The madness of a sports body, whose main purpose is to facilitate the playing of a sport for amateur participants, paying one executive such a grossly inflated wage gets to the heart of the problem professional rugby is suffering worldwide.
The sport is being gripped by aspirations to corporatise its executive leadership and incentivise them with pay packets that are comparable to the best-performing private-sector heavyweights.
It seems to be driven by a conviction that rugby has a revenue-generation problem – one that it can solve by dropping millions on executive pay packages to lure the brightest commercial stars.
But it’s only another flawed and ultimately doomed concept that has been drawn from what appears to be an almost-bottomless well of bad ideas and disastrous misreads.
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Rugby does not lack revenue, but it has a dangerously out-of-control cost-management problem.
It has allowed its ambition to dictate spending that is way beyond its means and, far from saving the game, this culture of paying over the odds for leaders is plunging rugby further into debt and creating yet greater disconnection between its executive and the community game it serves.
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New Zealand is caught up in this culture of excessive pay, with the annual accounts showing the number of executives on the payroll jumped from nine in 2022 to 13 in 2023, and their total remuneration lifted from $4m to $6m.
Those numbers show the average remuneration package per person increased from $444,000 in 2022 to $467,000 in 2023 and yet New Zealand Rugby (NZR) posted significant financial losses in both years – $47m in 2022 and $9m in 2023.
The total amount paid to board directors almost doubled in 2023 to $1.4m from $800,000. The increase came mostly from New Zealand Rugby Commercial (NZRC) – the separate company set up to manage the game’s commercial assets – which, having spent $164,000 on director fees in 2022, saw that rise to $706,000 in 2023.
The NZRC fees don’t benchmark as excessive when compared with companies that have a similar turnover, but there is an issue with why NZR is paying $1.4m to 14 directors.
By any measure, it’s a bloated governance group and the kicker, perhaps, is that there are two NZR board members by statute – at present Dame Patsy Reddy and Bailey Mackie – who serve on the NZRC board.
Maybe this heavy investment in directors and executives would be justifiable if it were driving income higher, but NZR’s revenue dropped to $267m in 2023 from $270m in 2022.
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There is a well-trodden corporate argument – pushed most notably by Fonterra when it paid $8m to hire Theo Spierings in 2011 – that the global market sets the rate for executive pay and ambitious organisations have to compete financially to get the best people.
Never mind that it has always been an argument perpetuated by weak boards that don’t seem to realise they are the market, but in rugby’s case, executive pay should be benchmarked against the finances of the specific organisation and not the packages offered to similar-sized corporations.
The Fonterra example aside, executive pay in the private sector is regulated by shareholders, who have real power to monitor and amend salaries, while watchdogs and regulatory bodies also provide external scrutiny.
Rugby’s stakeholders have no direct mechanisms to curb executive expenditure or demonstrate their unease with excessive pay.
The soon-to-be-installed new independent board at NZR will, therefore, have to determine whether there needs to be a significant reset to demonstrate greater recognition of the financial environment in which it operates.
To put the $7.5m that was paid out to directors and executives into a more relevant context, it is more than the $7.2m distributed to all the Heartland provinces combined in 2023.
Paying 13 executives an average of $467,000 when the organisation lost $9m also seems dangerously out of whack.
One of NZR’s main gripes during its first attempt to do a private equity deal with Silver Lake in 2021 was that the country’s professional players are paid too much.
While some of New Zealand’s best players are on packages of about $1m a season, it would be interesting to know how many are paid more than $467,000.
It won’t be much more – if it is more – than 13 players.
There is something wrong with the set-up if a growing executive class that has overseen the loss of $56m in the past two years is effectively better paid than the talent that is, ultimately, responsible for bringing in every dollar the game has.
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