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Draft Determination on NZRU authorisation

9 March 2006/104

Draft Determination on NZRU authorisation

The Commerce Commission has issued its Draft Determination on an application for authorisation from the New Zealand Rugby Union.

The Application asks the Commission to authorise player arrangements that relate to two new provincial rugby competitions that are to replace the National Provincial Championship Divisions One, Two and Three this year.

The Commission can authorise anti-competitive arrangements if the public benefits of the arrangements outweigh the detriments from the lessening of competition.

The NZRU's proposal would see a new Premier Division take the place of NPC Division One. A Salary Cap would limit each provincial union in the Premier Division to paying no more than a total of $2 million in player remuneration. The NZRU also proposes to replace its current player transfer arrangements with less restrictive Player Movement arrangements.

NPC Divisions Two and Three would be replaced by a new competition, referred to as Modified Division One (MD1). Under the MD1 Regulations proposed in the application, players in MD1 would not be paid, and unions would no longer be able to borrow players from other provincial unions, including club players.

The NZRU made a single Application, but the Commission considered it in two parts:
- the Salary Cap and Player Movement arrangements; and
- the Modified Division One arrangements.

Salary Cap
A salary cap is designed to stop the wealthiest unions from employing all the best players. It can theoretically result in a more even spread of talent and hence more evenly matched games.

The NZRU's Application argues that when games are more evenly matched they will attract more spectators and larger television audiences, and so raise more income for the NZRU and provincial unions. However, the Commission is not satisfied that these links are as strong as the Applicant contends, as New Zealand research shows that evenly matched NPC and Super 12 games do not necessarily attract larger crowds.

The Commission has looked at salary caps in professional sport leagues overseas. It found they can be effective in spreading player talent and producing a more balanced competition, but only under some conditions. The Commission notes that, where salary caps have been effective overseas, they have usually included revenue sharing arrangements. Such arrangements are not part of the NZRU's Application.

While the Commission's preliminary view is that there are potential benefits to the public from the proposed Salary Cap, there is uncertainty about the effectiveness of the arrangements as proposed. To increase the probability of the potential benefits being realised, the Commission would impose conditions to ensure that the salary cap was robust and would be strongly enforced, and that there would be no scope for avoiding the cap through non-cash benefits.

On this basis, the Commission's preliminary view is that it would authorise the Salary Cap arrangements with those conditions.

Player Movement arrangements
The Commission's preliminary view is that it would authorise the proposed Player Movement arrangements as these represent a substantial liberalisation of the current transfer arrangements.

Modified Division One arrangements
The Commission's preliminary view is that it would not authorise the Modified Division One arrangements. These require MD1 players to be unpaid, and ban the loaning of players from outside the union's region.

The NZRU argues that the MD1 arrangements would address cost management issues facing smaller provincial unions, avoid the costs of importing loan-players, and ensure funds were spent on developing local "grassroots" rugby, promoting an amateur, community-based competition. The Commission considers the MD1 arrangements would be costly to administer and enforce, deter some players who could not afford to play for free without compensation for lost income, cause MD1 unions to lose the benefit of using loan players, and remove an avenue for players to progress to higher levels.

Commerce Commission Chair Paula Rebstock said the Commission was aware that the arrangements governing rugby were of great concern to many New Zealanders.

"That underscores the importance of ensuring that the public benefits promised would be realised, and would be substantial enough to warrant the authorisation of an anti-competitive arrangement.".

"The issues involved are complex," Ms Rebstock said, "and there are many interested parties. This Draft Determination will provide a basis for further submissions."

Next steps

The Commission is now seeking submissions from interested parties in respect of the preliminary conclusions it has reached in the Draft Determination. The deadline for submissions to be received by the Commission is 3 April 2006.

The Applicants and interested parties must notify the Commission by 5pm on Thursday 22 March whether they wish the Commission to hold a conference in relation to this Draft determination. At the request of parties or at its own discretion the Commission can then hold a conference in relation to this Draft Determination. Should a conference be held it is likely to occur on 9 and 10 May 2006 (to be confirmed).

The Commission intends to release its final determination on the Application on Friday 26 June 2006.


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