The real governance issue in the AFL is given below in an article below from today’s Australian (I regret to say that P. Smith was one of the co-authors). It shows the problems that are emerging from the AFL’s expansion clubs, problems which will become even more pronounced over time. The saga has been a convenient distraction for the AFL. If Switowski had done a governance report into the AFL, he may have found a hubristically experimental environment.
The drain of AFL cash to Greater Western Sydney and Gold Coast is not only taking its toll on other financially struggling clubs, but could delay or even prevent the early buyout of Etihad Stadium. Central to the financial stability of the league and its clubs is the AFL’s Future Fund, which the league values at $89.4 million, but has never held more than its current cash value of $63m.The cash amount is less than some clubs believed it was. They say that is, in part, because of the massive additional funding to both the Giants and Suns. As The Australian revealed in a series of exclusive reports earlier this month, up to eight clubs have forecast losses for 2015 with the competition carrying combined club debts of a record $91.5 million.AFL chief executive Gillon McLachlan told The Australian yesterday that the decision to put second teams into Queensland and NSW was proving to be more demanding than expected. “They are proving more expensive than our broad forecasts suggested,” he said.
While the AFL has always said the move north would prove challenging, it is the first time a league official has acknowledged the Suns and Giants are pulling more money from consolidated revenue than expected. However, he said that the league’s initial budget of $200m over five years to establish the clubs would be close to being “on the money”. McLachlan also stressed that the financial wellbeing of all 18 clubs was an AFL priority. A selling point to clubs in initially supporting the expansion was that the two clubs would not need a huge amount of outside funding after five years.The early purchase of Etihad Stadium by the league is viewed by tenant clubs as being vital to their long-term existence due to their poor current deals with the privately owned venue. Former North Melbourne chief executive Eugene Arocca famously once said it was tempting to lock the gates at Etihad to keep fans away, “because we’d make more money that way”.The AFL would have been better placed to purchase the stadium outright before they take ownership for virtually nothing in 2025, if their ultimate aim of being debt-free and having $100m in its Future Fund by next year, was met.
However, McLachlan said the acquisition of Etihad was not in any way dependent on the Future Fund. The Future Fund is currently $37m short of its projection, and could be further adrift owing to the financial instability of the clubs. Between 2011 and 2012, the fund appeared to have diminished based on the past two AFL annual reports, which said combined profits in 2013 and 2014 of $29.1m would be reinvested in the Future Fund.As late as 2013, the AFL continued to report a Future Fund with capital of $89.4m, but the confusion to clubs surrounds the cash element compared to what has been stated in annual reports.The Future Fund was drained in 2011 when, under Andrew Demetriou, the league borrowed $55m over 13 months, chiefly to support the blowout costs associated with the expansion clubs.A league spokesman yesterday emphasised the importance of the Future Fund and referred to the most recent annual report, which says in part: “An amount of $89.4m ($82m plus interest of $7.4m) is held in the future fund reserve.” As far back as 2006 when the AFL released the influential blueprint Next Generation: Securing the future of Australian Football, the idea of a Future Fund was developed to fast-track the purchase of the Docklands stadium.
The Next Generation document outlined the plan that the AFL Commission would allocate $82m over five years from 2007 to establish a Future Fund.“One of the aims of the Future Fund is to strengthen the asset base of the competition and allow us to consider future investments to secure new revenue streams for the competition. An example of such an asset is Telstra Dome (now Etihad Stadium),” it said.In March, 2013, AFL Commission chairman Mike Fitzpatrick confirmed the league’s preference was to buy Etihad Stadium earlier than 2025. But he said the league and the stadium’s owner Melbourne Stadiums Ltd, remained some distance apart on a price. According to AFL annual reports the league has spent a minimum of $139m on the Suns and Giants since 2010.The AFL is reported to have offered as much as $225m-$250m to buy Etihad. It is believed the superannuation companies that own Etihad are looking for a selling price much closer to $300m.