Last Chance For News Salvage Job

Sydney Morning Herald

Tuesday March 12, 1996

Elizabeth Knight

NEWS Ltd must have been busy licking its financial wounds last night having received a comprehensive shellacking by Justice Burchett which will cost the company more than $200 million according to court documents filed by the financial controller of Super League.

Its last chance to salvage something of Super League is now in the lap of another three Judges from the full Federal Court who will decide whether to grant Super League the stay that they sought yesterday.

If not News Corp is staring at a loss of $200 million plus any damages which the ARL might be granted.

Although damages estimates were as high as an additional $200 million this number now seems particularly high given the fact that the effect of Justice Burchett's orders is that News Ltd will pay Super League players to play in the Australian Rugby League competition.

This will mitigate against the ARL or players receiving significant damages. Thus if awarded they are expected to be less than $100 million.

Despite yesterday's orders News Ltd remains tenacious. It said the basis of its stay application was the fundamental unsoundness of Burchett's joint venture findings and the unfairness which would be dealt to Super League contracted players and News Ltd. News says that its fresh legal advice from senior counsel is that there is no proper legal foundation for the relevant orders and they should be reversed on appeal.

The cost to News will wipe out the company's 1995 operating profit from Australia and New Zealand of $168 million - a very big price to pay for the Super League bungle.

On top of this the UK competition has cost News ?87 million and it is now of dubious value.

The largest expense for News Ltd is the player payments and commitments. The initial sign-on for players and coaches cost it $13.2 million. But over the five years it has committed to $154 million - most of which will fall in 1996 and 1997.

But News has also already spent almost $50 million in setting up the Super League. Part of this is comprised of loans to the Canberra Raiders, the North Queensland Cowboys and Cronulla. The value of these loans are difficult to assess particularly for the North Queensland Cowboys who have borrowed about $2 million on repayment terms that have not been finalised.

In other cases News thought it was not financially proper to advance loans to clubs and instead made payments received equity in the clubs in return.

Western Reds received $4.7 million, North Queensland $4.5 million and a couple of other clubs got more than $1 million. The deal was that the News equity could be purchased at cost by other club shareholders.

The affidavit from the financial controller of Super League, Martin McKinley, also reveals the deal done between Kerry Packer's Nine Network and Murdoch for the free-to-air rights for Super League. In what appears to be a very generous deal for Packer he had contracted to pay $5 million each year for the first two years of Super League and these amounts were subject to renegotiation if there were two competitions.

Against this TV3 in New Zealand, with a fraction of the Australian market, was paying $4.5 million for these two years.

Packer's payments were to be boosted in year three to $15.2 million and moving up each year to $19.5 million in 2002.

This compares with initial payments from Foxtel of $10 million in 1996, $12.5 million in 1997 rising to $25 million by 2002.

At this stage the beating from the ARL seems comprehensive and those involved in the Super League decision making process will be feeling bruised and concerned about retribution. Those in Australia who are getting on with the business of producing newspapers will be wondering why their hard-earned profits are being blown away.

It will be almost impossible to gauge the effect this defeat will have on News Corporation's share price given the current volatility of the Dow and the All Ords.

Even if the financial damage to News Corp reaches $300 million it is more of a psychological blow than a financial problem.

No company likes to part with that sort of money but a company with cash flows the size of News Corporation can cope with these problems.

If News Corp's stay is granted it may not take the losses through its profit and loss account in the current year but could wait until the outcome of an appeal which could take a year to complete.

However, if the stay is refused it is questionable as to whether Super League should not just cut its already substantial losses and move on to another sport before it loses its reputation.

Perhaps the greatest irony of all is the fact that while the ruckus is going on in Sydney, Optus Vision is quietly stealing Australis customers every time it marches up a street because it can offer them Australian Rules Football.

And Foxtel could have made a deal with Seven last year so very easily if it had only bothered to put in a proposal.

Instead, thanks to the arrogance of the News team its unbeatable position to tie up with Seven was lost. Melbourne is now firmly Optus territory. No-one even noticed Optus had stolen Victoria (very cheaply) because there was too much noise from Super League lawyers gnashing their teeth.

© 1996 Sydney Morning Herald

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