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Case of privatising Super Rugby

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The case for privatising Super Rugby

The exit of the Sunwolves franchise from Super Rugby is the final exclamation point on what has been a sorry half-decade for SANZAAR’s premier club competition.

At first the Sunwolves weren’t competitive enough as a pathway for the Japan national team, but as they have become more so, the playing roster has become less and less Japanese. It now resembles a sixth New Zealand franchise or a Barbarian team, putting into question what exactly the Super Rugby team is supposed to be for.

They are stuck between a rock and a hard place as Super Rugby’s inequitable operating model can never iron out differences in national resources, as a result of teams being controlled by unions with their own self-interests at play.

Within each country, player movement is possible, but crossing borders within the same competition is not unless you are no longer wanted by your home nation. The talent pools are not collectively shared, with no equitable means of distributing players as a way of correcting power imbalances competition-wide.

Despite this protection between national borders, Super Rugby teams have already diverged from being ‘localised’ anyway, with the underlying make-up of each franchise continuing to drift away from the regions they represent within each country.

The Crusaders are filled with players from the Blues backyard such as Braydon Ennor, Bryn Hall, Jack Goodhue and the Highlanders are filled with players from the Hurricanes region such as Folau Fakatava and Thomas Umaga-Jensen. This is a necessity for all the teams to be competitive within the New Zealand conference but brings into question why this is only acceptable within national silos.

The club game continues to move towards the North American model but only half-heartedly. The old ways of governing remain the same, roadblocks limiting the advancement of the professional club game.

Crying poor but holding all the cards

The most public figures in the game in New Zealand have gone on record asking for government-funded handouts and raised concerns about not having enough money. Rugby Australia and the state unions are well known to be under financial pressure. South Africa has just raised the white flag when it comes to competing with overseas clubs for retaining high-profile players.

The symptoms are showing but unfortunately it’s all self-inflicted. They have the power to turn their faltering competition around but fail to understand the dynamics of their own structures.

The goal of developing the game in a country does not always align with growing the value of a professional sports league. Wearing both these hats has proven to be a conflict the unions cannot manage effectively when all put in a room together. What’s best for growing the value of the product won’t always be what’s best for you, and they have shown they can rarely agree on measures for the greater good of the league.

They have tried short-term measures to try and increase the value, namely, increase supply. By pumping new teams into the competition, they have increased the number of games to sell to broadcasters but this bubble has seemingly popped as we revert back to the structure of old from 2021. What became an 18-team conference competition is now being scaled back to what it used to be, a 14-team round-robin version.

By chasing rapid expansion into new territories as a growth strategy, the administrators have arguably caused more harm than good to the competition. It has possibly caused irreversible damage to the game in some jurisdictions like Western Australia, it’s not yet apparent what the impact will be with the Sunwolves in Japan.

Millions have been burnt in the process and who knows how badly the commercial value of the product has suffered as a result.

There is another way, a proven way, for running a successful professional sports league. In a restructuring of rugby, the unions could unanimously decide to privatise and sell-off their Super Rugby clubs, privatising ownership and allowing those owners to govern the competition, while retaining the rights to the international game – which is still the most valuable revenue-generating asset – to fund development at grassroots level.

A privatised Super Rugby competition

Running a private-ownership model in Super Rugby would open up a world of possibilities for the club game in the Southern Hemisphere.

A Pacific Island franchise could exist without the fear of poor governance and financial mismanagement sending it into the ground. With the right owner, the team can be funded adequately while providing the Pacific Islands with a Super Rugby team of their own. This franchise could take games to Hawaii, potentially expanding the footprint of the competition into the US-market.

Furthermore, with an open-borders player transfer market, the team could compete for the signatures of internationals with Pacific-heritage wanting to be a part of it, including current All Blacks or Wallabies.

Private ownership could bring accountability to Australian franchises that up until this year, have performed poorly and as a result failed to offer competitive teams to the wider competition. With the ability to sign any player or coach, the right ownership can transform these clubs into Super Rugby powerhouses again.

Whether established All Blacks would want to play for Australian franchises is an unknown, but over time it would become an accepted practice, as it is in the NRL with the movement of players back and forth across the Tasman.

For an emerging player in Mitre 10 Cup making $15,000 to $25,000 and not being picked up by a Super franchise, instead of working a side job and playing local club rugby for another year, he could pick up a contract with an overseas Super Rugby club. Some highly sought after players that have side-by-side offers from both countries may instead choose to take the highest bidder, as is his right to do so. This could potentially happen already, but hardly on the scale it could if the Australian clubs had the resources to scout New Zealand’s talent pool that privatisation could provide.

If the underlying developing player pool in New Zealand is indeed stronger than Australia’s or Japan’s, there will be more Kiwi players playing Super Rugby, not less. Instead of only five possible teams, they could play for anyone.

If those privately-owned franchises are also after the best available coaches, then there is little worry that the development of those young players would be hindered. The Sunwolves coaching staff in recent years has been largely made up of ex-Highlanders staff like Tony Brown and Jamie Joseph, offering little difference to what they would have learned in Dunedin under them.

Is this likely to ‘dilute’ the franchises away from being representative of their regions? As stated above, this is already a reality within national boundaries for franchises that don’t have large local player pools in their regions. The Crusaders have even looked beyond that, although within the eligibility rules, and signed players from Australia. They made headlines in the media last year for signing the son of a former ARU staffer, lock Nick Frost from Sydney, to their academy, as well as a Kiwi-born flyhalf from a prominent Queensland school.

The proximity of countries would suggest that it would be unlikely that Australasian players would sign with South African teams, but within the Pacific region of Australia, New Zealand, Japan, and Pacific Islands, you would expect much more player movement.

The strengthening of club teams in this region could potentially open the possibility of Super Rugby without the South African teams down the line, with New Zealand’s playing pool pioneering the advancement of the competition. If Rugby Australia was worried about a lack of Aussie talent in the pro-playing ranks, they would finally have to address their lack of investment in the grassroots game.

A competition with evenly dispersed talent will level the playing field and result in a better product, commanding more TV-dollars over time, which can be funded by private owners prepared to pull the club game forward in the meantime.

For players, this is distinctly important. The single biggest factor in player wages is the value of the broadcast rights. If Rugby Australia fails to sell its next round of rights for as much as it did last time, every player is going to be under pressure to take a pay cut in Australia, with less flow-down money to state unions who handle the Super-level contracts. This will put more pressure on their already top-heavy recruitment practices.

With private owners backing teams in a free market-driven league, the inflation of salaries would occur at a much higher rate, depending on how high the owners want to set the salary cap. As the on-field product improves with investment in rosters and measures to provide parity, so will the rights deals, moving everything forward as it has in the Northern Hemisphere.

It can’t be ignored that the players play the game for money, the game is 20-years into professionalism now. It’s time to accept that reality and move into an operating model at professional club level that will offer the most for the players, instead of asking them to take less to wear the national jersey.

The disparity between what the national unions can offer their players and what the private clubs in the North can, will continue to diverge. South Africa’s white flag today will be Australia’s tomorrow and New Zealand the day after.

One operating model is growing contract values, the other one is much slower at doing so.

Having the cake and eating it too

A number of unions have already privatised these clubs to some degree, albeit with non-controlling, minority stakes.

They are happy to take the cash injection but want to keep all the control, selling ‘fluff’ stakes that amount to being able to say you own it but being able to do nothing with it.

A number of the South African unions have gone up to 49% private ownership, withholding the minimum level of control required to keep the power as they struggle to stay afloat.

In a groundbreaking move, the Kings, exiled from Super Rugby and currently competing in Europe’s Pro14, have become the first Southern Hemisphere club to be sold from a state union to be majority owned by private hands, with the investors taking a 74% controlling stake.

This is what the unions should look to do with the rest of the Super Rugby teams, relinquishing control and taking the minority position that private owners have now in a role reversal.

They can still benefit from the increase in the market value of the teams with a small, non-controlling stake and potentially receive dividends once the teams and league have scaled to a certain size, but need to rescind control to the people who can do more with it and remove their own self-interest preventing the competition from flourishing.

At the same time, they still will retain the rights to the international game and teams, the most valuable revenue-generating asset in the game, while stripping the cost out of trying to fund four or five professional club teams.

The irrational fear of privatisation

The argument against this always points to the privatised Top 14 in France and the performance of the national side. The fear is that losing control at the club level has a direct correlation with a poor international team. There are too many variables to say this is definitively true.

England, who have the same privatised domestic league as France, won two out of four Six Nations titles in this World Cup cycle. Their form this year suggests they will be well in contention to win in Japan. If they are holding the William Webb Ellis trophy in November, will this argument hold any weight?

As much as France has floundered with a privatised domestic comp, two centralised nations, Australia and South Africa have plummeted to all-time lows in the world rankings. There are far more factors at play in the success of Ireland and New Zealand than centralised-contracting.

South Africa, who have long held back the Springbok jersey for only home-based players, called on their overseas players in 2018 and became a better side for it, further dispelling the notion that a controlled pool of players is a necessity for national team success.

It is widely accepted that protectionist policies in global trade actually harm the industries they are designed to protect. Why would rugby be immune to this?

Directors of Rugby in the English Premiership, which has the private ownership model, often are heard crying foul about a ‘broken model’ with player wages increasing out of control and point to the operating losses that the majority of the clubs make each year.

What they fail to recognise is that owning a club is a lot like owning high-end real estate. It is often cash flow negative but the capital gains over the long run far outweigh the annual outlays. You need to be able to fund those negative cash flows indefinitely until a certain scale is reached, which is why it makes sense to hand that burden to private hands who are better positioned to do so.

The RFU’s initial ‘head in the sand’ approach, which led to privatising the club game at the beginning of professionalism, may actually be a blessing in disguise.

They are still the wealthiest, and most powerful union in the world, yet do not have to fit the wage bill, and enter into employment agreements with, the nation’s players. The private clubs do this, while they compensate for international duty on a match fee basis.

They do have on-going battles with clubs for player access, but this is largely due to the unplanned fracturing of the game at the time it went professional, with little anticipation for what lay ahead. These issues can be resolved at the time the Super Rugby teams are sold with release agreements made as part of the sale process.

By selling out Twickenham, sponsorship and broadcast rights for the England national team, the RFU banked a £83.3m gross profit in 17/18, allowing it to plow plenty back into game development at all grassroots levels. By removing itself from the club game, the RFU still holds the crown jewel and puts the treasure that it generates back into the grassroots game.

As long as they continue to invest in the pipeline that provides professional players for the pro-clubs to sign, the national team will be fine.

The ground rules for a private run league

In order for an open-borders approach to work with privately owned franchises in Super Rugby, World Rugby eligibility laws need to strengthen to preserve national interests.

Those national unions have to be comfortable with their players potentially plying their trade outside of their home country, at first within the bounds of Super Rugby, and later on, anywhere at all.

World Rugby strengthening the eligibility residency law to at least 10-years will ensure that nations cannot poach from each other with the ease that they can now. A New Zealand eligible player that signs with an Australian franchise at age 20 wouldn’t be able to represent the Wallabies until age 30, at which point that might be too late for an international career, while New Zealand can still pick him if the form warrants selection.

Any player with heritage ties to a country through parental birthrights could receive a reduction in required residency to 5-years, but must fulfill that before playing for the country to preserve the integrity of the international game.

Under the current model, there is a growing player drain of coaches and talent to the European private leagues. The list of Kiwi ex-pats playing there is astonishing. Wouldn’t retaining that in the Super Rugby competition be beneficial not only for the neighboring countries but say, New Zealand Rugby themselves? You stay the best by playing the best.

Allowing the coaching knowledge and talent to improve Northern Hemisphere rugby while the traditional rivals flounder is not good for the All Blacks in the long run. A privatised Super Rugby would stop the hemorrhaging to some degree, while making the competition more difficult, but stronger as a whole.

The narrative World Rugby has pushed in their efforts to formalise a Nations Championship is that the international game needs fixing. Outside of strengthening the eligibility laws in the international game, there isn’t much else fans see as problematic. The international game has never been stronger, and in fact, are the only fixtures that can sellout mass capacity stadiums around the globe, even for one-off games that have been described as ‘meaningless’.

Only the two privatised European leagues, the Premiership and the Top 14, can pull a decent crowd outside of finals or playoff matches. The Premiership’s annual ‘Big Game’ can sell out Twickenham, and Racing 92 can put on a show in the La Paris Defense Arena hosting a strong rival like Toulouse. The Pro14 and Super Rugby suffer annually from paltry crowds and stagnating viewership figures.

It’s the other part of the professional game that provides the bulk of the annual calendar that needs fixing, and it’s the club game, in some corners more than others. A radical move like privatising Super Rugby would be the real ‘game-changer’ and save what is becoming a case study in game theory when organisations can’t overcome their own self-interest for the good of their competitor.

Getting rid of this hurdle might just work out for the national unions better than they think.

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The case for privatising Super Rugby