Hi everyone,
For those of you who follow me on Twitter, you’ll know that this Semester one of my Elective subjects has been Sports Law.
One of my assessment items for this subject is a presentation / essay combination. I will be writing my essay, eventually, on whether the salary cap is legally enforceable or whether it is a restraint of trade.
For my presentation however, I have had a look at the Melbourne Storm salary cap saga. I have connections to so many fabulous people through social media, so would love as many of you as possible to have a read and leave me a comment. I want to nail this presentation so any help would be much appreciated. I also really don’t want to come across as too biased as a Parramatta supporter.
So have a read and have a think and be sure to leave me a comment.
Love, Mary x
P.S. I apologise for how long it is, it is meant to go for about 20 minutes. You'll notice I've included some vids here, it's not ideal for blogging, but I'll be playing them to the class so just use your imaginations!
P.P.S I also apologise for the lack of referencing – it’s a presentation and a hard copy will not be given into the lecturer at the end. I’ve popped some links to the sources I have used at the end.
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The context of this presentation is summed up perfectly by former Rugby League Premiership Winning Coach, Warren Ryan when he said –
‘I think [the salary cap] has a place if it’s done fairly and everyone sticks to it. The problem, of course, is that people don’t - people cheat on the salary cap… It’s probably unenforceable’.
And with that in mind, I’ll take you back to Thursday 22nd April 2010, where our story gets interesting.
The 2010 NRL Telstra Premiership was about to enter Round 7. At this stage it was a fairly even comp. The St-George Illawarra Dragons were leading on 10 points, followed by the Melbourne Storm, the Gold Coast Titans, The Sydney Roosters and the Wests Tigers all on 8 points. Each team had won at least one game, with the Cronulla Sharks at the bottom of the table with 2 points.
It was the NRL betting markets which first showed signs of something amiss. There was Australia-wide curiosity as to why when the betting markets opened, punters plunged a significant amount of money onto the market at what, at that time, seemed an extraordinary bet, being that Melbourne would finish the 2010 season with the wooden spoon. The extraordinary nature of this bet was reflected in odds as high as $251 while concurrently, the Storm remained $4.20 favourites with TAB Sportsbet to defend the Premiership it had won in 2009 against the Eels.
At 2pm it was confirmed that NRL Chief Executive David Gallop would call a press conference at NRL Headquarters in Sydney. At 4pm, the Rugby League Community halted and this was the news that followed:
http://www.youtube.com/watch?v=o1fjk3ADS7g
The news that the Storm had breached the salary cap had broken.
Before we discuss what the Storm did, I’ll explain how the Salary cap operates.
Its a hard cap and for 2011 was $4.3 million for the 25 highest paid players at each club. Each club can exercise its discretion in determining how much each player is paid as long as total payments are below $4.3 million. As well as this $4.3 million, each club can spend an additional $350 000 on players outside the top 25 who play in the NRL competition.
The salary cap aims to spread playing talent so the wealthier clubs cannot outbid the poorer ones to acquire all the best players and to prevent clubs needing to overspend dramatically to attract quality talent. It basically seeks to even the playing field. Whether the cap achieves these aims is debatable. This culture of overpaying players was something seen during the Super League war when there was no salary cap in place. Part of the war was about over paying players, especially in the case of Superleague, to make sure the product was highly marketable and had the best talent Rugby League could offer. Owned by News Limited, when it came to players, money was no object.
Now, back to the Storm and how they managed to bamboozle the NRL and Salary Cap Auditor, Ian Shubert.
Central to this story is Brian Waldron, who became Chief Executive of the Storm in 2005, the year the breaches started. When he became Chief Executive he wrote to Schubert and stated that the Storm, under his leadership, ‘was committed to acting with honesty and integrity in its salary cap dealings’. In what was revealed in a Report detailing the Breaches, nothing was further from the truth.
As an overview, the amount the Storm exceeded the Cap for its Top 25 is below:
2006: $302 891
2007: $459 206
2008: $957 206
2009: $1 020 597
2010: $1 039 696
This totals approximately $3.8 million over the 5 years. At the moment, this might sound like just numbers, so to put it in perspective and to illustrate how players are remunerated in Australia I’ll give an example.
At the Eels, Jarryd Hayne is one of our best and most highly paid players. He is allegedly on $500 000 a season and represents Parramatta at a Club level, NSW in State of Origin and Australia as a Kangaroo.
This is the sort of magic Jarryd is capable of producing:
http://www.youtube.com/watch?v=tVol-ruR-cI
http://www.youtube.com/watch?v=gHYsO8vw58s
With the over payments the Storm were making in 2007, they could essentially afford the advantage of one extra Jarryd. By 2009 and 2010, they could afford 2 extra Jarryd’s. This resulted in a markedly strengthened playing roster reflected in the fact that from 2006-2009 the Storm appeared in four successive Grand Finals, winning in 2007 against Manly and in 2009 against Parramatta. They also won the Minor Premiership in the 2006-2008 seasons.
So how did the Storm administration manage these sustained breaches?
The breaches occurred in three phases:
The first took place between 2005 and 2007 and involved a dual contracting method. An unsigned letter of offer would be prepared which recorded the full terms of the contract for the player while the contract registered with the NRL would omit significant remuneration and benefits. These arrangements applied to 8 players and in 2006 allowed the Storm to retain at least one elite player it would not have been able to if it complied with its obligations under the Cap.
The second phase occurred from 2008 and involved 2 elements –
First, a fraudulent scheme where the Storm, without informing players, lodged sham player contract variations with the NRL that falsely represented that players had agreed to contract variations where their 2008 payments were put off to later years and then the players were paid their original contracts through a third party, McManus Presents.
And second, through the payment of undisclosed remuneration to players through McManus Presents, which were directly funded by the Storm. McManus presents would issue the Storm sham invoices with false narratives. The Storm would then pay the invoices and the payments were passed onto the players. Payments were made to 10 players under this scheme.
The third and final scheme consisted of three elements.
First, the players the subject of the sham 2008 contract variations had their contracts terminated by agreement or re negotiated, thereby avoiding bringing to account the varied payments.
Four players received image rights payments from a sponsor in exchange for accepting contracts with lower 2009 payments than those to which they were commercially entitled.
The Storm entered into secret side letters with three of its elite players where it agreed to pay substantial remuneration to the players in excess of that contained in their Contracts. This amounted to 500 000 a season, each.
We can see that especially in this third scheme, over payments were restricted to a small group. This shows that due to the extent of the over payments being made, risk of detection increased as more people knew. A decision was made to restrict the payments to players whose agents were willing to negotiate arrangements that were in essence, a fraud.
Waldron, Matt Hanson who was responsible for covering up the second phase of the conduct and the financial officers at the Storm have engaged in fraud by swearing false statutory declarations and verifying declarations of remuneration that were false. They also modified written records. Matt Hanson had in a file at home all the second contracts as he was instructed not to keep them on site by Waldron. The conduct has been described as contractual treachery.
In regard to the players, there is no conclusive evidence that any of the players were aware of the breaches.
However, from the Report it can be said that ‘Player G’ was aware that some of his remuneration came from McManus presents, but that he did no work for them.
Another player signed a contract on the understanding that an additional payment would be made to him outside that stated in the official contract. It appears that he had direct knowledge that this remuneration would not be disclosed.
Two other players admitted that they knew that their original deal had a side letter and that there were discrepancies between the side letter and the NRL playing contracts for 2009. They both thought the club would ‘sort it out’.
Many other players said that they did not read the contracts they signed indicating complete reliance on their managers and accountants. However, for the purposes of the NRL Player Contract Remuneration Rules, the conduct of a player agent is also deemed the conduct of the player for whom the agent acts.
The NRL Player Contract Remuneration Rules show that direct knowledge of breaching the rules is not required. A player is liable if they assist a club to avoid compliance with the rules ‘in any way’.
It can be established that many players showed reckless indifference or were negligent in their conduct but action was not taken against the players because the burden already imposed on them by the penalties against the Club were deemed to be enough.
This debacle also raises questions about the relationship between player agents and players, a fiduciary relationship. While it is easy to suggest that the players should have taken greater care, in an environment when players are often signed at a young age, are uneducated when it comes to contracts, bargaining and negotiation and are commercially inexperienced, it raises the question as to whether the burden placed on players, that is, that they have an individual obligation to ensure that their NRL playing contract discloses all of their agreed remuneration and third party agreements, is too great.
Billy Slater’ player manager George Mimis has said that it would be ‘naive to think that any individual players would be informed enough to understand the club's compliance or otherwise with the salary cap rules.’ I think this is an unsatisfactory response and that players do have responsibility, though to what extent is the question.
Now to the penalties. They were harsh, but in my opinion they were warranted. In a way, I don’t think they were harsh enough.
From the years 2006-2009, the Storm were a well oiled machine.
The punishment the Storm received undoubtedly has a significant impact on the Club, the players and the fans who had no involvement in the drama. However, statements from some Storm supporters indicate a lack of basic understanding of the implications of the breaches.
Some fans have made comments like ‘this seems like a big middle finger to the players and the fans’ and argued that the penalties have been too severe, saying that by taking away the Premierships, it wipes away all of the Storm’s hard work.
I should emphasise that I am not disputing the talent of the Melbourne players or how hard they worked. But, Rugby League is a game all about the spine. The most important players are the fullback, halfback, five eighth and hooker. When a team gets this combination correct, they are nearly unstoppable. The difference a spine makes was illustrated in Round 26 this year, when Melbourne decided to rest their hooker, Cameron Smith and fullback Billy Slater. Their spine was altered dramatically. The result? They lost to the Roosters by 40 – 8. In RL we call that a walloping.
A strong spine is what Melbourne created illegally. Had Melbourne been adhering to the cap, it is unlikely that they would have kept their spine together, being Cameron Smith, Cooper Cronk and Billy Slater, especially when Smith was offered a deal from Brisbane in 2008 but ended up staying with the Storm.
I would argue that the Storm are still operating under an unfair advantage despite being under the salary cap this year. Slater, Smith and Cronk have never been exposed to the open market. There is no doubt that if the Storm had been abiding by the cap, they would not have kept the spine together as they would not have known what fantastic players they would grow into. Recruitment makes mistakes and is all about making a judgement call, the Storm probably would have sacrificed one player along the way in order to keep another. By cheating, the Storm have prevented these players being exposed to the open market and prevented the other clubs from acquiring their services.
It is not a coincidence that the two teams which have been caught breaching the salary cap, namely the Canterbury Bulldogs and the Melbourne Storm have had extremely successful seasons straight after being caught. The Dogs won the competition in 2004 with a still superior roster and the Storm looked like they were going to win this year because they had the best spine in the competition. They continued to reap the benefits of their rorting of the cap by having a world class spine developed during a period of cheating.
It begs the question what do we do?
One thing the cap does is make it really hard to keep momentum going season after season. Players decide to move on, players are selected for representative football and their value is pushed up and players demand higher salaries. To keep momentum, you essentially need to make sure that your squad remains unchanged and this is essentially what the Storm were able to do. very difficult to maintain the momentum of a strong squad for multiple seasons.
It appears to me that their punishment has been only in name. The Storm have largely been allowed to maintain the squad. Simply cancelling the contracts of all the players at the club would be futile – it punishes players who had nothing to do with the breaches and forces the Club to pay out the amount it still owes on existing contracts. Forcing players to move to other clubs also fails to recognise the freedom inherent in player movements.
The Storm also still see themselves as the rightful Premiers, evident in Storm Coach, Craig Bellamy’s speech at the Dally M Awards this year when he said that ‘the people at our club, whether right or wrong, believe that we won those premierships and we will always think that way. We know how hard we worked throughout those years.’ The team has also kept their Premiership rings. What is at issue is not the talent of the players at the Storm, but the unfair advantage which they created for themselves.
This whole debacle raises a couple of interesting questions about salary cap reform, nicely illustrated by this clip:
http://www.youtube.com/watch?v=Yz5TEw9-jrI
Gus Gould raises a couple of interesting points about the way the salary cap limits the ability of clubs to keep home grown heroes. In my opinion, Gus has a valid point, but it does not excuse the conduct of the Storm – it merely suggests an area where the cap needs reforming.
Gus’s comments fail to recognise that other clubs have had to sacrifice home grown players to remain under the cap. Other clubs have abided by the rules and had to make decisions in regard to player retention. To use the Eels as an example, in the Grand Final played this year between Manly and New Zealand, the players on show that came from the Parramatta Junior Nursery included Feleti Mateo, Krisnan Inu, James Maloney, Jamie Buhrer, Tony Williams, Jamie Lyon, Tim Robinson and David Williams had he of played. These are only a sprinkle of the players that Parramatta has had to let go over the years to abide by the cap.
The cap needs to be reformed to recognise the work and the money that goes into junior development, not use it as an excuse to justify a period of sustained cheating which will go down as the blackest day in RL history.
And so ends the tale of ‘Underbellamy, a tale of two books.’
Sources
http://www.heraldsun.com.au/sport/fans-are-feeling-the-pain-of-melbourne-storms-penalty/story-e6frf9if-1225857176581
