The ARU's decision making
2.1
This chapter considers three questions:
-
why remove an Australian Super Rugby team?
-
what process did the Australian Rugby Union (ARU) use to identify
which team would be removed?
-
when did the ARU decide to remove the Western Force?
Why remove an Australian Super Rugby team?
2.2
As mentioned in Chapter 1, the ARU had the ability, during the term of
the broadcast agreement, to veto a change to the Super Rugby format that would
ultimately result in the loss of an Australian Super Rugby team.[1]
2.3
The ARU advised the committee that two key factors contributed to the
ARU's decision to support the removal of one Australian Super Rugby team: the
solvency of the ARU and the consolidation of high-performance talent.[2]
Solvency
2.4
According to the ARU, the game of rugby has been struggling to support
itself financially for some time and that Super Rugby often runs at a loss,
saying:
The Australian Rugby Union has a history of running as a
loss-making enterprise, surviving on one-off windfalls from hosting major
tournaments like the Rugby World Cup and from marquee tours like the recent
Lions visit. While the Wallabies run at a healthy profit each year, the fact is
that Super Rugby is the most financially challenged part of the ARU's operations,
and the declining revenue trends in Super Rugby are accelerating.[3]
2.5
One of the major sources of income for the ARU is broadcast revenue. The
ARU explained to the committee that the broadcast discussions are led by South
African, New Zealand, Australian and Argentinian Rugby (SANZAAR) and the
revenue is divided between the partners to run rugby union in their respective
countries.[4]
As noted in Chapter 1, under the 2016–2020 broadcast deal, the ARU received
$285 million.[5]
2.6
From this amount, the ARU provides approximately $6 million to each
Super Rugby team and $10 million to build community participation.[6] Over the last
five years, the ARU also put $28 million of unbudgeted funding into these Super
Rugby clubs, over half of which was to the Melbourne Rebels.[7]
2.7
The ARU believed the drain on its finances meant that if its financial
situation did not improve, it would struggle to remain solvent beyond the third
financial quarter of 2019, saying:
Financial modelling, undertaken around the retention of five
Australian teams through 2020, forecast the ARU as being unable to meet its
liabilities by Q3 of 2019, with an estimated financial hole of between $13
million and $26 million by Q4 of 2020.[8]
2.8
The graph below, published by the ARU, shows its cashflow analysis based
on a best and worst case financial scenario if the ARU decided to maintain five
Super Rugby teams.
Graph 2.1—ARU financial forecast 2017–2020 with five
Super Rugby teams
Source: ARU, Supporting
Documentation, [p. 3].[9]
2.9
The ARU's management team believed that it needed to take some action to
remediate this financial situation:
Doing nothing was not an option. Commissioning another review
was not an option...Meaningful change was required.[10]
[...]
The reduction of a Super Rugby team provides a saving of $18
million over the period of 2018 to 2020, and this will enable the ARU to
continue trading and to invest in community rugby, player and coach development
and our all-important women's programs.[11]
2.10
However, some submitters to this inquiry were sceptical that solvency
was the reason for ARU's agreement to remove an Australian Super Rugby team.
2.11
The committee received evidence from submitters that the ARU had
structural financial problems that would not be remediated by the removal of a
Super Rugby team:
To suggest that the ARU will have burnt through $285 Million
dollars between 2016 and 2019, whilst simultaneously pointing towards $28 Million
[in] unbudgeted expenditure as the catalyst...then to indicate that the $18
Million that would be recouped through dismissing a team will be sufficient to
balance the budget is lunacy.[12]
2.12
Other submitters raised concerns that the ARU's financial difficulties
were the result of decisions made by the ARU's management.
In my opinion, the decline in performance and finance is
likely to be attributable to the way in which the ARU Board has managed both
the super rugby games and its finances...the decline since 2015 stems from
running our super rugby teams ragged by extensive travel over multiple time
zones, depriving the fans of being able to follow their teams on TV at
reasonable hours...[13]
2.13
The committee heard that investing in future players was important
because Australian rugby union's economic woes stem, in part, from the poor
performance of Australia's professional rugby teams.[14]
Team performance
2.14
It is well recognised that the performance of sporting teams affects
their financial viability.[15]
2.15
The ARU told the committee that the game's finances have declined as the
Super Rugby competition expanded:
The financial problems emanating from Super Rugby are
commensurate with sustained declines in the performance of our Australian Super
Rugby teams since the competition first expanded from Super 12 back in 2006.
From 2006 to 2017 the win rate of Australian Super Rugby teams dipped from
almost 55 per cent to just above 41 per cent. Since May last year Australian
Super Rugby teams have lost 31 consecutive matches against New Zealand Super
Rugby teams. We have not won a Bledisloe Cup since 2002.[16]
2.16
A visual representation of the decline in performance in Australian
Super Rugby teams was included in an article in The Weekend Australian
based upon data from the ARU.[17]
Graph 2.2—Super rugby team performance 1996–2017
Source: Richard Gluyas,
'Shifting goalposts: Clyne packs down to save rugby from AFL raiders', The Weekend
Australian, 15 April 2017, p. 23.
2.17
According to the ARU, Australia did not have the depth of talent to
support five Super Rugby sides and that had an effect on the game's finances:
...the expansion from three to four to five saw a step-down in
performance from 60 per cent of wins to 50 to 40. It's quite clear that
Australia doesn't have the playing depth to support five teams and that fans
simply don't turn up to watch teams that aren't performing, and that just
exacerbates the financial competition.[18]
2.18
Therefore, the ARU submitted that a move to four Australian Super Rugby
teams would lead to a greater concentration of Australian rugby talent:
One thing it will do is create greater competition for spots.
One of the reasons we don't have, I think, quite the level of depth to support
five teams is we've got approximately 20 players in Super Rugby who are not
eligible for the Wallabies. So we are actually having to draw players who are
not eligible to play for Australia. That is not ideal. You want a situation
where everyone is playing in Super Rugby competition.[19]
2.19
The committee received evidence, however, that team performance was not dramatically
declining in the way the ARU suggested.
2.20
For example, some submitters pointed out that during this period
Australian Super Rugby teams won the Super Rugby title twice and the Wallabies
were runners up at the 2015 Rugby World Cup.[20]
2.21
Submitters Dr David Masters and Mr Andrew Luscombe separately drew to
the committee's attention that Graph 2.2 was not adjusted to account for the
increased number of teams in the competition.[21]
Once adjusted, Dr Masters and Mr Luscombe note that the trend remains
down, but by a lesser factor than Graph 2.2 suggests.
2.22
Mr Luscombe recreated the graph but adjusted the mathematical method to
account for the increase in the number of teams. Mr Luscombe's graph is
below.
Graph 2.3—Australian Super Rugby team performances corrected
for increase in teams
Source: Mr Andrew Luscombe, Submission
7, [p. 7].
2.23
Mr Luscombe observed that:
The main thing to note is that much of the decline in the ARU
chart is due to the mathematical method. As the number of teams increases, this
causes the line to trend downward. Once 18 teams is reached, the gap due to mathematical
method is large – bigger in fact than the decline in performance.[22]
2.24
Mr Luscombe suggested to the committee that the difference in the
mathematical method had the capacity to alter how the Board interpreted the
data:
If the benefits of moving to 4 teams were seen to be as
small...they possibly would not have made the same decision. Based on the shape
of the charts, the ARU may also have misunderstood the nature of the problem
facing Super Rugby, and the required solutions.[23]
Committee view
2.25
The committee understands that the ARU considered solvency and team
performance to be two of the major issues that determined its view to support
the SANZAAR decision to adopt a 15-team competition for the 2018 season and
beyond. However, the committee also notes the views of rugby fans who have
serious concerns with the ARU's justifications for removing an Australian Super
Rugby team.
The decision to remove the Western Force
2.26
As noted in Chapter 1, the ARU announced that the Western Force would be
removed from the Super Rugby competition on 11 August 2017.[24]
However, the committee heard that many in the rugby community, not just in
Western Australia but across the nation, questioned when the ARU actually made
the decision to remove a team and how that decision was made.
Timeline
2.27
The table below outlines the key dates in the decision making process which
culminated in the decision to remove the Western Force from the Super Rugby
competition.
Table 2.1 – Timeline of key events
| Time |
Event |
| 2006 |
Western Force joins Super 14 rugby competition as
the fourth Australian team.[25] |
| 2011 |
Melbourne Rebels join Super Rugby. |
| 25 June 2015 |
Western Force approach ARU for $800 000 loan.[26] |
| December 2015 |
Western Force submitted a proposal to the ARU which
included a request for advance payments in line with previous request made to
the ARU by other clubs. The proposal was declined after a number of months
had elapsed.[27] |
| 2 June 2016 |
Western Force is acquired by the ARU from RugbyWA
(the body that governs rugby union in Western Australia) under the Alliance
Agreement (which would allow RugbyWA to buy back the Western Force under
certain conditions).[28] |
| 10 March 2017 |
SANZAAR Executive Committee decides to adopt a
15-team format that requires the removal of one of Australia's Super Rugby
teams. |
| 7 April 2017 |
ARU Board is provided with analysis that considers
removal of the ACT Brumbies, Western Force and Melbourne Rebels. |
| 9 April 2017 |
ARU Board approves the decision to revert to a 15-team
Super Rugby competition. ARU Board resolves that the Brumbies will be retained
based on superior on-field and financial metrics. ARU Board announces that either the Western Force or
the Melbourne Rebels will be eliminated after consultation.[29] |
| 10 April 2017 |
ARU Chief Operating Officer, Mr Rob Clarke, and
Chief Financial Officer, Mr Todd Day, meet with Western Australia Rugby
Union Inc (RugbyWA).[30] RugbyWA commences proceedings against the ARU in the
Supreme Court of Western Australia.[31] |
| 27 April 2017 |
Mr Tony Howarth, Chairman, RugbyWA sends an email to
ARU Chairman, Mr Cameron Clyne, advising that Mr Andrew Forrest AO is
'100 percent behind the Force'.[32] |
| 20 June 2017 |
Australian member unions vote to defeat a motion to
retain five Australian Super Rugby teams proposed by Victoria Rugby Union and
the Rugby Union Players' Association (RUPA).[33] |
| 19 July 2017 |
The last of the 13 SANZAAR broadcast deals is
modified for a 15-team competition bringing the Alliance Agreement to an end.[34] |
| 31 July – 1 August 2017 |
Arbitration takes place between RugbyWA and the ARU.[35] |
| 4 August 2017 |
Negotiations between the ARU and Imperium Sports
Management Pty Ltd (Imperium) to acquire the Melbourne Rebels' licence
irretrievably break down. Imperium transfers the Rebels' licence to Victorian Rugby Union.[36] |
| 11 August 2017 |
Arbitrator rules that the ARU can remove the Western
Force as the Alliance Agreement was at an end. ARU Board announces that it will discontinue the
Western Force licence in the Super Rugby competition.[37] |
| 22 August 2017 |
Mr Andrew Forrest AO meets with ARU Board
representatives in Adelaide.[38] |
| 5 September 2017 |
NSW Supreme Court dismisses RugbyWA's appeal against
the arbitration decision. Decision of the court is published.[39] |
| 6 September 2017 |
Senate refers the Future of rugby union in Australia
to the Community Affairs References Committee for inquiry and report.[40] |
The ARU's decision making process
2.28
The ARU decided early in the process that the Queensland Reds and New
South Wales Waratahs would not be considered for elimination as they
represented the two biggest Rugby Union markets in Australia.[41]
2.29
To determine which team was to be removed from the competition, the ARU
developed a scorecard. The scorecard included internal and external qualitative
and quantitative data to assess the performance of the ACT Brumbies, the Melbourne
Rebels and the Western Force across a range of financial, commercial,
high-performance, economic and general market criteria. The scorecard assessed
each team on the following criteria:
-
Financial performance: including community investment, ARU
support (historical funding), future financial risk, full season memberships,
average attendances, TV viewership, state participation numbers, and state club
numbers.
-
Rugby - High Performance factors: including historical team
performance, quality of program and future potential (people, infrastructure,
systems, strategy), Wallaby contribution, and player salaries.
-
Rugby - Commercial factors: including Stadium commitments,
Government support and infrastructure, market analysis of sports fans and
people interested in Rugby, market size as a percentage of the Australian Rugby
fan base, market interest in the team and Super Rugby competition, social media
metrics, and competitive landscape.
-
Other factors: including status of economy, market implications.[42]
2.30
The scorecard was provided to the ARU Board on 7 April 2017.[43]
The ARU advised the committee that the ACT Brumbies had been removed from
consideration in the review process as the Brumbies had scored highest across a
number of on and off-field criteria in the scorecard.[44]
2.31
Following the ARU Board's meeting on 9 April 2017, the ARU announced
that the Board had agreed to reduce the number of Australian Super Rugby teams
from five to four, and that the decision had been narrowed to two teams: the
Melbourne Rebels and the Western Force.[45]
The Western Force subsequently launched legal action in the Supreme Court of
Western Australia against the ARU on 10 April 2017.[46]
2.32
In addition to the scorecard, the ownership of the Melbourne Rebels and
the Western Force was fundamental to the decision making process. The ARU
explained that at the time of the review process, the licence for the Melbourne
Rebels was privately owned by Imperium Sports Management Pty Ltd (Imperium).[47]
This meant that the ARU did not have the unilateral right to withdraw the Melbourne
Rebels' licence in order to remove the team from the Super Rugby competition.[48]
2.33
The ARU told the committee that there were only two ways the ARU could acquire
the Melbourne Rebels' licence: a negotiated settlement or an insolvency event.[49]
2.34
It is also important to note, Victorian Rugby Union President, Mr Tim
North QC, an expert in commercial law and contractual matters,[50]
made the observation that there were only four licenses at the time of the
decision to move from five to four Australian teams:
It also should be noted, with respect to the position as at
the date upon which the announcement was made, that a decision had been put
forward—that was on 10 April 2017—that there were in fact not five Super Rugby
licensees in Australia but four Super Rugby licensees. They were not only Super
Rugby licensees but voting members of the Australian rugby constitution and
therefore entitled to vote and attend two sessions of the general meeting of
the Australian Rugby Union.
The fifth member was a team by the name of Western Force, and
it was owned and controlled, amongst other professional rugby assets, by the
Australian Rugby Union and was therefore under the control of the Australian
Rugby Union board. That asset was held by the board for the benefit of all of
the members of the Australian Rugby Union.[51]
2.35
The due diligence process conducted by the ARU revealed that insolvency
was a very real prospect for the Melbourne Rebels. The ARU informed the
committee that they were in confidential negotiations with Imperium regarding
the acquisition of the licence throughout the review process.[52]
However, these negotiations irretrievably broke down on 4 August 2017 when the
Melbourne Rebels' licence was transferred from Imperium to the Victorian Rugby Union.[53]
2.36
In addition to this, Mr Pulver commented that the Melbourne Rebels were
very close to insolvency at the point where the ARU were to commence due
diligence, he stated:
As part of our process of negotiating with the Melbourne
Rebels we got to the point where we were able to conduct due diligence on the
Melbourne Rebels. And it was clear to us at that point that there were serious
financial concerns which could potentially result in an insolvency event. In
fact, at the 12th hour minor shareholders within the Melbourne Rebels came
forward with incremental capital to prop up the enterprise, which removed it
from the prospect of insolvency.[54]
2.37
In contrast, the Western Force licence had already been transferred to
the ARU following an Alliance Agreement between RugbyWA and the ARU in June 2016.[55]
2.38
The ARU told the committee that ultimately, the deciding factor was
which team had the better financial prospects going forward.[56]
The ARU informed the committee that while the Western Force outperformed the Melbourne
Rebels in some areas, such as higher participation numbers, the financial
outcome favoured retaining the Melbourne Rebels.[57]
2.39
Despite the Melbourne Rebels and Western Force requiring support from
the ARU historically, and the Melbourne Rebels consuming in excess of 50 per
cent of the unbudgeted $28 million in financial support from the ARU, the basis
for measuring financial resilience was based on future projections, not past
performance.[58]
2.40
The financial modelling undertaken by the ARU calculated a best case and
worst case scenario, taking into account a number of factors affecting each
team.
2.41
The worst case modelling for the Western Force considered that the
team's Road Safety Commission sponsorship was not guaranteed beyond 2017 and
the reported balance of the 'Own the Force' fund as at 11 August 2017 was
$1.8 million.[59]
The best case scenario took into account a pledge made by Mr Andrew Forrest AO
on 31 July 2017 to fully fund the 'Own the Force' initiative up to its full
value of $5 million and assumed that the Road Safety Commission
sponsorship would be extended to 2020. Graph 2.4 below projects the ARU's cash
balance based on each scenario.[60]
Graph 2.4—Financial forecast for keeping Western Force and
exiting Melbourne Rebels (best and worst case)
Source: ARU, Supporting
Documentation, [p. 4].
2.42
The best case and worst case financial modelling undertaken on the
Melbourne Rebels took into account whether a funding commitment from the
Victorian Government to the Victorian Rugby Union and ARU was realised through
until 2025. Graph 2.5 below projects the ARU's cash balance based on each
scenario.
Graph 2.5—Financial forecast for keeping Melbourne Rebels
and exiting Western Force (best and worst case)
Source: ARU, Supporting
Documentation, [p. 4].
2.43
The ARU advised the committee that it was unable to reveal the value of
the agreement with the Victorian Government due to confidentiality agreements.[61]
The Hon. Michael Murray MLA, the Western Australian Minister for Sport and
Recreation, one of the Western Australian Government representatives during
discussions with the ARU, told the committee that he believed the commitment
was valued at $20 million.[62]
2.44
Ahead of the arbitration ruling being handed down, the ARU requested
that RugbyWA provide a 'best and final business case' on the Western Force.[63]
The ARU stated that the business case provided by RugbyWA on 2 August 2017
lacked any evidence of binding commitments of financial support or any other
representations which the ARU could rely on in reaching its decision on the
future viability of the Western Force.[64]
2.45
RugbyWA dispute this, reflecting on the support of Mr Forrest and the 'Own
the Force' campaign. Chairman of RugbyWA, Mr Tony Howarth stated in his opening
statement:
We regard that as incorrect. Some of the extracts say that
finance behind RugbyWA is not uncertain. Andrew Forrest's commitment is
publicly available. Our view of the prospect of the 'Own the Force' campaign
had moved from highly confident to absolutely certain. We considered the
commitment by Mr Forrest as a verbal contract.[65]
2.46
Mr Howarth also confirmed he sent an email to Mr Pulver on 27 April 2017
confirming Mr Forrest's support.[66]
2.47
The purpose of the arbitration was to determine whether the ARU had a
legal right to end the Alliance Agreement and remove the Western Force from
Super Rugby.[67]
2.48
Following the transfer of the Melbourne Rebels' licence from Imperium to
the Victorian Rugby Union on 4 August 2017, and the Arbitrator's ruling on 11
August 2017 that the Alliance Agreement was at an end, the ARU formally
announced the decision to remove the Western Force from the Super Rugby
competition.[68]
2.49
The ARU acknowledged that its failure to secure the Melbourne Rebels'
licence meant that a number of people in the rugby community felt the decision
making process was 'somewhat of a charade'.[69]
2.50
Minister Murray also informed the committee that in his view, 'the ARU
has not been open, transparent or objective throughout the entire process on
what criteria teams would be evaluated on and how a decision to reduce the
number of teams would be made.'[70]
2.51
Accordingly, the Minister advised the committee that the Western
Australian Government had sought advice from the state solicitor on any
possible legal avenues that may be open to them regarding commitments made by
the ARU.[71]
When was the decision made?
2.52
The committee heard from a number of submitters who believed that some
consideration was given to removing the Western Force prior to 2017 and may
have coincided with the negotiation of the Alliance Agreement in 2016.
2.53
Minister Murray, told the committee that he believed the decision had
already been made by the ARU:
I believe...that they'd made the decision and worked backwards
to justify it.[72]
2.54
The ARU board were aware of a number of strategic options for the future
of rugby union in Australia which included the option of going from five to
four teams, prior to the finalisation of the Western Force Alliance Agreement.
2.55
The committee also notes that the ARU management commissioned a report
by Accenture in April 2016 and the report ultimately made a recommendation that
the number of teams be cut to four. Despite Mr Clyne disputing the ARU were
looking to cut a team prior to the delivery of that report, the committee notes
the timeline of the report being drafted, from April 2016 onwards coincides
with the negotiation and finalisation of the Western Force Alliance Agreement
which ultimately meant the ARU had secured the licence of the Western Force.
RugbyWA – ARU Alliance Agreement
2.56
In 2014, the Western Force realised that the team was entering a period
of financial difficulty. Mr Howarth, Chairman of RugbyWA told the committee
that:
It became clear in 2014 that, unless the ARU's policies
changed, the financial position of the club would end in insolvency. Over the
previous 10 years the Waratahs, the Reds and the Brumbies received somewhere
between $10 million and $20 million each in player payments over and above
those provided to Force players. The Rebels were provided with additional
funding of some $17 million by the ARU. Up until 2014, the Western Force had
not sought any financial assistance from the ARU, and, indeed, had created its
own elite pathway, the Future Force Foundation, which has been funded by local
rugby supporters and is now producing Wallabies. [73]
2.57
Mr Mark Sinderberry, the former Chief Executive Officer of the Western
Force, explained to the committee that a number of factors, including a decline
in the Western Australian economy, a decrease in the share of broadcast revenue
flowing to Super Rugby teams, poor on field performance and the failure to replace
a major sponsor, led RugbyWA to approach the ARU for financial assistance.[74]
2.58
Mr Pulver outlined that the state economy and future demand projections
did not play an 'overly influential' role in the metrics used to decide which
team to cull.[75]
2.59
In an answer to a question on notice, Mr Sinderberry provided the
committee with an email that demonstrates that RugbyWA sought an $800 000 loan
from the ARU in June 2015.[76]
2.60
Mr Sinderberry explained that, at that time, the ARU was under
financial pressure from other teams:
At that time the Brumbies had burnt through I think a $9
million windfall from a land sale. The Rebels were costing the ARU
approximately $3 million a year, and the ARU had taken over the Rebels.[77]
2.61
According to RugbyWA, instead of providing a loan the ARU presented an
alternate proposal:
Instead, the ARU wanted to work with us to establish a new
model, similar to that of the New Zealand model where centralised player and
coach contracts were allowed and the ARU and the clubs were able to benefit
financially through centralisation and building scale and operational support.
Whilst we were very sceptical of the centralisation of services, the RugbyWA
board was supportive of the alignment of players and coaching staff to the
high-performance unit of the ARU. We felt it was our best chance in the short
term to start to address the building of further talent within the team and
therefore being able to offer fans a better game-day experience and thus
starting to turn around the financial challenges.[78]
2.62
The proposal would become known as the Alliance Agreement. The Alliance
Agreement provided that RugbyWA would receive $4 million in return for
transferring the Western Force Super Rugby licence and the Western Force's
intellectual property to the ARU. As part of the Alliance Agreement, the
Western Force would gain access to the ARU's high performance unit and RugbyWA would
have the capacity to purchase the Super Rugby licence back from the ARU.[79]
2.63
However, the Alliance Agreement also contained the following term that
had the capacity for the ARU to bring the Alliance Agreement to an end and take
full ownership of the Western Force Super Rugby licence at the end of the
agreement:
Term means the period commencing on the Commencement
Date and ending on the expiry date of the last of the SANZAR Broadcast
Agreements (being 31 December 2020) or...if the last of the SANZAR Broadcast Agreements
is terminated or renegotiated earlier as a result of the renegotiation of the
commercial terms of a broadcast arrangement, such earlier date.[80]
2.64
A necessary implication of altering the format of the Super Rugby
competition was a need to renegotiate the 13 SANZAAR broadcast agreements. The
last of those agreements was renegotiated on 19 July 2017.[81]
2.65
The ARU argued that from 19 July 2017 it had the right to bring
that agreement to an end, meaning that it would unconditionally own the Western
Force licence and could bring the licence to an end.[82]
2.66
Submitters to this inquiry questioned the inclusion of this term in the
agreement and its subsequent use to remove the Western Force from the
competition.[83]
2.67
Working from public statements, submitters observed that the ARU may
have considered removing a team about the time that the Alliance Agreement was
being negotiated:
Given the ARU had doubts about the viability of five
Australian teams since the expansion in 2011, and that they started the process
to reduce the numbers within a few weeks of signing the Alliance Agreement, it
defies credulity that the ARU did not consider the possibility that the
agreement could be used to remove the Force.[84]
2.68
That suggestion was supported by a set of ARU Board minutes from the meeting
on 18 August 2016 indicating that ARU management considered the removal of one
Australian Super Rugby team to be 'preferable' both financially and from a high
performance perspective.[85]
2.69
Submitters also suggested that the ARU provided the term in a revised
version of the Alliance Agreement as a mechanism that could be used to remove
the Western Force at a later date.[86]
Date of the decision
2.70
A number of submitters suggested to the committee that they believed
that the decision to remove the Western Force was made on or about 9 April
2017.[87]
2.71
One person who thought the decision to remove the Western Force was made
on that date was Minister Murray:
It was when there was some press out there and some of the
board flew to Western Australia. It was my gut feeling that they were going to
make an announcement that the Force was out on that day. I was very surprised
when they went back to the other side of the world that they didn't make that
decision—very, very surprised. There was all the gossip. Football, and sport,
is very good at gossip. That was the feeling everyone had. But they didn't make
that decision. That was somewhere around April or May.[88]
2.72
On notice, the Minister clarified that he believed that the announcement
was going to be made on 10 April 2017.[89]
2.73
The perception that the decision had already been made was informed by
his dealings with the ARU in attempting to save the Western Force:
I had several meetings with the board or their executive, and
they were very open and honest in saying, 'Look, this is a problem; maybe we
can do this and maybe we can do that.' So we worked very closely to try to make
sure we gave Western Force every chance. But, no matter which way we turned, it
seemed like a decision was already made.[90]
2.74
On 10 April 2017 RugbyWA had a meeting with ARU managers Mr Rob
Clarke, then the Chief Operating Officer and Mr Todd Day, the Chief Financial
Officer. RugbyWA officials told the committee that the ARU's analysis was
biased towards the Melbourne Rebels:
A PowerPoint was put on a screen which showed that by
retaining the Rebels the ARU would be financially better off. The information
was at a very high level without any supporting analysis. Even limited
questioning of the numbers quickly revealed that the information was strongly
biased towards the Rebels. Some of the issues that we spoke about included [Mr]
Clarke confirming that they were still looking to make a decision within the
next couple of days. [91]
2.75
RugbyWA pointed to two other factors that they found concerning:
In subsequent days we were able to ascertain from the Rebels'
owner that the Rebels had been assured that they were safe in this process.
Consequently, it was revealed that the ARU had also given our confidential
alliance agreement to the chairman of Victorian Rugby Union without our
knowledge or consent.[92]
2.76
However, Mr Clarke vigorously denied that any assurances had been
provided.[93]
2.77
The committee received evidence that Mr North, President of the
Victorian Rugby Union had been provided with a copy of the Alliance Agreement by
the ARU on 12 April 2017.[94]
However, the ARU suggested that the Western Force had previously published the
Alliance Agreement on a public website, something RugbyWA directors denied.[95]
2.78
Mr North also confirmed the Alliance Agreement was a topic of discussion
at a meeting between himself, Mr Pulver, Mr Clarke and Mr Hawkins. Whilst Mr
North could not recall who provided a copy of the document, he stated:
I think I can recall this: I'm fairly certain that Mr Hawkins
gave me a copy of the writ of summons, which led me to ask for a copy of the
alliance agreement. That is the best that I can recall at the present moment.[96]
2.79
Mr North also confirmed he asked his secretary to copy the document:
Senator REYNOLDS: Did you say that, at that meeting,
those documents and the agreement were photocopied and handed around?
Mr North: No. I asked my secretary to take the
documents on the table, which had been looked at by me and Mr Hay, and asked
for them to be photocopied because they were provided to us for the purposes of
the discussion in relation to the suggested targeting of teams in the Super
Rugby competition.[97]
2.80
Chairman of RugbyWA, Mr Howarth, earlier told the committee:
RugbyWA felt there was little choice other than to seek an
injunction against the ARU taking action to shut down the team without due
process. In subsequent days we were able to ascertain from the Rebels' owner
that the Rebels had been assured that they were safe in this process.
Consequently, it was revealed that the ARU had also given our confidential
alliance agreement to the chairman of Victorian Rugby Union without our
knowledge or consent.[98]
2.81
The assertion by Mr Howarth that the Rebels had been assured they were
safe in the process is supported by the statement made by Mr North mentioned
earlier in this report that:
That there were in fact not five Super Rugby licensees in
Australia but four Super Rugby licensees. They were not only Super Rugby
licensees but voting members of the Australian rugby constitution and therefore
entitled to vote and attend two sessions of the general meeting of the
Australian Rugby Union. The fifth member was a team by the name of Western
Force, and it was owned and controlled, amongst other professional rugby
assets, by the Australian Rugby Union and was therefore under the control of
the Australian Rugby Union board. That asset was held by the board for the
benefit of all of the members of the Australian Rugby Union.[99]
2.82
Mr North further stated:
... I made it perfectly plain to the people from the ARU that
there was no power either in the constitution of the Australian Rugby Union or
under the participation deed for the Melbourne Rebels for them to target the
Melbourne Rebels. There was no basis under the constitution to do so.[100]
2.83
It is the view of the committee that possessing a copy of the Alliance
Agreement would have further strengthened Mr North's resolve in the above
respect.
2.84
Mr John Welborn told the committee that he believed that a decision
had been made by at least by mid-July:
My initial observation from those conversations [with ARU
Board members and other rugby stakeholders] was that it appeared that a
decision had already been made. That wasn't directly told to me but implied by
the apologetic nature of those conversations... It appeared that a mindset had
been created, which was that the Western Force was going to be removed.[101]
2.85
According to Mr Welborn, the ARU did not appear to be interested in
trying to find a possible solution to save the Western Force, despite
apparently generous offers being proposed by Mr Forrest to support the
team:
...I would describe as the total intransigence of the ARU board
with regard to considering new opportunities and the very real potential, even
as late as July... The number of opportunities that have come the way of Minderoo
[Mr Forrest's company] and myself and the other people involved with
looking at these opportunities have been immense, but at no point did it
appear, and certainly there was no indication, that there was a strong
exploration of or interest in any outcome other than the one we've arrived at.[102]
2.86
Mr Clyne presented evidence in his opening statement which confirmed he
had a telephone conversation with RugbyWA director Mr David Vaux, in advance of
the Adelaide meeting with Mr Forrest:
On the Sunday prior to the meeting, I had a telephone
conversation with Rugby WA director David Vaux where I outlined the enormous
obstacles that existed to preserve the Western Force in Super Rugby.
Essentially, as I explained, the only option available to the ARU or Rugby WA
was to establish a financial case for the creation of a 16-team Super Rugby
competition, which could be presented to SANZAAR. Even then, with the SANZAAR
executive committee voting unanimously for a 15-team format, which was backed
by all 13 international Super Rugby broadcasters, the prospects of any change
in course would require a significant financial injection. This same view was
presented to Andrew Forrest and his team in the meeting in Adelaide two days
later.[103]
2.87
Following Mr Clyne's evidence, the committee received correspondence
from Mr Vaux confirming the telephone conversation with Mr Clyne. Mr Vaux
outlines in detail the terms of a possible agreement he claims were presented
to him which would have seen the Western Force re-instated:
Mr Clyne called at 2.22pm on Sunday 20 August 2017 and said
to me that the process of determining an Australian team to drop from the Super
Rugby Competition had been very, very difficult for him, and that he was
personally very hurt by media commentary and comments by Andrew Forest [sic]
about his role and the ARU's approach. He had been warned not to do business
with Mr Forest and told not to trust him. However, notwithstanding these
feelings, he had been instructed by his board to make a "Without Prejudice"
proposal. He said that the ARU would retain the Western Force in the Super
Rugby Competition on the following conditions:
- Mr Forest would underwrite the Western Force's
financial position for the remaining 3 years of the Broadcasting Agreements,
and an additional 5 years which would arise from the next cycle of Broadcasting
Agreements;
- The Western Force would receive equal funding from
the ARU to the other 4 Australian Super Rugby teams;
- To compensate the ARU for having to continue to
provide an ongoing $6m contribution to the Western Force, Mr Forest would provide
funding to the ARU for grass roots rugby for $6m a year over the 3 + 5 year
period, $48m in total;
- Mr Forest would provide SANZAR compensation for the
additional costs of going from 15 to 16 teams, namely $20m; and
- If this proposal was agreed to, then Mr Clyne and the
rest of the ARU board would resign and a new board would appoint the next CEO.[104]
2.88
The ARU, however, told the committee that no decision was made until the
announcement was made on 11 August 2017 because insolvency remained a real
possibility for the Melbourne Rebels:
As part of our process of negotiating with the Melbourne
Rebels we got to the point where we were able to conduct due diligence on the
Melbourne Rebels. And it was clear to us at that point that there were serious
financial concerns which could potentially result in an insolvency event. In
fact, at the 12th hour minor shareholders within the Melbourne Rebels came
forward with incremental capital to prop up the enterprise, which removed it
from the prospect of insolvency.[105]
2.89
The committee have since been made aware through a confidential
submission that the ARU suggested Imperium exercise a put option and were
involved in negotiations which cleared Melbourne Rebels debt thereby allowing
the put option to the Victorian Rugby Union to be exercised. These events took
place in June 2017 and effectively made it impossible to end their licence.
2.90
This is despite testimony from Mr Clyne stating 'But I have said there
was a very real option that both teams were being considered right through
until August.'[106]
Player welfare
2.91
It was made clear to the committee that the ARU had little regard to the
welfare of the players in its decision to remove the Western Force.
2.92
Minister Murray expressed his concern to the committee that it appeared the
ARU had not considered the impact that the review process would have on the
mental health of players, and in particular the prospect of players losing
their jobs.[107]
2.93
In its submission, RUPA noted that:
In every Australian team there are players and staff whose
livelihoods and wellbeing have been compromised through this protracted
process...[108]
2.94
RUPA's submission went on to outline the impact that the review process
had on the Western Force:
[p]layers, staff and their families at the Western Force have
been put under unprecedented and, quite frankly, completely unreasonable duress
throughout this ridiculous and destructive process.[109]
2.95
RUPA informed the committee that it had a staff member with the Western
Force to support the welfare of players and that RUPA had referred a number of
players to external psychologists or specialist support this year. Mr Ross Xenos,
Chief Executive Officer of RUPA, also noted that the ARU had allowed RUPA to
take the lead on supporting the welfare of players and while supportive of
RUPA's efforts, Mr Xenos felt that the ARU could have had a more direct
presence.[110]
Committee view
2.96
The committee heard strong concerns about the process the ARU used to
decide which team would be removed from the Super Rugby competition. The ARU's
conduct and disregard for the welfare of the Western Force players is of
particular concern to the committee. The private nature of the process and
limited transparency meant fans and supporters had little to no visibility of
the process other than media commentary and speculation, and therefore could
not understand why the ARU arrived at the decision they did.
2.97
The committee notes that the ARU's solvency issues would have been
apparent when they participated on the SANZAAR decision making process to cut
the number of Super Rugby teams.
2.98
The committee understands that the team's financial positions, and in
particular the commitments of government support, were crucial to the final
decision, although the nature of these are in dispute and will be discussed
later in this report. The committee considers that the acquisition of the
Melbourne Rebels' licence also played a crucial role.
2.99
The committee notes the concerns of submitters about the use of the
Alliance Agreement to end Western Force's participation in Super Rugby. The
committee accepts that the removal of a team was not the initial objective of
that agreement and that some mutual benefits flowed from its execution.
However, the committee is concerned that the possibility of removing a Super
Rugby team in the future may have been anticipated by ARU management during the
negotiations.
2.100
The committee believes that, despite the analysis undertaken by the ARU
to decide which team to eliminate, the Western Force was the only licence that
could be legally terminated prior to the due diligence and analysis process
taking place.
2.101
Confidential evidence provided to the committee shows the ARU were
directly involved in the execution of the transfer of the Melbourne Rebels'
licence from Imperium to Victorian Rugby Union. The committee understands these
negotiations were well underway by June 2017.
2.102
The committee has significant concerns that the decision to remove the
Western Force was made earlier than 11 August 2017 and was skewed against the
Western Force by not placing enough emphasis on historic financial data, and
the ownership structure of the Melbourne Rebels.
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