Have a go at this clown on "the Roar"

[travelling_gerry]

ARC: Let sleeping dogs lie

The Australian newspaper couldn’t resist last weekend giving the dear departed dog of the ARC a kick to try to breathe some life into its prostrate carcass, and have a sly dig at the new ARU in the process.

It must be a pretty slow news week in Australian rugby as editor Wayne Smith was reduced to a transparent advertisement for the old regime, and a none-too-subtle backhander in the direction of “a select group of powerful Sydney clubs”.
Exactly which clubs are in question is unclear, however according to the article, “the ARC made it easy for them by coming in so badly over budget, but the haste with which it was killed off was still unseemly and, frankly, suspicious”.

I’ve got to say, this line of conspiracy-theory journalism makes me shake my head. I wonder just how much money the ARC would have had to burn, and just how small the crowds would have had to be before the pro-ARC-at-any-cost lobby would agree that whilst it was a unarguably a brilliant spectacle and a great development opportunity, it probably wasn’t quite worth the flabbergasting amount of cash that it burned through.

Perhaps the most imprudent paragraph from article in The Australian was this one. “There is no denying that the ARU’s cash reserves are down, but that was going to happen anyway in a World Cup year, let alone in a World Cup year in which the long-awaited third tier competition finally, belatedly was launched. This year’s figures will be dramatically better. Some $8 million is heading the ARU’s way, Australia’s cut of the IRB’s World Cup pie. As well, another $3m is set to flow into the ARU coffers from the Hong Kong Test against the All Blacks in November, another initiative of the Flowers regime.”

Where to start with that? How about the money? According to the 2006 ARU Annual Report, the ARU had cash reserves of $22,486,000 at the end of the financial year which means that when the ARU burned through $4.7 million in its first year of the ARC, the amount was equal to almost 21% of its available cash. Try going to any CEO in the country and tell them you have a program which is going to burn 20% of their cash at bank in year 1 and still more in years 2 and 3, with no guarantees of ever turning a profit, and see how many of them give you the green light.

Of course, some would have us believe it is about cost cutting, and that with some judicious slicing and dicing, the ARC could have continued on its way. Anyone who tells you that could use a refresher in basic economics, since the rate of cashburn would need to be more like 5% than 20%. No-one appears to have yet worked out a plan for dropping a full $3,500,000 off last years operating figure, or a way to compete with the 3 other codes for the crowds who didn’t turn out in the required numbers at the ARC games.

In any case, why doesn’t the launch of a major third tier initiative in a year when expenses are highest, and when the attention of the majority of the market is diverted by one of the biggest sporting events in the world, deserve scrutiny? Most marketing managers in the ASX 100 would say that this strategy wasn’t sound, and they’d be right. But, according to The Australian, it doesn’t matter because we’re getting $8M from the IRB for the World Cup and another $3M from the mooted November Hong Kong Test against the All Blacks. Unfortunately, editor Wayne Smith wrote in his article Barbarians back on menu that “the Wallabies can look forward to a five-match tour in November, starting with the still-to-be-confirmed Test against the All Blacks in Hong Kong” which would suggest that unless he knows something he’s not telling us, the $3M he’s banking on is also “still-to-be-confirmed”.

The Australian finishes by making the assertion that the Hong Kong Test was “another initiative of the Flowers regime”, as though this was one of many achievements. In the above paragraph, that regime managed to burn over 20% of the ARU cash reserves; schedule a major new product launch (the ARC) in competition with the biggest global event in its market (the RWC); sell out history and tradition between Australia and its greatest foe, the All Blacks; and move the Test in question to Hong Kong where few of the true fans of either country will get to see it anyway – if it actually goes ahead. Achievements indeed.

My point is this. It is fair to say that pretty much everyone in Australian rugby agrees that we need a third tier. It is the pressing requirement in Australian rugby development right now. But whatever the new enterprise is, it has to adhere to some commercial business principles. In that respect, the rules for the ARU are no different to BHP, NAB or any other corporate you’d like to name.

Basic cash management suggests that you don’t burn through 20% of your available reserves in year 1 of what is likely to be non-profitable exercise. If it looks like you’re going to repeat the experience, you probably need to think twice about continuing.

Risk management principles would indicate that heavy investment in, and sole ownership of, an organisation where your only available personnel are members of a militant union which is clearly hostile to you, is not a good idea. Some of the risk at least needs to be shared or offloaded.

There must be a cash return on investment. If not immediately, then it would be reasonable to expect to break even at around 3 years. If there is no guarantee that the enterprise will ever be profitable, then there is no reason why any organisation should invest money in it.

Talent development is not a valid reason for an investment of this magnitude. To put it in perspective - in 2001 for example, the training and development budgets of S&P 500 companies represented between 5% and 20% percent of total corporate profits. If the ARC was a training and development program and its loss was expressed as a portion of ARU profits it would be a tough equation, since the ARU had a net deficit before tax of $6,339,000 in 2006. However, using a mean S&P yardstick of 12.5%, the ARU would have had to make a $37.6 million profit for this expenditure to be valid as a training and development expense – a turnaround of a massive $43,939,000.

Even averaged across players, the numbers make a mockery of the talent development argument. There were roughly 240 players in the ARC. If 20 of those players went on to secure new Super 14 contracts (5 new players per franchise which is unlikely), the talent development cost to the ARU for 2007 would have been about $235,000 for every unproven rookie who gains a Super 14 contract.

It is eminently clear to those with a grasp of business principles that the ARC was a great concept, but one which was executed with an exceedingly optimistic economic outlook. In the commercial world there are often good ideas which cost stacks of money and which just don’t work. The Segway springs to mind. The talent is not in coaxing these ideas along and keeping everyone happy. Those who have read Seth Godins book “The Dip” will know that the real talent is in making the decision to quit a cul-de-sac and move on to something with a genuine future.

Of course such a decision leaves the decision-makers wide open to criticism – in this case the criticism that they are somehow in bed with the “powerful Sydney clubs”. This sort of fear-mongering doesn’t help.

It is true that some clubs may benefit more than others. Just as in the corporate world, some companies benefit more than others, by planning, building their organizational and economic strength and being ready to take advantage of opportunities when they came by. In this way it appears that some of the strong clubs may well benefit from the possibility of a national competition geared towards clubs, but this is not conspiracy, it is simply commerce. Top level rugby, unfortunately for those of us who were reared on the innocence, loyalty and joyous simplicity of amateurism, is now a commercial enterprise first and foremost. In this sense, to paraphrase The Australian, it is mischievous to now dump all the sins of the ARC axing in the lap of an administration whose priority is to ensure that Australian rugby is brought back to financial viability.

I used to have an accountant whose mantra when making business decisions on acquisitions, or capital expenditure, was never to justify the expenditure with non-financial criteria. As he used to say, “Always make the commercial decision”. The ARU has done just that, and made an unpopular but commercial decision.
Now that decision has been made, The Australian opines “It remains to be seen what the ARU’s vision for the future might be”. Indeed it does. Perhaps we could at least wait and see what that vision is before condemning the process that led to it.

There is a section for your comment......go give it to this "tothersider"

[GIGS20]

Ohh where to start.....do I dare wade into this argument after giving up in frustration so many times before!

Let's begin with the fact that ARC expenditure would be a third of what it was if the ARU had some nuts and told the Sydney clubs to get stuffed with their 'reimbursements'

Fact is, this talent development program would have come in budget without these funds being included, that is counting for a higher than expected cost in Melbourne.

This initiative was financially effective in the harshest possible climate until torpedoed by the Sydney clubs. that is the fact. If the power brokers could have their death grip prised from the tiller of Australian rugby, the ARC COULD WELL be profitable inside three years. a totally acceptable position in business, and even better when it could easily be counted a training program. The true value of the ARC is not counted in direct ticket sales or sponsorship received by the ARC but in the indefinables which include the increase in attendance a S14 and test matches, the increased marketing dollar picked up by S14 teams as the brand has more market saturation, the increase in sponsorship potential as an effective training regime improves both the quality and the winning percentage of the Wallabies, the increase in ARU memberships as players flock to the sport in droves since the transition to the top of the sport is transparent and no longer controlled by some wanker with an office on George Street.

It is EXACTLY short-sighted, economic rationalist, tight assed pencil dick decisions like this that stifle innovation, not just in Aussie rugby, but also in Aussie business.

I don't care how many economists tell me that the ARC needs to make a profit in year 1 to survive, you can't make me believe that the profit they haven't counted isn't worth a little short term gain.





Dickhead!

[Darren]

Great response by "Yikes"

Where to begin? Andrew, as eloquent and well-written as your article is, it seems you have been reading too many economics textbooks and not enough history text books…! As a card-carrying member of the so-called “pro-ARC-at-any-cost lobby”, let me respond.

Firstly, let’s tackle the financial issues.

The ARC lost money. As was expected. It lost 2 million more than expected. This is not good. Andrew, you are right in saying that a 4.7 million loss is unsustainable. Where you start going wrong is when you say: “If there is no guarantee that the enterprise will ever be profitable, then there is no reason why any organisation should invest money in it.”

What rubbish. Firstly, I reject your premise. How can anyone *guarantee* that an enterprise will be profitable? Otherwise you and I would be billionaires. That’s the whole point of business - risk vs reward. There is nothing except your say-so that says ARC would never have been profitable in the long run. Especially with the News Ltd deal expiring and the ARU currently being the only SANZAR partner without a sale-able domestic comp. Secondly, there are plenty of reasons why an organisation might invest money in an exercise that doesn’t, in and of itself, turn a profit.

For starters, player development. Andrew, I give to you exhibit A: the Pura Cup. If that turns a profit I’ll eat my hat. But Cricket Australia continue with it because they have enough money, and they NEED its development benefits. I ask you - why is it that the Wallabies internationally and the Aussie S14 provinces have generally performed lower than expectations over the past few years? I submit it might have partially to do with the superior 3rd tier benefits that the ANZ and Currie Cups provide their respective nations. They always seem to have another brilliant player on the horizon. Take a good hard look at who we took to the World Cup…

In a later post, you claimed: “If the players were sent back to their clubs when not selected in a match day 22 (as appears likely to happen next year), then I feel certain that the standard of club rugby would be commensurate with the ARC level anyway”. This is just flat wrong, on two counts: 1) It already happens - academy and uninjured non-23-man-squad players DO play club rugby and have for years (prove otherwise, with names), and 2) the players disagree with you. I read that in a post-season survey, players indicated that the standard of ARC was well and truly above club rugby.

As posited by Greg, the ARC benefited the S14 players in desperate need for high quality week in week out rugby, beyond what club rugby can provide. Last year I watched Kurtley Beale play for Norths against Penrith at NSO late in the season. It was an embarrassment.

The financial slant you provide in your article (especially the closing paragraphs) assumes that the ONLY financial benefits from ARC come from the competition itself. This is narrow-minded. If it can help improve the standard of Australian rugby across the board and keep the Wallabies winning, that has tremendous financial benefits for Australian rugby. The true financial impact of the deathly Aus vs SA kickfest debacle at Telstra Stadium a couple of years ago cannot be overestimated. Its impact is still being felt in poor ticket sales to this day. The reverse would be equally true.

It is also in the best interests of rugby (financially) to provide player development pathways to all players in all regions of Australia, and provide avenues for grassroots supporters to contribute to rugby. ARC provided the framework for that - which stands in direct comparison with your proposal of a club competition which does not provide a pathway to the top for all players in all regions. None of the top 4 Sydney club sides are from the west of Sydney. How can we give these people no club to support? How many young players are going to see no pathway to the top? I am a player in Merrylands. My path the the top is through Randwick, Uni, Eastwood or Manly? Excuse me?

Secondly, let’s look at the financial position of the ARU in the past couple of years, and for the longer term. What has been the biggest cash cost to the ARU in the past 3 years? I’ll give you a hint, it ain’t ARC. How about moving the Bledisloe away from Sydney? For a couple of years, the Bledisloe has been played at a 50,000 stadium instead of an 80,000 stadium. That’s 30,000 seats at $100 a pop. There’s 3,000,000 in one night. Almost pays for an ARC. While I’m exaggerating the amounts, it was a significant cost. Why was it done? Well, for starters I imagine the pathetic performance of the Reds meant a significant investment had to be made in rugby to keep it alive and relevant in Queensland.

This won’t be an issue in 2008 and beyond. In fact in 2008 we have two Bledisloe games (for the first year since 1998!). This, added to 8 million from RWC, 3 million from the proposed Hong Kong game, combined with cost saving measures to ARC - smaller grounds, traveling on game day, lower player payments - we can see ARC would hardly have put the ARU out of business in year 2. Now we’re starting to come around to the Wayne Smith position that to kill the ARC *before* the wholesale review of HPU systems early in 2008 was, above all, a little suspicious.

Thirdly, your proposal of a 2 tier promotion and relegation system beggars belief. You write: “No doubt someone will reply to this post with a laundry list of reasons why it won’t work.” Let me provide you with a couple.

1. Somehow, an 8 team national comp (ARC) with the major costs of travel and accommodation was financially unsustainable, but you call 10 teams gallivanting around Australia “quite manageable”. For how many rounds? ARC was too expensive at 8 rounds! You seem to have this comp going on all season? Who is going to pay for that!? Or if it doesn’t go on all season, and there is the usual premiership comp for most of the year, what happens to the good players in the non-national clubs? Do they just not play in a national comp? What point is there to that?

2. As Greg has pointed out, history shows that promotion and relegation, unless part of a massive overall structure (like Subbies in NSW or Euro soccer) does not work. Do you know anything about rugby in NSW in the late 80s and early 90s?? When the main comp was split into 2 divisions and most of the second tier clubs died a slow death until they were forced to merge with Subbies? Why? Because all the best players moved to the top tier, and the gap was too great! Or how about when Hornsby (first) challenged Drummoyne (last place) and were annihilated 56-0 in 1993? Why are we going back 15 years?

3. Who would play for a second tier Premiership club? I have no idea. All the top/aspirational/state fringe players would move to the National clubs before you can say jump. (And if they didn’t you’d have a problem because your National comp would now not have the best playing against the best). So this leaves who exactly to play in tier 2? If you are an amateur player, you play Subbies. By pushing some clubs up to national exposure at the expense of other clubs, you will decimate the others. The least pain, you call this?

4. You write “Admission to tier 1 relies on a series of criteria over and above on-field results such as levels of sponsorship, junior numbers.” Well, there goes Sydney Uni out of a National Comp! They don’t have juniors! (Unless you count Canterbury).

In closing, your last statement makes *me* shake my head. You wrote: “But that laundry list will exist for every idea - none of them are perfect. It is just a matter of picking the idea which has the greatest benefit for the greatest number.”

Was that idea not ARC?

After YEARS of argument and hand-wringing over a national comp, finally someone got off their arse and did something about it. Just about the only people that opposed ARC post-Cap Gemini were Greg Growden, some Sydney clubs, and Alan Jones (and it appears now after the fact John O’Neill and Matt Carroll, maybe because they didn’t think of it, or because the clubs wield too much political power at board level).

If only they had listened to your advice, and realised “it is a minefield and none of us will get 100% of what we want. There will be pain involved and there will be good rugby people who will end up disillusioned with the outcomes”. Once the decision was made, we should have all bandied together to make it work. Instead, it was white-anted by those putting self-interest ahead of rugby’s interest.

In that respect, ARC’s demise had nothing to do with finances.

[GIGS20]

Mmmmmm, what he said