Monday, 21 July 2003

The big business of sport

Speaker: John O'Neill, CEO, Australia Rugby Union

Australian Rugby Union chief executive John O’Neill is credited with possessing a unique mix of sports administration, business administration and political savvy, making him one of Australian sport’s most successful corporate managers.

During his time at the helm of the ARU, crowd attendances for Super 12 and Test games have increased by 58%, player numbers have increased by 65% and the free-to-air TV audience has increased by over 25%. Rugby World Cup 2003 in October/November this year will boost these figures even further.

AFR BOSS is the monthly management and leadership magazine inserted in The Australian Financial Review. AFR BOSS Club is a series of regular forums given by business people, management experts and academics discussing their experiences of management and leadership.

Transcript

This is an edited transcript of the address by Mr John O’Neill, managing director and CEO of the Australian Rugby Union, to the AFR BOSS Club on July 21, 2003.

Mr O’Neill was asked to speak about his transition from the banking industry to rugby union, the achievements of Australian rugby, and the ramifications of the Rugby World Cup for rugby in Australia.

WHEN I took on this job in 1995, I learnt that I couldn’t just tell people to come with me, I had to persuade them. Barking out an order to people who feel passionately about their game and expecting them to respond just because you’re the boss – it just doesn’t work like that.

It didn’t mean that I had to become a shrinking violet and that I wasn’t able to make a decision, but I had to be able and willing to go through thorough explanations.

When people talk about stakeholder relationships, rugby is a new dimension, absolutely a new dimension. I had to traverse Australia speaking to all the stakeholders about where we are going and how we want to get there, listening to their ideas. To not allow them to contribute was to lead to destruction. And I did make that mistake early on.

The difference between the clinical nature of business and the business of sport is what’s in here, it’s the passion. And it doesn’t matter whether it’s rugby union, AFL, soccer or rugby league – any form of sport – people feel passionately about sport.

Often in those early days as we collected views and tried to figure out what the right direction was – where did we want Australian rugby to go? – the common theme was, “You don't understand, I love this game,” or “You don’t understand, I’ve played this game since the age of five.”

I may have been a somewhat traditional creature of rugby, having played at school, at high school, and coached a little. I couldn’t allow myself to become “in love” with the game. I developed a new word for my relationship with the game, and it was that I had “a great affinity” with the game.

I couldn’t allow myself to become passionate and in love with it, because basically I saw too many examples of where love and emotion got in the way of good decision-making.

My job, ultimately, was to try to present Australian rugby with a range of choices and to help them to make the right choice, not to say, “This is the way to go.” They had to get there by themselves and on their own. Otherwise, as others have said before, “Strategy is easy; execution is unbelievably difficult.” The difference between a successful company and an unsuccessful one often centres on execution.

What I had to be able to create with Australian rugby was as close to a unanimous choice as to which strategic option we were going to pursue. Then the likelihood of people helping me execute it was going to be so much greater than it would be without having gone through the process.

So, process in this job compared to process I had to go through in banking is entirely different. Patience wasn’t one of my great virtues, especially in my last job. Particularly with banking in the 1990s, you really had to move quickly, and move decisively, and waiting for people to agree with you wasn’t always a likelihood you could enjoy. But I had to develop a lot more patience, a lot more tolerance of people’s views. I had to ensure the collective device at the top was allowed a sense of ownership of where we were.

And if we look at where we are now, compared with where we were eight years ago, a lot of things have been learnt. From the recipe, although incredibly hard to concoct back in the early days of 1996-97, rewards then flowed. So the investment of time and energy, the patience, the tolerance levels all started to pay off.

As I said, in 1995 we lost about $800,000, but there was worse to come: in 1996 we lost $3,000,000. That was $3,800,000 of accumulated losses, and we’d wiped out our equity in the first five years. But we continued to pay our dividends to our shareholders, we continued to offer the things that our member unions expected of us, and in 1998 we turned the corner. We took Test Matches to Melbourne, we took the Bledisloe Cup to Melbourne in 1997 and backed up in 1998. We have implemented our strategy, and this year our turnover will be about $73 million, excluding any World Cup component at all. We had player numbers in 1996 of around 89,000 Australia wide, and today we have 150,000 players Australia wide.

We used to do handstands if we got 40,000 people to a game at the Sydney Football Stadium; now we still hold the world record for the largest rugby crowd ever – 110,000 people at Telstra Stadium in 2000. These are some remarkable statistics to show that rugby union, in an eight-year period, has gone from a modest sport to a serious contender for the hearts and minds of sports fans around Australia, and more importantly, around the world. It was not that long ago, in 1987, that we had the first World Cup ever in New Zealand and Australia.

We had a fantastic semi-final at Concord Oval between Australia’s Wallabies and France. One of the greatest tries ever seen was scored in the corner, and we lost before a crowd of 17,000 people. Thirteen years later there were 110,000 people to watch the iconic event, the Bledisloe Cup. So rugby has come a long way.

One of the major contributors to this has of course been additional broadcasting exposure. The popularity of any sport, especially early on in this competitive environment, rests on exposure. I knew that unless we got greater exposure on television we just weren’t going to be in the race. What is now called the News Limited Broadcasting Deal really was the catalyst for that improved exposure. With the creation of Super 12 and Tri Nations, with the Bledisloe Cup incorporated in it, suddenly rugby was on people’s minds.

It still had limitations, of course, because Super 12 was restricted largely to pay television, and that cuts down the audience you can reach. With great respect to pay television, on any day there are 1.5 million subscribers versus 6.5 million with free to air television sets. We’ve since overcome that with renegotiations, but still for Fox Sport and for rugby, Super 12 has been incredibly important in bringing new people to our game, and in the marketing and promotion of rugby as exciting, and a much-attended and much-watched sport.

Of course Test Matches, of which rugby union has long been the proud custodian, took on a new dimension in the modern era, with the Tri Nation formats putting together arguably the three great powers of the rugby world. Over the last eight years New Zealand, South Africa and Australia have been in the top four in the world, and those three countries playing each year in Tri Nations format has been hugely successful.

All of that has enabled us to generate fantastic revenue growth. Broadcasting revenue is up over the $20 million mark, sponsorship revenue is now $20 million, but it’s simply scratching the surface.

Importantly I guess, a big difference between what I need to do and what I’ve been doing for the last eight years is what I really enjoyed about banking, that was the consumer banking side of things, the customer service. One of the things I was proudest of at the State Bank was in 1994, when we won the Personal Investment Magazine Bank of the Year Award, one of the most prestigious awards in the industry.

To win that award ahead of larger establishments we needed innovative products and services, and I guess it tells you a little bit about where my focus lies – that is, very much around customers, marketing to customers, developing products and services that they want and marketing them to those you’re selling to. And that is very much what I’ve tried to do with rugby as well.

For the first five years, it was a case of all hands on plans to get over tremendous losses, then get into recovery mode, to the Wallabies winning the World Cup in 1999. After 2001, because we could afford it, I wanted to take the idea of Australian rugby down the marketing-driven approach. We hadn’t really gone about our plans as customers. We knew people watched the games on television and we could measure that, we could measure people that came through the turnstile, so we had this fantastic data. What did we do with it? We didn’t analyse our customers, we didn’t know much about existing customers let alone where we were going to get the new customers.

The last couple of years has been about getting our act together in terms of presentation, promotion, propaganda, and it’s not miracle-working at this stage, but we’re starting to see signs that the game’s profile is far greater. Penetration and reach is far greater; a good example is the fact we’ve sold 1.3 million tickets to the World Cup domestically.

We could not have sold those tickets simply to rugby fanatics; we must have sold them to the greater community of Australian sports fans. We will probably end up selling close to 2 million tickets to this event, to be staged in less than three months time.

So how do we do that ? Again, with advisers, we accessed our existing database, we went directly to the rugby community, to see what is right under our nose. For those of you who work in consumer and service businesses, we all know how valuable data is and we’ve just started to use it. We were able to offer the rugby community a separate pool of Rugby World Cup tickets, rather than simply saying that tickets were on general sale now, because they had been loyal to rugby.

So having had an eight-year career in banking, and now an eight-year career with Australian rugby, on the face of it you couldn’t pick two more different industries. But I’m pleased to say that a lot of what I’ve gathered over time hasn’t been wasted. Because the management disciplines and the common sense approach I applied in banking I applied equally but differently to rugby.

The disciplines aren’t different; the applications of the disciplines are different. And that is something no textbook will necessarily tell you how to adapt. But when you get the disciplines right, and you get the application right, you’re onto a winner.

So there are some fundamental disciplines you need: sound financial management, sound business plans – all the things that I know everyone in this room is terribly familiar with. Key performance indicators – things that people in rugby said, “What are you talking about? The only key performance indicator that we have is a win-loss ratio.”

And so, slowly but surely, we applied the disciplines. And if we couldn’t get it through the front door we’d find another way around it, and that is why when I look at the organisation today I’m very proud of what’s there. It went from an entity of about 39 people when I joined it that I then pared back to 19 in the first three months. The underlying numbers are now about 80, putting aside all the World Cup people, and it’s a traditionally structured organisation.

I have about nine direct reports. I’ve got the high performance unit, which is all the elite rugby component, with Eddie Jones, the head coach and Brett Robinson, the head of the high performance unit, reporting to me. Through to community rugby, which is everything else in rugby right from club rugby down to kids. I’ve got a marketing and strategy unit; Geoff Parmenter is here tonight – he’s been the architect under me of driving us into a more marketing-focused organisation. We also have typical finance, administration, media and IT areas.

We have all the traditional departments, but more importantly there are really high quality people in all of those jobs. Brian Thorburn, who was my chief finance officer at the State Bank, is the head of our commercial operations. He drives our revenue growth. He drives broadcasting sponsorship, corporate hospitality, merchandising, licensing. As I said, Geoff came from SOCOG. Just to show how diverse we are, Dr Brett Robinson is a former Wallaby, former captain of the Brumbies and a doctor of medicine.

He studied to be an orthopaedic surgeon, just completed his Doctor of Philosophy at Oxford in knee replacements and came back and joined us as the head of our high performance unit. A strange career move but a brilliant bloke, a brilliant mind, and to see him blossoming now as someone who’s stepped out of medicine and moved into professional rugby management is just a joy to behold.

So again – and forgive me my reminiscences tonight – looking over your shoulder for a moment is a fantastic thing to do. Because when you take an organisation that was floundering, on and off the field, and produce results that are the product of a whole collective of people – people who have been committed to a plan that we put in place in 1996, a plan we are still implementing. The same one that we put together in 1996 as the product of weeks and weeks of me visiting every corner of Australia, to ensure everyone felt a sense of ownership of that plan.

So it has put us in good stead and it has now put Australian rugby, I believe, at or about the forefront of sports business management in this country. That is not a boastful statement, but I think it can be reflected in the results. If you look at businesses around Australia over the last eight years and look at our improvement across a range of KPI’s, it would have been a very good investment. If you’d put a dollar into Australian rugby in ’96 that dollar would be worth a lot of money in 2003.

The best is yet to come. Much of what you saw here this evening is a sign of what’s around the corner. But when I say the best is yet to come, it’s after the World Cup. The legacy projects we’re running, the education program getting into schools that we wouldn’t normally be able to get into, the True Colours Roadshow – the financial legacy for a company that has revenues of $73 million. Treating it in a normal accounting sense, on a turnover of $73 million we make a profit of about $15-16 million. We distribute it all back into the game and retain $500,000, because we’re a not-for-profit entity; we’re like one big mutual.

And not-for-profit entities do not get chances to raise capital. We’re just about – with a bit of luck and determination we could end up with capital of the order of $40 to $50 million in the bank post-World Cup. Now, that gives Australian rugby financial security and stability for the first time in its history, and that’s when the test will come: that post-World Cup we make smart decisions, we don’t waste the legacy and we create a future which is unimaginable.

I’ve had a lot of fun over the last eight years. I’ve had moments where I’ve avoided two or three assassination attempts. I’ve had four chairmen in eight years. It’s a very political job. We’ve tried to de-politicise it, but it’s still there; you’d be foolish to imagine that it’s gone away. Neville Wran taught me something many years ago.

I asked him a question about why he was so successful in 10 years as Premier, 1976 to 1986, when he wasn’t part of either the left or the right faction of the NSW Labor Party; he was non-aligned. And Neville said, “When you’re successful you don’t need to be a member of a faction. The moment you fail, they’ll run over you like an All Black ruck.” And he’s right.

I’ve been able to do a lot of things and achieve a lot within Australian rugby by being successful. The moment you’re not successful, political behaviour would then raise its ugly head again, but that’s just part of life. We still lack independent directors on our board. There are nine directors; I’m the only independent director. We have three from Queensland, three from NSW, one from the smaller states, a player director and myself.

If you’re lucky enough to get a very good group of people, whom we do have at the moment, the political behaviour is minimal. However, if you’re unlucky enough to get people who are not of that ilk, then political behaviour can be rampant. That’s my greatest fear.

My greatest fear, to be perfectly frank, post-World Cup is that political behaviour may exhibit itself in a way that undoes a lot of the good that’s been achieved over a long period. I hope commonsense and wisdom prevails, and people leave well enough alone and allow good governance and good management to prevail.

As I said, a great eight years. I can’t wait for the World Cup to arrive. It will transcend code rivalry, it doesn’t matter whether you are a tragic following any sport in Australia – Cricket, rugby league, AFL, soccer – Australians love sport, and we showed that in 2000 with a fantastic Olympic Games. I think we’ll show it again in 2003.

Ten cities, 11 venues, 48 Test matches, seven weeks, we’ll have the time of our lives. I hope you all enjoy it, I hope you all attend as many matches as possible. Get behind other teams – do what they’re doing in Launceston. Down there at York Park where Namibia will be playing Romania, the Mayor of Launceston has put out an edict saying that if your birthday is an odd date you must support Romania and if it’s on an even date you will support Namibia.

Now, it works like that because we have such a fantastic collection – 20 countries here, 19 plus Australia. I suppose the last thing I should say before taking questions is to answer the rhetorical question: Do I think the Wallabies can win it? I think it will be pretty difficult; we’re going to have to improve dramatically in a short space of time.

We’re certainly going to be in there. I think we’ll make the semis, but I think New Zealand and England look, as the French would say, très formidable, and I hope the home ground advantage works its butt off and gets the Wallabies there.

The best team doesn’t always win. In 1995 South Africa won at home and in my opinion they were not the best team, but the home ground advantage did wonders for them, the whole spirit of the rainbow nation of course, and I hope a bit of that can rub off on us. It would be the absolute perfect ending. A great World Cup, a highly successful World Cup, and the Wallabies winning, so fingers crossed. Thank you very much.

Q & A Session:

Q: Going forward with all the planning that you have, what do you think is going to happen with the relationship with New Zealand?

JOHN O’NEILL: The reality is we need New Zealand and they need us. I’m speaking at a trans-Tasman business circle lunch tomorrow and I’ll say it very plainly that there is no more important relationship to the ARU in world rugby than the one with New Zealand.

They need us to be strong; we need them to be strong. We need greater cooperation, not less. We need to understand each other’s problems better. I think they have realised that the economic model that they’re looking at says that unless we work with Australia to grow the cake – if we just rely on our slice of the cake in the North and South Islands – then that slice isn’t going to get any bigger.

So I think commonsense and pragmatism will make that relationship first heal and then grow into a very strong one. I think an expanded Super 12 is definitely not far away. I think there is a possibility of a third Bledisloe Cup, three a year instead of two a year. I think other innovations are all possible and they’ve agreed to talk about them all, so that’s really heading in a very constructive direction.

Domestically, our number one objective for the year is to win the World Cup. Number two objective is to host the best ever World Cup, and they’re pretty well quarantined. We’ve had to make sure that the Wallabies are not ignored and they certainly aren’t; I mean, anyone who has been to Coffs Harbour could see that. They’re getting every bit of support they could possibly get.

When they’re at their peak – they had a golden run between ’98 and 2001, which to stay sort of number one or number two in the world for that period of time was an extraordinary performance.

I’m taking my daughter to the rugby on Saturday night and if you could arrange an interview that would be good ! The issue that that raises, though, is I think one of the reasons you’re doing so well is that I can take my daughter there without fear of her being at risk in any way at all, or without fear of personally being at risk myself.

JOHN O’NEILL: It’s been a combination of good luck and good management to date, and what I’m about to say I don’t mean to sound like elitism but the traditional rugby crowd over many, many decades has been an AB demographic, and that’s why broadcasters, sponsors and others like us. What that translates to in terms of crowd attendance is a fairly well-behaved crowd where people are there to watch the game and for the right reasons, and to be entertained and to concentrate on the game itself.

Inevitably as the game has become more popular and grows outside of its traditional base you have to be more vigilant about the very point you’ve raised. I can’t provide assurances that we can positively eliminate poor behaviour, but certainly we have a lot of safeguards in place in terms of spending money, spending time, investing in effort into security, searches and general notification to the public as to what is acceptable and unacceptable.

We have to spread the message, constantly working with our own marketing and promotions people, working with all the policing and security services that we won’t tolerate poor behaviour and you’ll be expelled from the ground and banned for life if that occurs.

Does that include choice of sponsors as well?

JOHN O’NEILL: I didn’t touch on sponsors in great detail tonight, but in that regard who you associate with, whether it’s a sponsor, broadcaster, anyone that you’re basically in partnership with, you have to be comfortable with that association. If you have a beer sponsor you’ve got a beer sponsor. If you have a wine sponsor you have a wine sponsor.

I mean, when we took on Bundaberg Rum as the series sponsor we were blown away by the amount of effort and time and money that Diageo, the owner of Bundy, put into education about what is over the top in terms of drinking. Diageo even came and made a very complete presentation to the Wallabies about what they do in terms of alcohol abuse prevention, education, etc.

But it’s not a perfect world, because you have certain categories of sponsors. Alcohol is one of them. I guess what we’ve got to put into place are safeguards that avoid blatant abuse. No one encourages people to go to a game and get plastered – in fact, we do just the opposite.

I would be interested in your thoughts on the future of the senior executive role in sporting organisations. It seems that Sydney Swans have gone down the line of employing someone who’s quite recently had a career outside sport. It will be interesting to see where the AFL goes in this role as well. Where do you think the next generation of leaders of sporting organisations will come from? Is there still a future for people who have had careers in sport and aspire to a position such as yours, or do you think they will come from the outside into sport?

JOHN O’NEILL: I think it will be a bit of both, but I think we’re moving into a more exciting period of career opportunities in sport. I’m talking about sport in the broader sense, not just running sports governing bodies but also sports marketing companies. My observation over the last eight years is that Australia has really lagged behind the rest of the world in terms of being good at sports marketing. I think we’ve been fairly poor, and a lot of the sports marketing companies – with the greatest respect to anyone who’s from a sports marketing company here – have been more acquisition agents rather than strategic advisers.

What I’m seeing is a lot of very smart people coming into the business of sport who are academically very well qualified, with a more traditional sort of background in marketing per se rather than – more often than not you would have seen people who called themselves sports executives who were actually salesmen. We’re now seeing the emergence of the genuine career-trained sports executives, and I think the opportunities are going to be quite enormous in terms of entities such as ours taking on an even broader role and taking things in-house that we used to outsource.

Again, you know, we have a very good relationship with IMG, and without pre?empting where we might go with IMG, there’s a lot that we can do ourselves now that in the past we would have relied on an external agent [to do]. Now, putting aside the fact that commissions can be quite large, it’s the fact that there are now people in the marketplace that you can bring into your organisation who have a bachelor of economics or a bachelor of commerce or an MBA, who have had a career in a consumer goods company or a marketing company or a bank, and they can make that transition into the business of sport almost seamlessly.

What are your plans after the Rugby World Cup?

JOHN O’NEILL: Life after World Cup… Well, in essence my contract with the ARU was initially a five-year contract that went through to the year 2000 and I renewed to the end of 2004 to get past World Cup. I actually haven’t given it a lot of thought; I think a lot of other people have, and it’s sort of inappropriate to think about it because I’m just terribly busy and terribly focused on delivering a great World Cup.

There’s been some speculation that I might move on to the International Rugby Board and that has some attraction, but I’m also – back to my Neville Wran experiences – you always have to be able to count because the chairman of the IRB is a popularly elected job and probably my chances of winning a popular election around the IRB table are not all that high.

The IRB is still an unincorporated association. There are 21 votes. The eight major foundation unions – that’s the five nations plus the three Tri Nations countries – have two votes each, and then Italy, Japan, Argentina, Canada and an association called FIRA, which is essentially Europe, all get one vote each. Probably if there were a vote tomorrow I’d get six from maybe a few of the smaller unions, but I don’t see the northern hemisphere voting for a southern hemisphere chairman.

It would be fun because rugby just has an unbelievable future, but to get your teeth into the IRB would be a great challenge; it would come at some personal expense. I’m not quite sure what personal expense would be worth it at this stage. Who knows?

What are the three main goals that you have set yourself for rugby and the challenges that you need to overcome in order to achieve those goals?

JOHN O’NEILL: In terms of this year, number one is winning the World Cup, number two is hosting the best ever. Number three is to really extract maximum benefits out of all the legacy projects, not just for Australian rugby but also for world rugby. Number four is to make sure the underlying business is maintained and enhanced, because the risk is that in doing all of the above our number four may be ignored. Number five is to pursue our major strategic objectives.

Post the World Cup, the big issue for the ARU and for me is to really drive the momentum on the legacy projects. Second, to start the renegotiations on our broadcasting contract with News Limited; that was a 10-year contract from 1996 to 2005. It’s a very considerable part of our revenue and having the negotiation with News will be a lot of fun. It really cuts to the crux of our business – expanded Super 12, extra Bledisloes. The world of media and communications has changed since ’95 when the deal was done.

It’s not just about whether we’re going free to air or pay TV any more – we have all sorts of other delivery mechanisms. We’ve got this 3G dilemma. We’ve got to arm ourselves in a way with advisers and internal expertise so that we’re as equipped as News Ltd is for the renegotiation and we’re going to have to invest a considerable amount of time and money to ensure that that renegotiation is as good as it possibly can be for us. That then sets the platform.

In a perfect world I’m hoping for a Super 15, and more high-value Test matches and an enhanced domestic competition, and then rugby will have wall-to-wall product that can go head-to-head with the AFL and the NRL. So we’ll start at the end of February and go for 18, 19 weeks of Super 15, then we would go into maybe an expanded Tri Nations with an extra Bledisloe, maybe more games against France and England, and then underneath that a premier rugby cup competition which is as good as the NPC and the Currie Cup, and all of that would end around late September, early October.

We do have disadvantages, obviously, compared to AFL and NRL; I’m the first to admit them. The AFL has a fantastic national competition; the NRL has a good east coast competition, and they go end to end. The difference for us is we have sporadic product. Offsetting the sporadic nature of our product are unforgettable moments like the Bledisloe Cup, Tri Nations, international rugby, which neither the AFL nor the NRL have had. I don’t think the AFL or the NRL will ever host a World Cup. We’ve got to play to our strengths while overcoming our weaknesses simultaneously.

Venue

George Patterson Bates, 35 Clarence Street, Sydney