A business model should achieve a reasonable balance between risk and reward. Unfortunately for the Golden Lions Rugby Union (GLRU), the model for SA rugby has proved to be unstable at best and reckless at worst.
The stakes are inherently high in professional sport, and especially in physically dangerous games like rugby. The preservation of the key assets - the players - is threatened every Saturday. When a team competes in a major league, such as the 20-club English soccer premiership or the Super Rugby tournament involving 15 teams from SA, New Zealand and Australia, its commercial survival is threatened if it finishes too low in the table.
In the US it is clearly understood that in professional sport the vital brand is the league itself, not the individual team brands. That's why the bottom team at the end of every football season is offered first choice of the cream of graduating college players. The US leagues also have a safety net to protect huge investment in players, support staff and stadiums: they do not impose relegation.
That was also the case in the Super Rugby tournament from its inception in the mid-1990s - until now. Thanks to a promise made by the SA Rugby Union to politicians anxious to see rugby develop in the Eastern Cape, the traditional seedbed of the sport among black African players, one of the present provincial sides will have to make way for the Eastern Province Kings. Australia, New Zealand and SA each have five teams, and the other two countries refuse to compromise on that number.
The axe is set to fall on the Golden Lions, who are bottom of the 2012 Super Rugby table. If a bad season had been the exception, their case for survival would have been stronger. But they have consistently been the worst SA team in the competition.
In the 16 years of the Super 12, Super 14 and now the 15-team Super Rugby, they have finished in the bottom three places no less than 13 times and in last position five times. For several of those years, until the enlargement of the competition, the Lions were combined with the Free State Cheetahs and known as the Cats. Since the Cheetahs, a much smaller union, began playing separately in 2005, they have performed better than the Lions.
Until 1998 the Lions were known as Transvaal, for many years one of the big three of SA provincial rugby, with Western Province and Northern Transvaal. Transvaal was also famous for being the richest amateur sports body in the world, before the game went professional officially in the 1990s.
The Lions' decline from the late 1990s meant they were superseded by the Sharks and even by the Cheetahs. In professional sport, failure can breed more failure in a vicious and unforgiving circle. A losing team becomes unfashionable for young players and unattractive to sponsors.
Recovery can be achieved through good leadership and a run of favourable results. It seemed the Lions had achieved this when they won the Currie Cup last year, pulling back spectators and sponsors. But hopes for a good campaign in Super Rugby this year were dashed by an unusually high injury rate. Before the competition even kicked off, the team had lost eleven first-choice players.
Off the field, there were reports that the union was in financial distress and could not pay its players. A much-publicised rescue deal, involving the injection of capital and the taking of an equity stake by businessmen Robert Gumede and Ivor Ichikowitz, foundered in acrimony and legal action.
A 140-page forensic report compiled by accounting firm KPMG, revealed by City Press
, apparently told a story of routine mismanagement, with the financial report for 2010 showing that the union's total liabilities exceeded its assets by R73m. Debts amounted to about R90m. Those amounts were seen in the context of R44m revenue from television rights and stadium naming rights from Coca-Cola.
Bizarrely, all the provincial unions voted for the inclusion of the Kings in Super Rugby before anybody had worked out how six teams could become five. GLRU president Kevin de Klerk takes comfort from Saru's comment to the parliamentary portfolio committee that the Kings will play in the competition in 2013 "but not at the expense of one of the other franchises". But that assurance was apparently derived from the hope that SA would be allowed to enter an extra team. The matter is expected to be finalised at a Saru general council on July 13 this year.
In the professional era, the big SA rugby unions are hardly more transparent than they were in the opaque amateur days. De Klerk will not reveal elementary financial details like total revenue and expenditure. But it's estimated that the big unions based in the major cities have annual operating budgets of between R120m and R180m, with as much as 80% of that allocated to salaries of players and staff.
The main sources of revenue are the sponsors of the stadium and the team; ticket sales, including season ticket sales, which are important because they represent cash in advance; and a share of the revenue when test matches are hosted.
There is a new white knight who has come to the rescue of the GLRU by taking an equity stake of close on 50% of the union. He is Altmann Allers, chairman of Glasfit, linked to the Jo'burg Pirates club and now a vice-president of the GLRU. There is also a new three-year multimillion-rand sponsorship deal from property firm Redefine. Success breeds support, and De Klerk proudly points out that, after the Lions' great run in the Currie Cup last year, all the corporate suites at Ellis Park were sold for this season.
They will just as soon be sold back, however, if the Lions are kicked out of the Super Rugby competition. The team will then be confined to the Vodacom Cup - essentially a third-tier competition - and the Currie Cup. School leavers with rugby promise will look to Pretoria, Cape Town and Durban to build professional careers. Sponsors of teams and individuals will be similarly diverted, and season tickets will be worthless.
De Klerk, who played lock for Diggers, Transvaal and SA in the 1970s, is one of the few former Springboks involved in the administration of the game. Appointed in 2010, his presidency is unsalaried, apart from a sponsored car, and he says that many of the union management and financial issues have now been sorted out.
It all may come to nothing, however, because it is no exaggeration to say that an exit from Super Rugby would probably kill off big rugby in Johannesburg for good.