The view from the front office: Cap scandals not as complex as you might think

Salford, Parramatta, Canterbury Bulldogs, Melbourne Storm, Bradford, Halifax – the list of NRL or Super Leagye clubs that have been docked points, fined, or had entire seasons and titles stripped for salary cap breaches in the past decade is long.

Let’s leave aside the debate about whether a salary cap is the right control measure for governing bodies to use, let’s forget about whether caps are too high, too low or better replaced with a points system.

I thought I’d explain how breaches happen and unravel the mystery of ‘third party payments’ – what they are, why they were put in place, and why they often are the reason for cap breaches (I’ll use the term breaches because we all know that no clubs or players would be out there deliberately attempting to cheat the cap or the taxman!).

Firstly, the cap is a moveable, living beast at your club. You have a top tier group of players and a lower tier group of players (reserves or Under-20s) who are all on varying terms of contract, cover all positions and all must fit under the cap not only in the current season but one, two, three, four years ahead.

You also then have varying bonus clauses, appearance payments after certain number of games are played, and the unknown variables such as squad injury which can see a club needing to debut players they had not budgeted for in the cap at the start of the season, therefore triggering contract payments to promoted players that you hadn’t expected.

Therefore the cap alone, without any further complications, can easily be stretched to the point of breaking, and is often breached, due to genuine pressures, successes and bonuses that are merely examples of a club trying to predict the seasons circumstances as best as they possibly can whilst spending as close to the full cap as possible and leaving a little margin up their sleeve for unexpected payments. It is not easy.

That said, governing bodies in my experience are fine with a transparent and open discussion when these situations arise and usually work proactively when a club highlights an approaching blow out in the cap to ensure common sense prevails and a solution is reached.

Governing bodies tend to be less forgiving when clubs just push ahead regardless, spend over the cap, then squeal ignorance when audited at a later date. By not asking, not raising the breach due to circumstances proactively, clubs raise suspicion of deliberate oversight which is cheating and the governing bodies rightly should be firm on the clubs at fault.

The type of basic cap I’ve outlined above is rarely the cause or focus of large scale cap scandal and punishments. Systemic, deliberate and long term subterfuge performed to deliberately ensure your star players are paid a lot more than is listed on the books is what the big breaches are really about.

This brings me to one of the most ridiculous arrangements in the game, third party payments.

A decade ago yet another push by player agents and players was made to increase the salary cap. The record is played regularly every few years. To placate the players and agents, third party payments over and above the cap were introduced in the NRL.

The logic behind the move was that the cap should not apply to the big-name footy players when their own earning power, their own celebrity and brand attracts companies to personally sign endorsement and sponsorship deals with individual players. It’s a reasonable argument. Whilst never at the level of the NBA, Premier League, NFL etc in terms of individual athlete endorsements, there is an argument that some rugby league players may attract such endorsement deals (far fewer though than they would themselves believe) and as such the decision was made that they should be able to earn these without it being included in any salary cap.

Third party payments were introduced. Put simply, if a player (or his agent) secured extra sponsorships over and above his salary, they would not be included in the cap. Pretty fair right?

The proviso was clubs cannot include or promise these third party endorsement deals when offering a contract, and the personal sponsorship can travel with a player from club to club as he moved on because, after rall, the sponsor is supporting the player not the club…right?

All good in theory I guess. But player agents and club executives generally don’t deal in theory, they deal in the ‘how can I make this work in our favour to get better players by offering them more money?’ practical method.

It very quickly became a case of agents making clubs do their own work for them. In most people’s minds individual sponsorships over and above club sponsors and salary are something that a good player agent should be out there finding for their client. A boot deal, a local car dealership for his ride, a local eatery advertising deal etc. The agent finds the deal, the player signs up and gets paid, the agents takes his cut. The player goes to work at the club, fulfils his obligations and gets paid. Jerry Mcguire didn’t ask his client’s club to get the client a Nike deal now did he?

Sadly that’s not what happens. The way things are done is that agents go to clubs and say “player X is off contract next year, he’s looking for $150,000 salary on the cap, and another $50,000 in third party deals”.

The better resourced clubs have club directors or staff working full-time on finding and facilitating third party deals wherever they can. It makes them more attractive to players, and agents, and it means they can spend more on their roster than other clubs.

The stupidity of the situation the game has created with these third party deals is that the resources of the game, that is underpaid office staff and commercial staff who are working their backsides off to fill regular club inventory sales, hospitality and signage to keep your club alive and commercially viable are now expected, pressured mostly, into finding and filling third party obligations that the football manager has included to win the services of a player.

Then, although not allowed to be guaranteed in the contract to lure the player to the club, if for some reason a third party sponsor doesn’t pay the player, goes broke, or gets upset with player behaviour or the world in general and decides they won’t honour the deal, the star player and his agent come banging on the CEOs door demanding their money that was ‘promised’ and using it as a reason to get out of the club and go somewhere else where they will get their extra cash. Mark Gasnier fell out with St George Illawarra and went to rugby union for this very reason.

We are spending industry (rugby league) money and resources, that has been earned by the game from our supporters attendances and sponsors, to procure a bit of extra cash on the side for a player and his agent. The clubs gets nothing, in fact what the clubs gets for arranging a sponsorship for their star player and having the sponsor pay the player directly, is usually a hard time, a headache, and often…..a salary cap breach.

Despite these third party agreements being only between a player and a third party sponsor, one that is not already involved or linked to the club, or club directors and owners, clubs are still obligated to register them with the governing body in their salary cap audit. If they are forgotten or left out, this is when retrospective cap breaching issues arise such as those at Parramatta currently.

I mentioned before that clubs and agents will look for ways to bend the rules in any new legislation, well let me tell you a little about how it has been done by agents and clubs for pretty much the entirety of the third party deals life span.

A club needs to find $60,000 worth of third party deals for a new star player over and above his salary. The club knows it cannot go through a club sponsor because that would be included in the salary cap, so they go and see a local, let’s just say, a local builder. They may or may not know the proprietor of said business – but they shouldn’t under the rules.

They suggest to the builder that they have some renovation work that needs doing in the club house. “It’s a job worth about $5,000 but I tell you what, invoice us for $65,000 alright? It gets better mate, don’t even do the job! Just say you did some work at the club and can you give player XXXXXXX $60,000 cash for us? For your troubles you can keep $5,000. Really appreciate your help, player XXXXX will come to your kid’s birthday party and he’ll advertise your business locally as much as you want ok?”.

Player XXXXX is happy, his agent is happy, the club is happy, and the local builder’s kids are the popular lads at school because player XXXXX is their dad’s mate

I’m pretty sure the taxman isn’t happy, and the salary cap auditor of course won’t be when he finds out.

Often the type of businesses that get involved in doing these third party deals are good cash services businesses. Security companies, food suppliers and pubs, builders and cleaning companies.

In return for supporting the club with these third party deals, they get lucrative security, cleaning or supply contracts with the licensed clubs and stadiums. Why this is a problem and great concern for you, the supporters, is that usually the supply company will ‘pad out’ the invoices and per hour charge for the services (security, cleaning, stewarding etc). That means the club could get the services at other competitor companies for cheaper rates and spend less, but the supplier is clawing back their third party sponsorship cost from the club anyway by charging more.

Don’t be mistaken, many legitimate deals are done regularly for security, cleaning, food supply firms with clubs in true partnership fashion. A waste company will buy advertising and sponsorship with a club in return for the club using their waste services. That is above board, invoiced, and always at true market value, not inflated like the more questionable ones.

The investigation at Parramatta seems to be around just these kind of deals, inflated prices paid for certain services or sometimes non-existent services. The theory being that the only reason a club would pay out more money that it needs to is if there is a benefit somewhere, and third party cap cheating is more than likely going to be that benefit. It is all alleged currently and we will see where it ends.

Another side effect of these third party deals is player loyalty. Anyone who has worked in professional sport commercially knows how difficult it can sometimes be to encourage players to fulfil their appearance, promotion, and community obligations for the sponsors who keep the club alive with their shirt, stand and naming rights sponsorship. Often you will be given an excuse, players won’t make effort or time, and all in all it is treated like a massive chore that they have no lust for.

But the same player will have no trouble making time to turn up at his third party sponsors kids party, or at the guy’s pub or restaurant. Young staff have taken heat for weeks from sponsors of the club playing bodyguard for their star player who refuses to go to the sponsors office for an hour for a promo shoot, and then go pale when the same player is all over social media attending the opening of one of the sponsors competitors locally because that guy gives him cash in a third party deal.

I’ve even had players turn up for after match press conferences in non-club sponsors trucker caps.

At Cronulla during some very lean financial times, the club lost a huge sponsorship because a star player looked after his third party sponsor at the expense of the official club sponsor who were in the same industry.

The entire system is flawed.

Forget third party deals and allow the revenue that the game is raising with these third party deals to be shown in the clubs and games revenue column, not just the bank account of players and agents. I know one thing for certain, all the wage bills, phone bills, petrol and time spent on obtaining these third party deals are sent to and paid by your club, so why it isn’t counted as revenue for the same club is one of the most ludicrous situations anyone could come up with.