Greater investment in the sports industry should lead to improved governance policies and management structures in 2015, writes Matthew Sainsbury.
For the various football codes, 2014 was a big year that brought with it a lot of success, both on and off the field. Three of the top five televised events of the year were football events, as the popularity of both the National Rugby League (NRL) and Australian Football League (AFL) competitions grows. There is also increased international interest in rugby league.
Meanwhile, over in the world of soccer, the Western Sydney Wanderers became the first Australian team to win the AFC Champions Cup, upsetting the most successful club in the Asian championship’s history in the process (with five finals appearances, Saudi Arabia’s Al-Hilal FC has reached the final more than any other team). This massive success was a significant boost to the A-League.
Television networks bid hundreds of millions for broadcast rights for both NRL and AFL games, and football in general has become a business of exponential growth. Just as it is in the US, buying into a team is a glamorous hobby for the independently wealthy, as we saw in 2014 when James Packer joined Russell Crowe in sharing ownership of the South Sydney Rabbitohs.
But football also continued to experience the aftershocks of its greatest controversies in 2014, with both the AFL and NRL under intense scrutiny following the investigations of the Australian Sports Anti-Doping Authority (ASADA) that commenced in early 2013. Essendon and its coach, James Hird, are the most famous examples of the impact of the investigations, but the NRL’s Cronulla and numerous other teams across both codes have experienced extensive scrutiny in a wide-scale investigation.
With more money involved in football than ever before, it has become more crucial that the leagues protect themselves from the reputational damage of governance oversights as we move into 2015.
From the top
The NRL clubs have varied ownership models that operate within the framework established by the Australian Rugby League Commission (ARLC) as the single controlling body for the game.
As a result of matters raised during the ASADA investigation, the NRL improved the regulatory framework within which the teams operate. It required all teams to improve governance processes so there could never be a repeat of the same set of circumstances that led to the ASADA matter.
“We’ve made some changes across reporting structures so doctors are now required to be outside the football department and report in to the CEO,” ARLC chairman, John Grant MAICD says. “That’s a big change because it gives doctors independence so they are no longer responsible to the football manager or the coach in terms of what substances players are taking and how they’re being handled from a healthcare point of view.
“For my mind, one basic requirement for good governance is creating independence in terms of both decision-making and review.”
The timing was right for the governance policy changes. Beyond the ASADA scandal, the reality is that with more fans of the sport buying into their favourite clubs, and more money becoming involved in the management of clubs, it is important that football clubs have the policies in place to separate passion from the business where necessary.
The differences between sitting on the board of a sporting team and being a director of a more conventional business are subtle, but there is an emotional investment that comes with being a director of a sporting organisation that can cause people to think differently to how they would approach traditional business.
Grant, who is also the long-term managing director of technology company Data#3 says that while the difference is subtle, it cannot be underestimated. “The impact of getting people together to throw a ball around can have a big effect on very large groups of people, from the fans themselves right through to the people that do sit on the boards of football clubs,” Grant says.
“Sometimes that passion can come into conflict with the necessities of the business, and as directors we have two jobs we need to manage. One is about purely the business, and the other is about the football. They are only separable to an extent, and it is in the way they are linked that we can see failures of governance,” he continues.
Tony Shepherd AO MAICD, chairman of AFL start-up team, the Greater Western Sydney Giants (GWS), agrees. He says it can be difficult at times for directors not to get directly involved in the management of the team. “With football clubs, you get a lot of passion and publicity and the temptation is for directors to get involved in day-to-day issues, but that is poor governance,” Shepherd says. “What you’ve really got to do is stand aside from that and only get involved if it’s something important.”
In other words, directors of sporting clubs need to run the club like a conventional business. Even in the AFL, where the central body provides financial support and manages ownership of the teams, it is effectively a competitive environment off the field where there is a need to compete for audience numbers and revenue. Shepherd, who presided over the formation of the team from the outset, says he found it beneficial simply to treat it like a regular commercial business.
For the GWS Giants, the decision to run the team like a conventional business applies to its on-field performance too. Deliberately drafting a young and inexperienced team that could be turned into a powerhouse over the long term, the Giants only recorded two wins in its first season, one in its second, and six in its third. Shepherd likens the pressure to that experienced by start-ups before they turn a profit.
“We expected the soft results as it was a deliberate strategy to build up slowly and softly,” Shepherd says. “We see it happen with start-ups too, where people say ‘you haven’t hit a profit yet, when are you going to make a profit?’ With that kind of pressure you can be panicked to change your strategy, and that rarely ends well. We are going to perform better this year and we’ve recruited two experienced guys into the team, but we’ve resisted the pressure to take on short-term solutions.”
Emulating US sport
Part of what drew Scott Penn MAICD, chairman and co-owner of NRL team Manly Warringah Sea Eagles, to the sport was his observation that the structures and teams were increasingly behaving like sporting organisations in the US.
“For the NRL, the exciting thing is we’re finally starting to get the revenue streams that clubs require in order to emulate the US sports business models,” he says. “Previously we had relied on benefactors to fund shortfalls, but I think all clubs now realise that while the benefactors are still around, they aren’t prepared to chip in the millions of dollars they have in the past, therefore clubs have to be self-sustaining, and the only way to do that is to improve those on-field and off-field performances.
“Governance is a major part of off-field performance; making sure you have the right executive team in place, with the right policies and procedures, so that you’re running an effective organisation,” Penn says. “There is no reason every club can’t break even or better in the future. It’s going to take time, but they can get there. The only way to do so is to improve the makeup of the boards.”
The result of sound governance will be even more effective competition and compelling content for viewers, leading sport into a virtuous cycle of continuous improvement. For directors, it is an exciting time to be on the board of a sporting team, Penn adds, with flat organisational structures allowing them to be actively involved and responsible for the financial success of the club, even if they are not hands-on with its management. And with more high-profile businessmen and women winding up on the boards of sporting clubs, it is going to get even more exciting moving forward.
“The relationship between directors and the club is a closer relationship than with traditional businesses, because it has to be,” Penn says. “Football clubs need flat structures by nature. The CEO is empowered to do his or her job, but the board needs to have strong dialogue with the executive managers to ensure that the business is running effectively.
“Additionally, in a football club, it is really the network of each director that’s critical to its success,” he adds. “Membership, sponsorship and game fees are our key revenue streams and in these areas, especially sponsorship, directors need to leverage their networks in order to bring revenue to the table.”
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