The Melbourne Storm salary cap scandal is the latest to beset the NRL, bringing into question the credibility of its risk management and compliance processes
A series of salary cap breaches have plagued the NRL in recent years, and a number of experts believe that the organisation’s risk management and compliance processes are failing to keep up with the times.
The most recent breach by The Melbourne Storm club between 2006 and 2010 is estimated at up to $3.170 million – an 83 per cent increase on the original NRL estimate of $1.735 million – according to a recent Deloitte report.
It revealed that, in certain cases, the club appears to have maintained a dual contract system with formal contracts lodged with the NRL supplemented by “side” letters between the club and some players that guaranteed additional payments and benefits.
In 2002, the Canterbury Bulldogs were also fined $500,000 and lost 37 premiership points after it was found that the club had breached the salary cap by $2.13 million, while in 2005, the New Zealand Warriors were also fined $430,000 after the club exceeded the salary cap by $1.1 million.
While the NRL seems to be very active in relation to salary cap breaches, Rod Farrar, director of Paladin Risk Management Services, said that many salary cap breach discoveries have come about as a result of whistleblowing on the part of a disgruntled ex-employee. “Were this not the case, one wonders what the level of discovered non-compliance would be (and also brings into question how many breaches go undiscovered),” he says.
“With what seems be regular salary cap breaches discovered it is obvious clubs are still willing to take the risk to gain an advantage over the rest of the teams in the competition. This is hardly surprising given the relationship between on-field performance, crowd numbers, merchandise sales which ultimately provides the income that keeps the club afloat.”
Wayne Middleton, principal of Reliance Risk, says that the media exposure created by News Limited (and other media’s involvements in the game), help attract top players to the game, along with huge dollars – but this also creates the risk driver for some franchise clubs to take extraordinary risks to win.
“The previous assurance process for salary cap auditing appears to have been unable to cope with the problem, given the extent of the [Melbourne Storm] breach and the confidence the Storm’s management had in manipulating the system with impunity.”
While the current salary cap imposed by the NRL aims to make the competition fairer, Middleton says the ongoing player drain offshore, to other codes and the Storm’s massive salary cap breach, suggest that something needs to change. “Although continued scandals seem to have little effect on crowd numbers, they cannot be good for promoting the game to the young and impressionable. If the game is serious about improving risk management and compliance, they need an independent commission to oversee it.”
Farrar believes there needs to be a risk management framework unique to the NRL, implemented across the board with all clubs required to implement risk management programs at their level with reporting requirements to the NRL.
“Why take such a step? The reality is that the NRL is the primary custodian of the game with the actions of the players and officials at each club affect the brand of the game and ultimately the reputation of the governing body,” he asserts.
“If the NRL adopts the same attitude/culture as the clubs (hope and trust followed by crisis and response) then the NRL will also lurch from crisis to crisis. The problem for the NRL is that they are in charge of the management of the game and continuing crises bring their ability to administer rugby league into question.”
The NRL have announced recent changes to the salary cap in June following consultation and agreement with NRL club chief executives and discussions with the NRL’s collective bargaining agreement sub-committee.
These include a $100,000 lift in the salary cap to $4.2 million, a $150,000 lift in the Marquee Player Allowance to $300,000, an exemption from the salary cap for the use of three cars per Club, a commitment to develop further rewards under the cap for long serving players and the opportunity for players to maximise tax structures around image rights.
While the proposals are still subject to NRL Board approval and further talks with the Players Association, these improvements should however help to address the issue of salary cap in the NRL, according to Middleton.
“But in my view more needs to be done to promote a more aligned set of objectives and risk management culture across the game and its stakeholders,” he says.
“For the league to gain value from risk management they require clear management commitment from a united league and club management, and establishment of better systems, work processes and structures that encourage a less obstructive risk taking culture at club level, yet fosters greater openness, consultation and compliance with governance requirements set by the league.”
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