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Moneyball: how is your club placed?

Discussion in 'News' started by Chip and Chase, Aug 31, 2013.

By Chip and Chase on Aug 31, 2013 at 11:19 AM
  1. Chip and Chase

    Chip and Chase True Supporter Staff Member Administrator Premium Member 2016 Tipping Competitor

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    We all know how our team is going on the field but what about off it. Finance journalist and former fund manager Matthew Kidman crunches the numbers.

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Discussion in 'News' started by Chip and Chase, Aug 31, 2013.

    1. Chip and Chase

      Chip and Chase True Supporter Staff Member Administrator Premium Member 2016 Tipping Competitor

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      We all know how our team is going on the field but what about off it. Finance journalist and former fund manager Matthew Kidman crunches the numbers.


      The collective health of the 16 clubs in the National Rugby League is fragile and there needs to be a concerted effort not to waste the funds from the new billion-dollar broadcast deal on higher player payments.

      Only two clubs - the Brisbane Broncos and North Queensland Cowboys - can claim to be financially self-sufficient from footballing revenues - sponsorship, merchandise, gate receipts and the NRL grant. The other 14 clubs all require regular cash injections from between $1 million and $5 million from supporting leagues clubs or generous backers just to break even. This is not sustainable in the long run.

      In recent years Newcastle, Wests Tigers, Souths, Penrith, Cronulla, Gold Coast and Melbourne have faced financial difficulties that threatened their existence. On each occasion new funds, a revamped ownership structure or, in Penrith's case, an administrative structure, were put in place to secure survival. The same vulnerable environment exists with virtually all clubs except the Broncos, undercapitalised as standalone entities. This means most football clubs are not financially robust enough to sustain any significant setback. You only have to look at the situation at Cronulla where the Australian Sports Anti-Doping Authority investigation could result in massive legal bills to comprehend the tenuous situation. Newcastle, Cronulla, Wests Tigers and Manly are under financial stress and may require support from the NRL at some time in the next few years.

      Compared to the AFL, the financial performance of the NRL clubs is underwhelming. Even the Broncos generate less than half the revenue of Collingwood despite having a city of 2 million people to themselves.

      Under the new NRL broadcast deal, the grant from the NRL will range from 20 per cent of overall revenue for the Broncos to 45 per cent for the smaller clubs. This is up from 15 per cent to about 37 per cent.

      This is a golden opportunity for the clubs to take a financial step forward after years of struggling to meet yearly costs. The reality is that NRL players, even under the new TV rights deal inked earlier this year, are overpaid. They simply don't generate the revenue needed to cover all the costs for a club to remain competitive.

      The NRL should be looking to shore up the financials of the clubs. One possible option could be to enforce a minimum amount of liquid assets on the balance sheet of each club at all times. If the club drops below this minimum amount it would have a 12-month window to reinstate its position or face sanctions such as suspensions.

      The NRL clubs can be split into five financial categories. On the first level are the Broncos all by themselves. The second level consists of the Cowboys and Bulldogs - presently self-funding and have no major debt burden to cover. The third category includes Canberra, Roosters, Parramatta, St George and Penrith, all of whom have major leagues clubs behind them to make up for their annual deficits. The fourth group is the largest and includes the Gold Coast, Newcastle, Manly, Souths, Cronulla, Wests Tigers and Melbourne. These seven clubs require the football team to perform exceptionally well on the field to remain viable in the long run.

      The final category is the Warriors - a jewel in the NRL crown and one which should be a protected species.

      Broncos

      The Broncos are in a league of their own. They generated a healthy $32 million of revenue from football-related activities in 2012 and posted a net profit of $2.1 million.

      The company has stated it expects these numbers to grow in the 12 months to December 2013.

      Brisbane has a staggering $15 million in cash on its balance sheet and negligible debt. Given its finances, the club can outspend its rivals by about $12 million per annum on football operations. Despite its envious position, the company is cautiously optimistic about the future. "Our financial position is currently sound and we are optimistic about our future" said chief executive Paul White.

      Bulldogs

      The Bulldogs football team posted revenue of about $16.5 million in 2012 from their footballing operations. This will fluctuate with performance but it is almost enough to support the club without external assistance. In addition, the football club is supported by an incredibly successful leagues club operation that has no debt, more than $100 million of assets and is cash-flow positive. If there was no salary cap the Bulldogs could easily spend $2-3 million more on their players, even after the latest lift in the salary cap.

      Cowboys

      The football club generated a very respectable $18.5 million of revenue in 2012, resulting in a small profit of $155,000. Although a subsidiary of the Cowboys Leagues Club, the football team is financially independent. Boosting the revenue line are grants received from the federal government for work in the community, especially with the indigenous population. It would seem the Queensland clubs have successfully managed to make federal government grants a major fifth line of revenue.

      Cowboys management expects the football club to generate more than $20 million of revenue this year, with community work and an increased NRL grant driving the impressive growth. Management is rapidly improving the club's balance sheet and is confident of posting strong profits when the football team performs on the field. "We are very confident in our ability to improve our financial position and move forward with no reliance from outside help" said Cowboys chief executive Peter Jourdain.

      The Cowboys Leagues Club is cash-flow neutral and has net assets of $5.1 million. The leagues club is enjoying a strong year of trading and despite having total debts of $9.7 million there is little immediate concern about the funding.

      Dragons

      The Dragons are in the fortunate position of being supported by two leagues clubs as a result of the St George and Illawarra merger. Both clubs provide financial support to the football club to continue as a going concern. In recent years this has resulted in about $2-$3 million being forwarded to the football team.

      St George Leagues Club is flush with assets but carries moderately high debt levels and struggles to be cash-flow positive. The money being forwarded to the football club has gradually reduced in recent years as a result of the two leagues clubs struggling to produce excess cash.

      Dragons CEO Peter Doust believes the No. 1 priority for the football club is to wean off the leagues club support. "The Dragons business model has been dependent on growing revenues while the leagues club funding had to reduce year after year" he said.

      Eels

      The Eels, despite a recent woeful on-field record, are still able to muster about $14 million in revenue directly from the football operations. This is still well short of the more than $17 million the club spends on the team, a deficit that could shrink in years to come as the on-field performance improves.

      Standing behind the football team is the Parramatta Leagues Club, which typically ekes out a profit from its operations thanks to poker-machine revenue. The leagues club is rich in assets but still has relatively high debt levels. Nonetheless, it still had the ability to fund the football club to the tune of $3.3 million in 2012. In future years the Eels will need to somehow close this gap and work towards self-sufficiency.

      Chairman Steve Sharp thinks this objective is not far away. "There has been massive growth in sponsorship and membership in 2013. We are on the verge of securing some long-term sponsorship deals in 2014 and beyond" he said.

      Knights

      The Knights are owned by troubled mining entrepreneur Nathan Tinkler through his Hunter Sports Group. Tinkler bought the Knights in late 2011 and was forced to contribute $3.4 million to the group that year.

      The Knights do not have a leagues club to fall back on and it is highly questionable whether Tinkler will be able to contribute any further to the football club. Fortunately, the club states that it was able to secure a bank guarantee at the time the Tinkler deal was struck, giving the group some comfort.

      Just how this guarantee works is uncertain. Being in the hands of a bank is hardly an ideal outcome and the Knights will struggle to match other clubs in terms of clout. The footballing revenues have historically fallen short of costs by about $4 million a year. History could repeat with the Knights needing to be bailed out several times in the past.

      Knights chief executive Matt Gidley is realistic about the situation: "I think sustainability is the common objective for all NRL clubs. While we are not there yet we are very focused on the opportunities that lie within our business."

      Panthers

      All going to plan, the Panthers could become one of the stronger clubs in the NRL within a few years. The balance sheet of the football club has high debts but also a large asset base. Under Phil Gould's leadership the football club managed to lift revenue by about $1.7 million from 2011 to 2012. This meant the leagues club assistance was $4.7 million in 2012. The club is predicting this will fall to $3 million in 2013, still some way from washing its own face.

      For the moment though, the football team still depends on the financial support of its owner, the Penrith Leagues Club. The Panthers should be on par with the mighty Bulldogs Leagues Club, however a spending spree more than a decade ago, financed by debt, has threatened the group's existence.

      Under the leadership of group chief executive Warren Wilson, who has been in the job just under two years, debt has dropped from more than $90 million to just over $42 million. Interest cover has gone from barely one times cover to eight times cover, with the interest bill slashed and debt refinanced with ANZ. Leagues club profits have also been increased, which bodes well for the future. The Panthers are on the way back.

      Raiders

      The Raiders club has the support of a string of leagues clubs in the ACT and Queanbeyan housing more than 800 poker machines. The powerhouse of the group is the Queanbeyan Leagues Club, which has been instrumental in forming a property trust with more than $30 million worth of assets. The club has been able to fund the trust and retain a healthy balance sheet of its own. Profits from this trust can be distributed to the football club. This should see the Raiders football team continue to prosper in the coming years even though it is unsure how much debt is attached to the property portfolio.

      The Raiders football team has generated around $12-$13 million of revenue in recent years, making it one of the poorest-performing in the competition. This effectively means the football club is uneconomic and demands several million dollars from the leagues club and property trust for support each year. With no competition for funds in the nation's capital, this should stand the football club in good stead for some years to come.

      Rabbitohs

      From an operations point of view the Rabbitohs are possibly the best performing club, bar Brisbane, in the NRL. With the football team streaking the field in the competition and memberships soaring, the club should post a healthy profit in 2013 in the vicinity of $1 million.

      The concern for the Rabbitohs is the ownership structure and its long-term viability. The club has done it the hard way - without a leagues club with poker machines supporting it. As a result, unlike other Sydney clubs it does not have a property-rich balance sheet to support funding from a financial institution.

      Instead it has Russell Crowe and Peter Holmes a Court underwriting the future of the group. Since paying $3 million to get a controlling 75 per cent stake in the club, the duo has ploughed about another $6.15 million in through loans. This debt was restructured earlier this year to give the club some breathing room. The debt was extended, an interest-free period was introduced, and the value discounted because of the longer maturity date and change in rates.

      The Rabbitohs need to maximise their success and keep a lid on costs in a bid to meet its new debt schedule from 2015 onwards. Meanwhile, Crowe and Holmes a Court need to find a much larger funder to guarantee the group's long-term success.

      Rabbitohs chief executive Shane Richardson is proud of the club's recent achievements, saying "all this has been achieved without artificial funding which can be there one day and gone the next". The real test for Richardson and the clubs major shareholders will be if the club has some lean years on the paddock and the revenue falls away.

      Roosters

      The Roosters football team only managed to post revenues of about $12 million in 2012, requiring the Eastern Suburbs Leagues Club to inject $3.6 million to cover the full cost of running the football team. With a highly successful year on the playing field in 2013, the club is confident it can narrow the gap between costs and revenue. "We are in a much stronger position this year than we have been for many, many years, if not forever. It's important to note we still run at a loss as do most NRL clubs" said Roosters chief operating officer Ted Helliar.

      The Eastern Suburbs Leagues Club has the same board as the Roosters and therefore will always stand behind the team. The leagues club is cash-flow positive and has net assets of $49 million. This should ensure the football club continues to have a reasonably healthy future. If the leagues club were to fall on hard times the Roosters would be in trouble.

      Sea Eagles

      The bickering in the boardroom at Manly is well documented. This primarily stems from the ownership structure, which has the Penn family at 49.5 per cent, Quantum Energy 37.5 per cent and Manly Leagues Club at 13 per cent.

      The football team is a poor revenue generator and required about $1.5 million from its owners to survive in 2012, the year following a premiership win. Quantum Energy is a stock exchange listed company that has seen its share price fall 75 per cent over the last year because of poor cash flows. It is questionable whether the group can continue to fund its share of the football club's losses.

      This may place enormous pressure on the small Manly Leagues Club and the Penn family. The fragile situation has recently resulted in the Penn family floating the idea of selling its stake or buying out the minorities.

      The leagues club has limited firepower with high debt levels and anaemic cash flows. Just how deep the pockets of the Penn family are, and their willingness to step into the breach, is impossible to know. The recent promises for funding a new ground are hopeful but the club still is looking for several million dollars to get the project across the line, increasing the financial risk. A few poor seasons on the field could hit the club hard.

      Sharks

      The Sharks faced financial extinction before November last year. At the time the football club was only generating about $12 million in revenue and its owner, the leagues club, urgently needed to restructure its $13 million debt with St George Bank. In November the leagues club secured government approval for its proposed residential development on site. That allowed the leagues club to exchange short-term debt for longer-term debt to ANZ. The new debt structure only requires repayment upon the sale of apartments in the development - a terrific outcome. That could be some years away, though, and the tiny leagues club has a large interest bill to pay while the development takes place. In addition the risk with the development cannot be underestimated given that it is largely funded by debt.

      In the meantime, the football club only generates about $12 million in revenue, making it the poor cousin to other clubs. Like the Tigers, Cronulla will be eagerly awaiting the increase in the NRL grant to keep pace with much wealthier clubs. The ASADA investigation into the club's activities in 2011 may place the organisation under enormous pressure and once again threaten the group's financial stability.

      Storm

      The Storm have new owners following the sale by media outlet News Corp. The financial depth of the new owners is unknown, and only time will tell if they can make the highly successful football club a financial success. The Storm has been overspending to the tune of between $2 million and $5 million for 15 years. This shortfall has been financed by News Ltd and the amount spent by the club does not seem to be falling since the salary cap scandal in 2010.

      The Storm football club spends about $20 million a year, or about $2-$4 million more than most other clubs except for the wealthy Broncos. The new consortium of owners, led by New Zealander Bart Campbell, are projecting the club will break even in five years, which is a long time to be losing money. The Storm has risen to the top of the competition by overspending; if the club has to curtail its expenses it is very difficult to see the performance on the field continuing, placing greater financial stress on the group.

      Titans

      The group recently recapitalised under a new ownership structure, however the reality is that the club was broke after less than five years of existence and the NRL Commission needed to transfer the football license to a new entity. The team now has a license to operate in the NRL for another seven years.

      Given the corporate structure it is difficult to tell just how poorly the club was performing financially. The new ownership team of Darryl Kelly, Anshuman Magazine and Michael Searle are an unlikely bunch that will need to be prepared to write out multimillion-dollar cheques over the next seven years to sustain the club.

      The club says they have strengthened their position this week by announcing former NRL chief operating officer Graham Annesley as the new chief executive.

      "The Titans have made small profits in four out of the seven previous years" Kelly said.

      "At the end of the day we rely on sponsorship, membership, corporate sales and game-day attendances as our only sources of revenue as opposed to other clubs who have the backing of major leagues clubs and their injections of cash"

      "I believe this is the NRL club model of the future if clubs are going to be self-sufficient and sustainable long term . . . our new competitors [the Gold Coast Suns] are bankrolled by the AFL"

      Warriors

      The New Zealand Warriors are a privately-owned company which is not required to publicly release its accounts, making it impossible to assess the financial health of the club. As a result, the club faces the same difficultly as other privately-owned clubs of having to shell out millions of dollars in poor years.

      Importantly, though, the Warriors along with Brisbane are the most important club to the NRL. The team alone can lay claim to raising approximately $15 million a year in broadcasting revenues in New Zealand. It has also become the gateway for the largest source of young players entering the competition. It would be wise for the NRL to ensure the Warriors remains a healthy franchise.

      Wests Tigers

      As has been widely reported, the problem for the Wests Tigers is not so much its financial clout but the unravelling ownership structure. The club is owned in equal parts by the Balmain Tigers and the Western Suburbs Leagues Clubs at Ashfield.

      The Balmain Tigers' financial woes are well documented and they have recently failed to meet their financial commitments to the football team. The Tigers are under severe financial strain with operating losses and negative assets. The group has about $9.5 million of debt and desperately needs to find a way to develop its property at Rozelle to pay this down. At the moment, though, the Tigers have a severe cash-flow problem.

      Meanwhile, the Wests side of the ledger looks sturdy with strong cash flows and significant property assets.

      Balmain are hoping the football team will be self-funding once the NRL grant is increased on the back of a new five-year $1 billion telecast deal. This will place the football team under pressure as other teams will rapidly spend the increased funding on new playing talent.

      A more likely outcome, given the penchant to remain competitive, will be for Wests to take control of the joint venture.

      Read More:
      http://www.smh.com.au/rugby-league/league-news/moneyball-how-is-your-club-placed-20130830-2swhv.html
       
    2. Chip and Chase

      Chip and Chase True Supporter Staff Member Administrator Premium Member 2016 Tipping Competitor

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      It's a long read, but certainly very interesting to see the precarious financial state of the majority of clubs. The private ownership model is years off if this is any indication. There is no way that anyone is going to invest in an NRL club as a profit making venture based on this research. We are lucky that we have generous benefactors willing to tip in to keep the club alive.

      Also it's amazing what an advantage the Broncos have but it's not realised in results. With the amount of money they have at their disposal it's a testament to the success of the salary cap that they don't blow everyone off the park every season. What I don't understand though is that the NRL keep propping up this imbalance by giving them prime time Friday night exposure just about every week.
       
    3. Brissie Kid

      Brissie Kid Well-Known Member

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      Except is based on a dopey premise. When and where has running a football club every been predicated on turning a profit? Leagues clubs were made to fund RL clubs. No one ever suggested the RL club could ever or should be able to fund itself.
       
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    4. COMMANDER

      COMMANDER IF YOU DO NOT TRY YOU CAN NOT FAIL 2016 Tipping Competitor

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      I have the Bronc's as a customer of mine. Walking into their office is like walking into one of the bigger law firms.

      They have now been gifted a sweet property deal to acquire the old TAFE across the road from them to expand into, and will be given either three million or five million as a grant (fancy either party giving a company owned by News Ltd) to facilitate it.

      Talk about the have's and the have not's in the NRL. Brisbane if they were inclined to could start paying massive transfers for players, and have unlimited third party money to top up player payments.
       
    5. Chip and Chase

      Chip and Chase True Supporter Staff Member Administrator Premium Member 2016 Tipping Competitor

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      Well if you want to encourage the private ownership model then I would assume that the premise of making a profit isn't that dopey. There's not an endless supply of Russell Crowe's out there. It'll be interesting to see how long the Storms new owners put up with making losses.
       
    6. Brissie Kid

      Brissie Kid Well-Known Member

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      I agree that the time is changing & people want their club to pay its own way.

      I find it hard to feel sorry for them though when the clubs don't even pay for their players any more. The NRL salary cap grant does that.

      How can clubs not be making money? Science units?
       
    7. The Who

      The Who Well-Known Member

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      And so, when the question of "where should the NRL expand to" the obvious answer is "Brisbane". That city of 2 million could support at least another two clubs. And wouldn't it be refreshing to not have to watch the Broncos every Friday night?
       
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    8. globaleagle

      globaleagle Où est mon chapeau Premium Member 2016 Tipping Competitor

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      What I wanna know is how do I get a bigger version of the pic used to advertise this story (on the right hand side of the page)??
       
    9. Brissie Kid

      Brissie Kid Well-Known Member

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      Be a good exercise to add up the Brisbane comp crowds in 1987 & then compare to the Broncos home attendances for 2013. I think 1987 would win.
       
    10. mozgrame

      mozgrame Well-Known Member

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      Maybe, but....out of 2 million people, how many are staunch league fans? There is a lot more national sports teams in Brisbane already for people there to follow. Just to name a few :

      Brisbane Broncos - Rugby League
      Brisbane Bandits - Baseball
      Brisbane Bullets - Basketball
      Brisbane Lions - AFL
      Brisbane Roar - Soccer
      Qld Bulls - Cricket
      Qld Reds - Rugby Union

      Brisbane is a city that loves sport no doubt, but not all of the 2 million people there are rugby league fans by a long shot.
       
    11. Kiwi Eagle

      Kiwi Eagle Moderator Staff Member 2016 Tipping Competitor

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      Brisbane haven't had a basketball side for a few years now
       
    12. mozgrame

      mozgrame Well-Known Member

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      True mate. I may have gotten ahead of myself there. The Bullets folded in 2008, but I read somewhere that the NBL will welcome them back next year for the 2014/15 year. I'll try find a link to that story.

      Found it. :)
      http://www.theage.com.au/sport/basketball/brisbane-back-with-a-bullet-next-year-20130820-2s8f0.html
       
    13. Kiwi Eagle

      Kiwi Eagle Moderator Staff Member 2016 Tipping Competitor

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      Yeah hopefully they will get a side back up and running there and get that comp firing again
       
    14. simon64

      simon64 Well-Known Member Premium Member

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      Soccer and Cricket are played in summer.

      And nobody gives a continental about baseball.
       
    15. mozgrame

      mozgrame Well-Known Member

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      And as sure as there is **** in a cat, there is no way in the world 2 million Brisbane people are all in love with league either.
       
    16. Big Bird

      Big Bird Member

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      Bloody good articule. "Silver-tails", my arse....and then we blew the Storm away.....F**K YEAH!
       

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