New Zealand is rightly proud of its rugby prowess, but the game's financial performance doesn't always match success on the field. Newsroom's Business Editor Nikki Mandow looks at what makes New Zealand Rugby tick as a business.
Imagine a company where you make $33 million profits one year selling a single $40 million gold-plated widget, and then haven’t got a chance to sell another such widget for 12 years.
Imagine selling a consumer product that you know your customers love, but where you don’t have a clue how they will consume it, even three years in the future. (Will they eat it? drink it? smoke it?) And imagine trying to run a profitable business when you know that the years when your staff are busiest, you are guaranteed to lose money.
New Zealand Rugby is just such a beast. It announced a record-breaking $33.4 million profit last week that was a direct result of the successful (financially at least) British and Irish Lions tour last year: a 10-match, three-test, rugby bonanza that netted the organisation an additional $40 million on the bottom line.
And which, incidentally, boosted New Zealand’s GDP by an estimated $245 million.
Trouble is, this bonanza only happens once every 12 years.
Then you have the problem with how your customers will consume your product. At the moment most New Zealanders get their rugby live at a stadium, or via a TV provider. At the moment it’s Sky TV. In an average year, NZR receives more than 50 percent of its revenue from TV rights, though it’s a bit less in a Lions year.
NZ Rugby’s existing broadcast arrangements with Sky TV don’t run out until 2021, but chief executive Steve Tew says the organisation is already beginning to think about what the media and internet environment will look like further out.
“Preparations are underway. We are continuing to work really closely with our long-term partners, including Sky. But we are open to all offers. At the end of the day, we need competition [to get the best deal]. During the last negotiations there was intense competition and it would be great if there were two or three players having a crack," Tew says.
“There are lots of opportunities, but sports content sales is a complicated business," he says.
They suggest Amazon is in the market to bid for rugby broadcasting rights for 2021 and beyond
Tew is right. By 2021, when NZR’s contract with Sky runs out, the media landscape could be drastically different. Will viewers still watch via a television-style platform? Will everything be streamed via the internet? Netflix Sport anyone? Or could sports fans be buying their rugby from a former books retailer? Don’t laugh. Commentators and analysts have suggested NZR’s recent tie-up with internet giant Amazon to make a documentary about the All Blacks, likely to be shown on Amazon Prime Video in the second half of this year, is a precursor to other deals.
They suggest Amazon is in the market to bid for rugby broadcasting rights for 2021 and beyond. Which is a huge opportunity for NZ Rugby, given what they most like when it comes to selling broadcasting rights is plenty of competitors with deep pockets.
Amazon recently announced a US$3 billion net profit for 2017, on sales of US$60.5 billion. By contrast, Sky TV upped its first half profit to $66.6 million, and announced worrying figures on customer losses to cheaper on-demand rivals. Sky also said it was halving its interim dividend, which potentially gives the TV company a small war chest for what could potentially be an expensive battle over rugby rights.
Could NZ Rugby go it alone?
A third option for NZR is to consider is going it alone, which would mean selling the rights to watch matches direct to consumers.
This isn’t a totally crazy idea. Other sports codes do it. Fans of the British football club Chelsea have the option watch their club’s matches via a subscription to Chelsea TV. The North America-based National Basketball Association also has its own online TV channel, with games, stats and player interviews. It’s probable that quite a few Kiwi rugby fans fed up paying big bucks for (say) golf, snooker, and synchronised swimming in Sky sports packages might be interested in logging onto AB TV and buying just the games they want. One at a time maybe.
As a toe in the water in terms of selling individual games, NZ Rugby teamed up with Sky TV in November last year to stream four matches, charging $18.99 for games featuring the All Blacks and $8.99 for games played by the Maori All Blacks.
More than 1000 people in total paid to watch the games, according to a Sunday Star Times report. The company also surveyed fans about what they might pay to watch an All Blacks match against a first or second-tier opponent, on a "sliding scale" between nothing and $100.
Chief financial officer Nicki Nicol says at the moment NZ Rugby has no plans to go it alone, in terms of broadcasting games. Thorny issues remain, like who would actually film and produce the matches, if NZR didn’t sell rights to a TV player.
Still, they haven’t ruled it out. And over the next couple of weeks, the company will host visitors from the NBA…
Nicol must wonder some days about the wisdom of leaving the (relative) stability of handing the annual accounts for an oil company (she worked at BP in New Zealand and Australia before joining NZ Rugby).
“Lumpy profits” is how she describes it, which might be considered an understatement. You might think, for example, that Rugby World Cup years would provide a great boost to the company’s bottom line. Not so.
NZR will spend $10 million more than it receives next year ... which means eking out the profits from the good times to cover the losses from the lean years.
Tew has in the past criticised the International Rugby Board for the way it handles world cups, including rules which ban teams from having any association with their sponsors for the duration of the tournament. The IRB argues national sponsors could compete with World Cup tournament sponsors. Tew says the financials just don’t stack up in world cup years.
Tournament winners, but financial losers
“Our income is down because we host fewer games, and fewer games means less money from broadcasting rights. There is the issue of our commercial contracts, and during world cup years the team needs more love and care,” Tew says.
In 2011, Tew threatened to pull out of the 2015 competition in London unless the IRB changed its rules. The board does now make a compensatory payment to competing nations, but it’s not enough.
Nicol estimates NZR will spend $10 million more than it receives next year, when Japan will host the RWC. Around $180 million of expenditure, as against $170 million of income. Which means eking out the profits from the good times to cover the losses from the lean years.
"We are always conscious of that. We have to be selective around the programmes we support and make sure we aren't making too many future commitments that we can't sustain."
Nicol says outside-the-square business development opportunities are increasingly an additional source of revenue for the organisation. Just before Christmas, NZR announced a partnership with Ngai Tahu Tourism to launch an All Blacks Experience attraction at Sky City, opening in 2019. It also did a deal with Apple to make All Black play lists (the sort of music the ABs listen to in the gym, in the pre-game pump up or the post-match wind-down) available on Apple Music.
Nicol, who has a background in marketing as well as accounting, says the big opportunity is leveraging the intellectual property in the All Blacks brand, for example through international sponsorships.
An opportunity in e-sports?
Or could NZR harness opportunities in e-sports - competitive video gaming? Now there’s an idea. Basically, e-sports are organised, multiplayer tournaments often involving professional gamers who sit in front of their screens battling for prize pools which can be in the millions. They are watched by audiences which can also be in the millions.
It’s hard to get your head around how e-sports links with real sports, but imagine the two running in parallel, with a club’s e-sports team bringing in new fans, additional sponsors and (clubs hope), more money.
It’s a rapidly-developing universe. Just before Christmas, UK football team Manchester City signed its second professional FIFA e-sport player. Marcus ‘Expect Sporting’ Jorgensen will be City’s dedicated PlayStation 4 player in the FIFA Interactive Club World Cup – a new tournament solely for FIFA players who represent professional football. There are rumours of multi-million dollar kitties for other English football clubs to buy e-sports players.
Across the Pacific, National Basketball Association franchises are this month selecting five person e-sports teams to take part in the inaugural NBA 2K League. The players will get a proper contract and sponsorship deals, just like NBA players do. And NBA is looking at how media rights will work.
Now sporting code e-sports are heading down under. Late last year, the Australian Football League announced it was moving into e-sports. Now it looks like NZR is considering going the same way.
“The All Blacks have massive followings on social media – Facebook, Instagram,” Nicol says. “We are looking at how we can use that to enhance our core base.”
NZ Rugby’s content general manager Nick Brown has met with Manchester United e-sports people, Nicol says, and e-sports will be on the agenda at the meetings with NBA innovation and technical people when they visit.
You wouldn’t get that working at BP.