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Rugby Union salary cap authorised for six years

2 June 2006/135

Rugby Union salary cap authorised for six years

The Commerce Commission has told the New Zealand Rugby Union that it can impose a salary cap to limit the amount each union can spend on players. The cap will apply for six years from today, and will be reviewed after five years.

The Commission may authorise anti-competitive arrangements if it decides the benefit to New Zealanders outweighs the detriment to competition.

The Rugby Union submitted that the salary cap would create a more even spread of players, resulting in closely contested matches that would attract bigger television audiences and earn more money. The Commission analysed four years of viewing figures and found that closely contested games were not necessarily more popular with the public. However, the Commission found that the quality of players in a match did affect the match's popularity. The Commission concluded that, by encouraging a more even spread of good rugby players, the salary cap could increase the quality of play, and hence the popularity of rugby and the income to be earned from it.

"This decision is based on finely balanced judgements," says Commerce Commission Chair Paula Rebstock.

"The net benefits are modest and rely on the salary cap being correctly implemented and rigorously enforced."

Ms Rebstock says that conditions imposed by the Commission sought to increase the certainty of the salary cap delivering the benefits advanced by the Rugby Union.
The Commission approved the salary cap subject to the following conditions:
* The salary cap will last for six years, with a review beginning after four years.

* The NZRU must monitor and enforce compliance with the salary cap framework. This will include putting in place anti-avoidance clauses and ensuring they are complied with.

* The NZRU must ensure that no remuneration is excluded from salary cap calculations.

* The NZRU must evaluate the effectiveness of the salary cap in the review after five years.

Background

The NZRU applied to the Commission in November 2005 for authorisation of its proposed salary cap, and other arrangements relevant to the new modified Division One. After the Commission issued its draft determination in March, indicating the salary cap was likely to be authorised with conditions but the other arrangements were not likely to be authorised, the NZRU withdrew the other proposals, leaving only the salary cap and player movement regulations for authorisation.

ENDS

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