have expanded their asset base by $90 million during the past five years, group boss Glenn Matthews, part of a committee lobbying the State Government for poker machine taxation relief alongside Fitzgerald, added: "Whether we formally lower the cap or whether clubs do it themselves, directors have a responsibility to ensure the solvency of the organisation.
"If we have a lowering of revenue from sponsors we'll have to lower our expenses, and the big chunk out of our expenses is the salary cap."
Matthews said he hoped the State Government would offer clubs some taxation relief.
"The government understands there's a serious problem there," he said. "Importantly, there is no longer any argument about the figures any more."
The great unknown will be whether cash-strapped families walk through the turnstiles or cheer their team from the comfort of their lounge rooms.
Sea Eagles chief executive Grant Mayer said the challenge was to provide supporters with unique game-day experiences.
"We're concerned about the effect on game-day crowds," he said. "We tend to think, globally and historically, that's where sports have been affected.
"I would never say it's doom or gloom, because rugby league and sport are an outlet for people."
Supporters are expected to pay closer attention to ticket prices, although NRL marketing manager Paul Kind dismissed suggestions of capping ticket prices at $10 to ensure bums on seats.
"I don't think any of our clubs are overpriced; we've always been a well-priced sport," Kind said.
The Eels are down 20 per cent on sponsorship income compared to this time last year. Their arch rivals, the Sea Eagles, are one of the few clubs to have made gains on that front, forecasting a 5 per cent increase.
The fact they have the premiership trophy in their keeping has helped, and the two families that played a part in delivering it believe more clubs will follow their privatisation route. Multi-millionaire businessmen Delmege and Penn predicted clubs could put the "for sale" sign up in 2009.
"There's no question all the clubs will struggle this year," Penn said.
"Some of them may have to entertain private ownership models or find wealthy individuals to support them, given the traditional financial support from leagues clubs and registered clubs aren't doing the business to support the revenue needs of the football clubs."
Delmege added: "After 45 years in property, this would be the most difficult time I've ever seen.
"I've been through overseas currency [crises], 20 per cent interest rates, all sort of things … but this has caught us on the back foot. I think you'll see some more privatised this year, or attempts to privatise."
The stockmarket crash has had massive ramifications for rugby league. Delmege, however, wants to follow through with plans to list the Sea Eagles this year.
"I certainly see that as something that would come more in the near future than the distant future," he said. "If we went down that route and coupled it with real estate, it's a beautiful investment for the members."
However, there are no guarantees. Fitzgerald wasn't prepared to give one when asked if the Eels would survive the global economic crisis. "I'm not in a position to give any guarantees," he said.
"We're taking all sorts of measures to reduce cost and measures to raise revenue. Things are very tough. I can't give any gilt-edged guarantee that we'll be around. I'm confident, but there are no guarantees."
In the past, the NRL has intervened to prevent clubs from going to the wall. Would they be prepared to do it again?
"No club is currently expendable," Gallop said. "We need to provide eight games a week to television and we actually benefit from our saturation in Sydney.
"It would be something we'd have to look at and consider the extent of the trouble the club is in and the impact on the game's overall position. We're not holding a blank cheque but we're also very conscious of the damage that losing a club can have."
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