At the next board meeting of New Corporation one of the directors will almost certainly ask whether News Corporation should own half of the National Rugby League and 100 per cent of Melbourne Storm.
The Storm shock is just another of the countless illustrations where large international companies get into trouble with their small operations, picked up on the way to the top, which are outside management’s direct concentration.
In the case of the NRL and Melbourne Storm, News Corp’s ownership position was a result of a fight between Rupert’s son Lachlan, who is no longer a director of News Corp, and Kerry and James Packer in the 1990s.
The media war between the Murdoch and Packer clans saw both organisations trying to set up rival rugby league competitions and wooing players with big dollars. The big payment culture that now underpins the league was established then.
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At the heart of the 1990s battle was the competition between the Singapore Telecommunications-owned Optus and the part News Corp-owned Foxtel to control the rugby league pay television rights. New Corp ‘won’ that battle, but it cost over $500 million. However, following its defeat Optus gradually stopped being a pay television player. The Storm was one of the teams created by News Corp as part of its battle for pay television rights and it was folded into the new NRL.
But the management of sporting clubs requires an entirely different culture to large public companies. They absorb vast amounts of time and if the time is not allocated to them then there is grave danger of salary cap breaches and other problems.
I think it highly unlikely that Rupert Murdoch will allow News Corp to retreat from rugby league, particularly at this time. And retreating from the Storm will be particularly difficult for News Corp, given the guarantees its wholly owned subsidiary made to the Victorian government to provide an income stream for the new rugby and soccer stadium.
But the seed will be sewn at the next board meeting and it will germinate.
In sporting codes that impose salary caps, most of the breaches occur when people outside the club give player’s lucrative side deals. This is a problem that the Australian Football League is now looking at more closely because some of the side deals involve employment and no work.
But the Storm breaches were fraud with two sets of books.
If the Storm collapses in Melbourne then it will leave the AFL and soccer as the dominate national football codes, although John O’Neill and Harold Mitchell will suggest that Super 14 Rugby Union can take that role.
The architects of the AFL conversion from a suburban football competition to a national code, Graeme Samuel and Peter Scanlon will be smiling. They did something that both Kerry Packer and Rupert Murdoch tried to do in Rugby League and failed.
This article first appeared on Business Spectator.