Otago might be the first victim in Rugby solvency crisis

Otago rugby might be only the first victim in a solvency crisis affecting New Zealand's provincial rugby unions. A Herald survey of the financial performance of the 14 ITM Cup unions reveals a model reliant on cash grants from charitable trusts and New Zealand Rugby Union handouts. "While the other unions might not be in trouble to the same extent as Otago, it would not surprise me if they were the tip of the iceberg," said David Moffett, former chief executive of the New Zealand Rugby Union. The 14 ITM Cup unions compiled an accumulated operating deficit of more than $2.98 million for the last set of accounts they registered with the Companies Office. Ten of the 14 unions operated at a deficit, although the Auckland Rugby Union did not include World Cup revenue in their final figure because it was seen as a one-off bonanza rather than a true reflection of their financial position. In most immediate peril would appear to be Counties Manukau and Southland. Counties defaulted on a loan to the former Franklin District Council, and their 2010 financial statements indicated they were selling lights donated to them by the Eden Park Trust Board to improve their position. Auditor BDO reported in their notes to the Manawatu board that "we draw attention to the loss incurred for the current year and the equity deficit at balance date". Manawatu had debts of $531,248 at year end. Manawatu continuing as a going concern depended on "the negotiation of ongoing funding from sponsorship, community grants, and funding from the NZRU". However, chairman Steve Morris said things had picked up significantly last year and the union expected to post a surplus of $136,000. Although that still leaves them in a serious negative equity situation, Morris was confident they were now back on track. "It was grim at the end of 2010, but the management put a three-year programme [in place] and this year's result is quite positive," he said. "We can see ourselves trading right in the near future. We've got a positive budget for 2012 and we've pulled a huge amount of costs out of the operation in the past year - more than $1m." Most of those savings have come from the player wages bill and it is this singular aspect of ITM Cup operations that appears to be most damaging. Southland, which posted a $492,839 deficit for the year ended 2010, spent $2.23m on their senior squad costs. Few unions performed better in their last reporting year than the previous, indicating that the cashflow problems are endemic. "I'm surprised there are that many operating in surplus to be perfectly honest," said Moffett. The only way to save the ITM Cup and its unions, he believed, was for the competition to revert to its semi-professional roots. "The idea that you should have a ... salary cap for these teams is just farcical. It just encourages unions to spend money they haven't got and in the end, for what? There's no promotion or relegation. "They can't get promoted into Super rugby. The point is for them to understand their role in professional rugby, which is to sustain junior and club rugby and use their ITM Cup teams to bring new talent forward." The salary cap for the ITM Cup is now pegged at $1.3m or 36 per cent of commercial revenue, whichever figure is higher. However, many unions, including Otago, struggled with the transition costs to that figure because they had long-term contracts in place that had to be honoured. NZRU chief executive Steve Tew said it took the unions longer to adjust in 2010 "because they'd made commitments they probably shouldn't have, but had". "We're seeing an improvement in 2011 and we'll see a bigger improvement in 2012." The Otago Rugby Union will cease trading tomorrow and their participation in this year's ITM Cup is in doubt unless they can find an urgent cash boost. The union had debts of $2.35 million and was facing a significant shortfall in revenue this year. Faced with the mounting debts, the NZRU refused to continue pouring money into it. Tew said unions were confronted with unusual circumstances in that the country was in year four of a global financial crisis "that was supposed to last six months". He was encouraged that unions such as Hawkes Bay and Manawatu had either posted or were poised to post small surpluses. "It's a sign that it is do-able, but it's tough. Otago brings the focus back on our financial situation. "We're not aware of anybody sitting on an accumulated debt of the scale of Otago. "Are there unions considering liquidation to escape debt repayment? To our knowledge, definitely no."