Why Melbourne Can't Make Money


It’s a commonplace that mainstream sport is now a business. But the question is, beyond the crowds, sponsorship, media frenzies and seven-figure broadcasting rights deals, how successful a business is, say, your average football club? It’s not only a matter of idle interest among rugby league fans. It comes up regularly over beers in pubs across the eastern seaboard because the viability of clubs (or lack thereof) is so often raised as a threat to the future of the sport.

It’s also an interesting question for the way it demonstrates the complex financial synergies and licensing deals that can make or break sports, shape broadcast regimes and slowly affect the culture around them.

For league, the profitability question depends on a number of factors including the code, the club’s supporter base, and how far it is from the game’s heartland areas. Where rugby league is concerned, it might be surprising to learn that on-field success seems to be compatible with significant off-field losses.

Right now, the best example you could ask for of this complex matrix of issues happens to be — arguably — the most successful club over the last decade: the Melbourne Storm. They are the reigning NRL champions. In 11 years of competition, they have won three grand finals (1999, 2007 and 2009) and played in two others (2006 and 2008). Their extraordinary roster of talented players means they’re consistently able to offer fans a high-quality, star-studded spectacle.

But the fact is that as a business, the club is a born loser. Far from turning a profit, it’s been consistently reported that they cost their owners around $6 million dollars a year to keep afloat (although this remains conjecture, as the finances of the club aren’t directly available to the public). That’s more than the amount of the player salary cap (currently at $4.4 million).

The Storm was founded in 1998 as the code’s outpost in the AFL stronghold of Victoria. The game’s old guard in the ARL had tried to establish a team from 1996, but the group pushing for the Storm had begun doing so assuming that the club would be affiliated with the rival "Super League" competition, which was the other half of league’s messy, mid-1990s civil war. Later, when a rapprochement was reached, the Storm emerged as the Melbourne franchise for the united NRL competition. Since its inception, the club has been wholly owned by News Limited, which instigated the Super League battle and which still owns half of the NRL.

Like some other News Corporation ventures of late, though, the Storm has struggled to repay its owner’s investment. That’s due to a few factors. The biggest, perhaps, is that their attendances aren’t fantastic: with an average hovering around 13,000, they’re comparable with some Sydney sides but their numbers are far lower than in league’s other one-team towns (like Newcastle, Brisbane or even the Gold Coast or Townsville) and way behind Melbourne’s always remarkable levels of AFL attendance. Of course, it doesn’t help in building crowds that many insular Melbournians find it hard to tell the difference between the rugby codes. Part of the club’s brief, however, should be to educate potential fans, just as the Sydney Swans and the Brisbane Lions have, going in the other direction.

As a result, this main source of potential income — gate takings at the grounds — is overwhelmed by a number of costs: player salaries, ground costs, team travel and equipment, administration, etc. An additional cost that the Storm faces — which would have been addressed in more far-sighted codes — is a large promotional burden, including giving away a lot of free tickets to games. That’s because the code is invisible on telly in Melbourne in a way that AFL isn’t in the eastern seaboard cities — unlike the AFL, the NRL didn’t compel the rights holder to broadcast games at favourable times into the home market. Although the Storm were voted Melbourne’s favourite sporting team, one suspects they profited from a split vote among the various AFL tribes. In reality, they struggle to be noticed in their own seat. In some ways, up until now, the Storm’s presence in Melbourne has been a missed opportunity.

Now it looks like the consequences of this state of affairs have pushed the competition — and especially the Storm — into a new phase. The fact that running costs exceed takings means that News Limited has had to put most of its direct drawdown from the NRL — reportedly some $8 million in total — into keeping the club afloat. That figure includes profits from the successful clubs it has an interest in, like the Brisbane Broncos.

In the past, this cost may have seemed worth it. After all, everything about News’s involvement with rugby league from Super League on has been about building a subscriber base for pay television. With their interest in Foxtel, News has been prepared to wear the cost in order to promote the visibility of the code and build its prestige as a national competition. There are signs, though, that in the current era of media turmoil, where even the mighty News Corp is struggling to turn a dime, and their future at Foxtel is up for debate, this kind of largesse is starting to look extravagant.

News is now looking to get out of owning (and propping up) rugby league clubs. It’s not just the money — it’s the legal and PR headaches that the game seems infallibly to attract. Current News Limited CEO John Hartigan has, apparently, been a leading sceptic as to the continuing value of close involvement. The move to a national commission for the NRL is related to News’s desire to scale back its financial and organisational involvement. That doesn’t mean getting away from profitable businesses like the Broncos — which represents an uncommon ray of light in the gloomy world that is News Corp in 2010 — but it does mean seeking new owners for clubs like the Storm and pulling back from a major role in running the sport. News and the NRL are claiming that the Storm’s move to a newer stadium will limit losses, but they’re still dangling a sweetener to potential buyers of $20 million of News Limited cash to be doled out over a number of years.

You might argue that the Storm still need to be given time to build a following, and that even in AFL the relationship between, say, the Lions and the people of Brisbane has blown hot and cold. Unfortunately, while the Storm’s problems might be particularly acute, they’re also representative of broader issues among rugby league clubs. With the threat of pokie incomes drying up in the face of increased NSW Government taxes, clubs are feeling the pinch and only belatedly trying to build a membership culture in the code.

As the News Limited sugar daddy moves to cut off the allowance, any new commission’s first order of business must be to extract as much as possible from the next TV rights deal and balance a fair distribution of resources with the league’s ongoing survival as a national competition.


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