The fallout around the disgraced Melbourne Storm rugby league club continues this morning with Melbourne Storm chairman Rob Moodie offering his resignation and admitting the NRL could fold and sponsors walk away.
And his worst fears were quickly realised with reports this morning that two sponsors, ME Bank and Sportswear manufacturer Skins, have dumped the club.
Meanwhile, Rupert Murdoch’s News Corporation, which owns the Melbourne Storm rugby league club and a 50% stake in the National Rugby League competition, is facing millions of dollars of losses after the Storm were hit with heavy sanctions for breaking the NRL salary cap.
In what is shaping up to be one of Australia’s biggest sporting scandals, the once proud club has been stripped of the premierships it won in 2007 and 2009, fined $500,000, ordered to repay $1.1 million in prize money and will finish on the bottom of the ladder this season after being told the club will not be allowed to accumulate any premiership points in the rest of its 2010 games.
The NRL says the Storm hid $1.7 million worth of salary cap breaches over the past five years through a system where it kept two sets of accounts – one set which was presented to the NRL and News Corporation and a second set which detailed millions in extra payments to players.
John Hartigan, the chief of News Limited (News Corp’s Australian print business) has denied his organisation knew of the breaches and has referred the matter to police for investigation by the fraud squad.
“I would like to say while the penalties are unprecedented, I believe they are warranted,” Hartigan told reporters.
“To take premierships and minor premierships off a club, that’s unknown territory in sport in Australia.”
“I think what you are going to see and hear of is collusion at such a level and such an orchestrated level of deceptive conduct that you may understand why over a period of years – five years – some $1.7 million was able to be fraudulently misappropriated in very much smaller increments over that period.”
The scandal is a bitter blow for News Limited, which had been attempting to sell the Storm which, despite its recent on-field success, has consistently run at a loss since its establishment in the late 1990s.
Reports suggest News Limited injects around $6 million into the club each year to keep it on the park.
Any thoughts of selling the club will need to be forgotten for some time. Finding a buyer for a loss-making business is never easy, but selling one that has been hit with a scandal this big – and will now struggle to attract members and sponsors for years – will be close to impossible, at least in the medium-term.
News Limited will also be watching nervously to see whether the scandal has any wider effects on the NRL competition, such as reduced sponsorships, falling attendances or a decrease in television ratings.
Any drop in interest in rugby league could affect the price broadcasters are willing to pay for the next round of broadcast rights, which expire in 2012 but will be negotiated over the next 12 months.
Hartigan alleged Storm’s former chief executive, Brian Waldron, was “the architect of the whole shooting match”. Waldron, who recently left the Storm to take up a position as the chief executive of Melbourne’s new Rugby Union team, the Melbourne Rebels, tended his resignation this morning.
Hartigan says the club is looking for others who might have been involved in concealing the salary cap breaches.
“My knowledge is five people. We’ve put in the accountancy firm Deloitte – they’re going to do a forensic examination of the business. They’re going to go through all the financial statements. So we’ll find if there are more people involved – they’ll be identified.”
But while News Corp says it remains committed to the Storm and the NRL, there is no doubt questions will be asked within the company about exactly how much involvement it should have in a game.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
