An article by Corpwrite’s Anthony O’Brien for Acuity Magazine October 2015

As throngs of fans gather to watch the eighth Rugby World Cup (RWC) this year, it’s clear that the game played in heaven is behind its rivals in Australia.

The 48 matches of the Rugby World Cup (RWC), being played in England and Wales in September and October, are expected to reach a potential television audience of four billion in 207 territories. Compare that to the first RWC, in 1987, when the global reach was just 200 million.

EY predicts that RWC 2015 will be the fifth-largest sporting event of all time in terms of attendance, beaten by only the past four FIFA World Cups. Host nation England is predicted to enjoy a £2b economic boost due to an influx of more than 500,000 cashed-up international supporters, according to EY’s The Economic Impact of the Rugby World Cup 2015. Rugby union is played in 119 countries, which is significantly more than its closest sporting cousin, rugby league, which is played at some level in 42 nations. In 2014, rugby union’s global participation rate hit 7.2 million people and 460,000 children in 105 nations were introduced to the sport via World Rugby’s “Get Into Rugby” programme. The mighty All Blacks of New Zealand, who are firm favourites to win RWC 2015, continue to be one of the most recognised brands in world sport. Global specialist Brand Finance put the value of the side at NZ$108m after the AB’s won the RWC in 2011. This is close to the value of some of Europe’s top football clubs. Underlining the global strength of rugby union, Argentina, who achieved a creditable third place at the 2007 RWC in France, recently recorded their first win over powerhouse South Africa in the Southern Hemisphere’s Rugby Championship. The game is also booming in Asia, and Japan is set to host the 2019 RWC. Foxtel rugby union commentator and former Wallaby Rod Kafer says Japan, which will have a Super Rugby team in 2016, has a strong collegiate game as well as a strong professional competition. Those top teams are backed by some of Japan’s biggest companies including Coca-Cola, Yamaha, Suntory, Toyota, Toshiba, Canon and Panasonic to name a few. Despite these signs of expansion, the governing body, World Rugby, recorded a £1m loss in 2014, before International Financial Reporting Standards adjustments. And the Australian Rugby Union (ARU) has posted another deficit in 2014, the sport remains under commercial and player-recruitment pressure from its footy rivals the National Rugby League (NRL) and the Australian Football League (AFL) and even that other football, soccer, is picking up steam every year.

Falling to the fourth tier in Australia

Financially, the game of rugby union appears to be in a bit of a tangle in Australia, with the ARU recording a A$6m deficit in 2014. ARU Chief Executive Bill Pulver told the Australian Financial Review recently that the ARU and the five Australian Super Rugby franchises face a difficult 2015 and admitted the game has been close to insolvency. Last year’s loss came off A$100m in income. This year it’s headed toward losing a similar amount from revenue of A$75m. In comparison, the NRL produced an operating surplus of A$49.9m in 2014, and the AFL is on a totally different plane, with a A$316m surplus. New Zealand Rugby (NZR) managed to keep its books in the black for a third year running in 2014 with a profit of NZ$373,000. In former Wallaby Rod Kafer’s assessment, rugby union has slipped to the fourth tier of football in Australia. “Around 2003, when Australia hosted the fifth RWC, it may well have approached the second tier of sport in Australia and was close to rugby league, based on Nielsen research at the time based on viewers and attendance,” says Kafer. According to the ARU’s 2003 Annual Report, 4.3 million people in Australia and 14 million in the UK watched England beat the Wallabies in that year’s RWC final. This compares very favourably with the 4.1 million who watched the second State of Origin rugby league clash in 2014. “Viewers, people attending rugby, in 2003 were close to rugby league but it’s been a downward spiral since then,” says Kafer. The recent Bledisloe Cup game between the Wallabies and the All Blacks attracted 778,000 viewers across Fox Sports and Network Ten. In comparison, 16.578 million Australians watched the four weeks of the AFL semi-finals in 2014. This included the 3.634 million who tuned in to watch the Sydney Swans and Hawthorn battle it out for the 2014 flag. Rugby has undoubtedly lost ground on its rivals thanks to the big dollars being kicked in the direction of the NRL and the AFL. “Professional sport is driven by TV dollars,” Kafer says. “Because of the nature of support for AFL and NRL over the past ten years, along with their television rights deals, they have been able to occupy huge market share. “Rugby by virtue of its partnership with pay television hasn’t been able to capture the free-to-air market. This immediately limits you to the 30% of the population that has Foxtel, except for a couple of test matches that are televised on free-to-air each year. The game of rugby is just not that attractive to 100% of the Australian TV market.”

TV times

The NRL, which includes the New Zealand Warriors and 15 Australian franchises, is managed by the Australian Rugby League Commission. Early in August, the commission’s chief executive, former Lloyds Banking Group CEO, David Smith, announced a four-year free-to-air television deal worth A$925m. The deal with Australia’s Channel Nine covers the four main games (out of a total of eight) in each round plus feature games such as the NRL Finals series and Australian rugby league’s most profitable product, State of Origin. The deal, which takes effect in 2018, will help secure the long-term financial future of rugby league in Australia, according to Smith. “And we still have simulcast rights, pay television, New Zealand and international television rights to be negotiated.” The total deal for the NRL rights for the four-year period is expected to top $1.7b, according to Luke Maddison, a marketing strategist from Sydney-based Corpwrite Strategy and a former director of prospective NRL expansion team the Central Coast Bears. If the NRL deal wasn’t weighty enough, the AFL came in over the top a week later with a six-year A$2.508b broadcast rights agreement. The new deal will see Channel Seven (free-to-air), Foxtel (pay television) and Telstra (digital) continue as the AFL’s broadcasters from 2017 to 2022. The existing AFL broadcast deal was effectively worth A$250 million a year; the new deal is 67% bigger at A$418 million a year. “This agreement with News Corporation, the Seven Network and Telstra will allow us to make the right investment to keep our game strong,” says Mike Fitzpatrick, AFL Commission chairman. Alarmingly for rugby union and rugby league, News Corp Chairman Rupert Murdoch believes the AFL is Australia’s leading football code. “This is a very significant investment for us. We’ve always believed that this is the premium code in Australia – it’s the national game,” says Murdoch. Maddison believes that Foxtel will find some spare cash for rugby league despite its massive investment in AFL. “Rugby league as a television sport is unrivalled, meaning that broadcasters such as Foxtel need it as part of their offering,” he says. In comparison, the ARU has to get by on a relatively limp A$30m annually from its pay television broadcast rights deal with Foxtel. Due to demand in the UK for Super Rugby and international games in 2016, the television rights are reportedly set to jump to A$45m annually. “We are in the process of finalising our broadcast arrangements and it would be slightly premature to divulge any of the details but we have been delighted with the outcome of our negotiations, which will leave us in very good shape for the future,” says the ARU’s Pulver. “There are 11 separate broadcast agreements in negotiation across the globe, with the majority of revenue coming from the four SANZAR territories, the UK and Asian markets.”

Is there a future for rugby in Australia?

Head of Investment Strategy and Chief Economist at AMP Capital, Shane Oliver, compares the conundrum of two competing rugby codes to the car industry. “How many car brands can you sustain? And the answer is that it depends,” says Oliver. “We’ve had two rugby codes for more than 100 years. The two codes have survived for a long time. If both codes have the same market aspirations to achieve the same level of reach then it won’t work, because once one gets a critical mass, like rugby league has in Queensland and NSW, it tends to squeeze the other one out.” According to Kafer, the strength of rugby is that it’s a boutique sporting product. “We flirted with the idea that rugby should be all things to all people in Australia, like league and AFL. Over the past ten years we’ve alienated our core supporter base, to some degree.” In the early 2000s, rugby union in Australia went down the path of signing up high-profile rugby league players such as Wendell Sailor, Lote Tiqiri and Matt Rogers. England also latched on to league star Jason Robinson, and the four players featured in the 2003 RWC final in Sydney. “That was the start of the decline for core supporters in Australia. This approach disenfranchised them,” says Kafer. Oliver believes there is a way forward for rugby union in Australia. “It just needs to have smaller aspirations, lower player salaries, smaller venues,” he says. “It’s not possible to sustain two rugby codes at the same level, as they squeeze the advertising dollars from each other. However, if the game in the Southern Hemisphere is getting offshore demand from the Northern Hemisphere, that will be a big help to rugby. “If they want to maximise their income, you’d probably merge the two to do the best globally.” Rugby Sevens will be absolutely critical for the future of the sport, according to Kafer. Rugby union, in its abbreviated Sevens format, is returning to the Olympics in 2016 for the first time since 1924. With a gold medal up for grabs, Olympic Rugby Sevens is certain to attract the attention of a wider global sporting community to rugby. New Zealand, the reigning HSBC World Rugby Sevens champions, will be the gold medal favourite. “One of the biggest advantages of getting Sevens into the Olympics is that it’s a men’s and women’s sport,” Kafer says. “This is big, as women’s rugby hasn’t been all that well funded in the past. “Women’s Sevens players don’t just become additional people in the game, and supporters. They’ll be mothers of children who become rugby players. It’ll bring new people into the game. Many of the current women on the international seven circuits have never played rugby. They come from touch football, Oztag, basketball, rowing, and athletics. They’re not rugby people. But for the rest of their lives they’ll be rugby people operating in schools and clubs in the rugby community.” There are a significant 1.76 million women now participating in fifteens and sevens rugby union, and the 2016 Brazil Olympics will host a women’s Sevens tournament for the first time. “We’ve had instances of sports that have not been popular in Australia. They’re well regarded overseas or our athletes do well at the Olympics and Australians latch on to this success. This could happen with Sevens and create a global market for rugby,” AMP’s Oliver says. When businesses are strapped for cash, they look for new ways to create revenue. One of the ARU’s recent new offerings may also foster future players. “The ARU has invested in Aviva Sevens,” says Kafer. “It’s like touch football with components of rugby such as kicking.” Martin Lenehan, the editor in chief of Rugby League Week, says rugby union has a fight on its hands to keep kids in the game, with soccer making huge inroads. “That said, if you want to see the world, you have the international rugby Sevens circuit, which is something to aspire to as a professional sportsman.” Ultimately, the future may in part depend on whether the Wallabies, who were RWC champions in 1991 and 1999, can improve their win/loss ratio, which would translate to stronger numbers for the ARU. “The Wallabies haven’t beaten the All Blacks for 13 years in a Bledisloe Cup series. A change in on-field fortunes could help the bottom-line finances,” says Lenehan. Some are suggesting that private ownership could be used to help underpin the financial sustainability of rugby union in Australia. “Typically a passion for the sport is central to decisions to invest in sporting teams,” says Oliver. “People say it’s an investment but most of the time investing in professional sporting teams doesn’t stack up. People buy football teams because they are passionate about them. You wouldn’t do it as a business venture. It would be a very risky investment. The owners who do well seem to have a degree of luck.”

Rugby’s rosier future

Pulver sounds a positive note about the sport’s financial future. “From rugby’s point of view, in the past 12 months we have taken a number of measures to remain solvent, which unfortunately involved funding cuts across all areas of the game from grassroots through to the Wallabies programme. The new broadcast agreements will significantly strengthen our financial position and provide us with the impetus to reinvest in grassroots rugby, fund Australian Rugby and our Super Rugby teams appropriately and enable us to build a future fund for the game.” Rugby diehards can be certain of at least one thing: globally, the future of the game looks assured. In Europe and Japan, television rights deals are massive and World Rugby has committed £330 million between 2009 and 2016 to increase the sport’s competitiveness, attractiveness and participation rate. “The global nature of the game certainly adds to the appeal of rugby for players and we have the Rugby World Cup, which just continues to grow in stature and is genuinely among the top three sporting events in the world,” said Pulver. Perhaps this international growth just might help secure a future for Australian rugby. “Rugby will always survive in countries such as Australia because there are people who are passionate about it and are just rugby people,” says Kafer. “The growth of rugby is really coming out of the television rights deals for viewers in the Northern Hemisphere to watch the game down here. The global game is a windfall to Australian rugby.”