How rugby is on a losing streak without an economic model of sustainability

Enough time has passed since the deep disappointment of not getting the Rugby World Cup in 2023.

In the midst of accusations of unfair play or us dropping the ball, the question remains: are the administrators of the sport facing up to the reality that we are on an unsustainable path?

The talk is that the vote went where the money is; the French bid would result in more income generated than if it was hosted by SA. So even though the technical committee and independent report said SA was the best bet, when it came down to the vote, the power of the euro won the day. It certainly raises questions about how these decisions are made and where the extra money made goes.

Despite the efforts of Deputy President Cyril Ramaphosa and a well-polished presentation, the highly complex economics of sport was always going to have the final say. Understanding this alone would have predicted the outcome. Based on the current approach in world rugby, a country such as SA is not going to get a look in for the World Cup, not because we aren’t capable of hosting a magnificent tournament, but because we cannot compete against the self-interest that comes with the economic
model in its current form.

In a nutshell, within South African rugby and rugby worldwide, we need to introduce mechanisms for mutual benefit, otherwise one team or country can dominate to the extent that it crowds out the others. This un-levels the playing fields, erodes the excitement of high-level competitiveness and diminishes the support base. Super Rugby and our own Currie Cup are a testament to this.

Essentially, there are two economic models that different parts of the world follow.

North America follows the profit maximisation model, while Europe follows the utility maximisation model, as do we. New Zealand has more of a hybrid model, which on balance seems to be the most effective at developing the sport in that country, but the poor crowd attendance at Wellington’s hosting of the recent HSBC Sevens confirmed that venue is no longer viable.

Closer to home, if we do not contend with this, South African rugby, and soccer and cricket too, will be condemned to second-rate status, whether we like it or not.

Both models are well described in the book Economics of Sport by Prof John Goddard and Prof Peter Sloane of the Welsh Economy Labour Market Evaluation Research Centre at the University of Wales.

In the profit maximisation model they explain that in North America the worst-performing teams in the league have first choice of the best young players coming through. The model is designed to stop the top teams from taking the top young players all the time.

They add: “There are roster limits, pay caps and restrictions on player trading.

“Economic competition is limited by gate-revenue sharing of the receipts of individual games, joint merchandising and the collective sale of broadcasting rights.”

In the US, the major team sports to which such arrangements apply are baseball, American rules football, basketball and ice hockey.

With the utility maximisation model, revenue sharing is absent or not common and there are far greater imbalances in income as some teams are from smaller, less affluent towns, cities or regions, while others are from large, affluent cities and regions. With this model, each team, region or country is self-focused on achieving the best value out of a transaction, which does not necessarily mean profit maximisation. An example is buying a player for a large sum.

The problem is that with this model you end up paying a player more than the marginal revenue even though it does not make economic sense. Or you land up with a whole lot of rugby or cricket or football teams in a whole lot of towns, cities and regions, but few of them make consistent profits, hence they rely on donations from wealthy directors and owners or donations from supporters’ clubs to continue in existence. You then land up with one or two teams dominating through the power of the chequebook.

We see this in South African and world rugby. Because there is no revenue sharing or economic mechanism for collective benefit and management of the sport in world rugby, you land up with a situation where Samoan rugby is bankrupt and cannot even afford to send its players to compete in England and Scotland. Nor does it benefit from handsome gate revenues accrued through the power of the pound.

When the players run on to the field, they play against each other at the same venue, yet the England players earn £22,000 for the match, while the Samoan players earn £650. The UK’s Rugby Football Union makes about £10m from hosting a Test match at Twickenham.

We all know life isn’t fair, but we also know this imbalance is not good for world sport.

We urgently need administrators who can structure an economic model of sustainability for world rugby and we need administrators in SA who can do the same, with an emphasis on transparency and strong, ethical management.

Otherwise we will have rugby stadiums that are not filled and we will have the bigger, wealthier teams dominating by buying the best players.

The same applies to schoolboy rugby. The Eastern Cape, the factory of black rugby in SA, is not sustainable — it’s like the Samoa of SA — and it will never go forward unless a better, well-administered economic model is put in place.

Would the profit maximisation model work in SA? No. But the utility maximisation model isn’t working either.

It’s no different in world rugby. How do you build a global rugby brand if the teams are not competing on an open footing with shared profits and incentives to ensure the game remains competitive and great? You don’t. Which is why I say the outcome of the Rugby World Cup bid was predictable.

Of course, competing at an international level brings different dynamics to a domestic league, but solutions can be found if the administrators are honest about the reality staring them in the face.

Closer to home, for as long as we do not sort this out, the exodus of our players will continue, our top rugby schools will focus on winning at all costs at the expense of how they win, some of our provincial unions will go bust, we will never again see a Super Rugby winner from SA. And rugby will not realise its potential as a sport to truly unify our country.

First published in Business Day on Wednesday, 13 December 2017.