The truth behind NZR's finances

The headline generated by NZR’s latest annual results was the -$19.5 million net income loss, but the truth of the matter is far less problematic, at least from a year-over-year perspective.

It also doesn’t reflect the nature of NZR’s operating model, which is that they do not solely exist for the purpose of making a profit.

As guardians of the game, they always have to reinvest and spend back in areas which do not generate a financial return.

But even from a financial standpoint, NZR finished in a stronger position than 2023, which as a World Cup year saw match day income plummet as a result of hosting just two All Blacks Tests.

What matters is cash and cash flow rather than paper losses and NZR turned around a -$23.2m cash deficit in 2023 into a $9.3m cash surplus from operations in 2024.

With the All Blacks back playing five home Tests the main revenue drivers of broadcast, sponsorship, licensing and match day receipts surged. What’s more, cash payments to suppliers and employees went down from the year before.

When operations are in the black from a cash flow perspective, it signals a sustainable position generally speaking, if that can be maintained of course.

With the addition of Silver Lake financing arrangements, NZR ended up bolstering cash reserves by $54.1m to sit on a pile of $83.2m cash. In addition to $125m in term investments, there is a sizeable amount of liquid assets in excess of $200m.

While there has been ‘blackflation’ over the last decade with the cost of the ‘teams in black’ increasing significantly, it’s not materially chewing up cash reserves.

This is the strongest position NZR has been in from a balance sheet perspective.

However, the clouds on the horizon is the potential financial crunch from the renewal of the TV rights for the next cycle combined with the ongoing drain by the provinces.

The current deal with Sky TV is for $111m per year and it was reported earlier that the two renewal deals on the table are for $75m per year without the new Nations Championship, and $85m per year with it.

Either way, it’s a sizeable haircut that will have ramifications. A revenue reduction of $26 million, or more, annually is going to hurt.

Retaining players is going to be harder, however you’d expect the squeeze to be on the middle and lower tier of player contracts. Given the All Blacks brings in most of the money, the top All Blacks will be retained on whatever needs to be spent to do so.

Extracting the most value from the rights could see rugby, namely All Blacks rugby, split up on multiple subscription platforms. Consumers will have to get used to paying more for All Black rugby than before if its not all on Sky.

We’ve witnessed the power struggle between the provincial unions, NZRPA, and NZR over the last couple years culminating in the overwhelming vote against the NZR governance reform backed by the NZRPA.

The provinces flexed their power and refused to be discounted out of the running of rugby. But the provincial game is really the heart of the issue.

The provinces received $40.5m in funding from NZR, down from $43m the year before, and it doesn’t return a dime back.

Provincial unions will argue that they bring monetary value to the ‘bundle’ of rugby TV rights sold by NZR to Sky. Others would argue the viewership of provincial rugby is at an all-time low and as a stand alone rights deal for NPC wouldn’t be worth anywhere near $40.5m.

It’s professional in nature in every way except for the one thing that matters, which is making money. In reality it is masquerading around as professional sport. Without the funding it would collapse overnight. 25 of the 26 unions were found to be ‘insolvent’ without NZR support in 2023.

The bubble they’ve been living in would pop without NZR, piling money into high performance programmes while playing games in empty stadiums.

Any business with a $40 million black hole in their expenditure would rightly try and stop that bleeding, but NZR can’t, with the provinces holding voting power to upend the NZR board. It’s a ball and chain that can’t be removed.

At some point the rubber meets the road. And that point is the next rights deal as Sky can’t keep paying overs for a bundled product like NPC that doesn’t pull in enough viewers. They had to stump up and pay a huge amount for the last rights cycle due to the presence of Spark Sport, who are now out of the picture.

So how do you revive provincial rugby? That’s a difficult question that might not be possible. It’s clearly a money pit in its current form and showing no signs of improving.

One radical option is to offload the cost of the provinces to people who can afford it, which means privatisation and individual owners like the Top 14 in France, which has become the world’s premier domestic competition. Doing that would free up a huge amount of funding for NZR to put into initiatives with a better return.

Once in the hands of private owners a number of things may happen.

Each union may receive more funding than the currently do, as wealthy owners pile in reserves and start streamlining operations. However, they will likely ruthlessly shed dead weight and inefficient spending (high performance programmes) in order to try build something viable.

Winning fans would truly become the number one priority, as opposed to lip service and meaningless corporatised jargon. In the nature of competition, an interesting free market for players could develop over time livening up the game.

At some point they might even go head-to-head with Super Rugby Pacific for time in the calendar which would be a drawback for NZR. The success of a privatised part of the game risks over-running NZR’s own business.

Or there might not be a market for private ownership at all, given the relatively small market size of New Zealand. It might be deemed un-saveable.

NZR can handle funding the provinces as it is right now. When the next rights deal comes through, there will be more pressure to do so.

It would be disastrous if the $200 million in reserves were to bleed away, continually funding the unprofitable venture of provincial rugby. The likely outcome is that NZR passes the TV rights haircut on, reducing their funding putting further pressure on the unions.

One way or another, the provincial unions are going to get the financial wake up they need. They can’t keep operating as they are.

The problem for NZR is not any of the Teams in Black or women’s rugby. It’s the provincial unions who financially can’t stand on their own feet.