The state of South African rugby: Labour relations, Covid-19 and the new model for player contracts (Part 2)
In Part 1, we discussed the situation in South African rugby in the midst of the Covid-19 pandemic, including the pay cuts implemented across the industry by collective agreement. We covered the unique termination clause which was included in the agreement and the fallout from the opening and closing of the termination window. We analysed the resultant legal questions concerning renegotiation of contracts which arose and highlighted the importance of image rights in contractual relations in local rugby.
In Part 2, the final part of the article, we dissect the novel model for player contracts which has been introduced into the local game, including the new salary caps. The contracting model has brought in new player categories, which have implications for contractual terms, and a revised system for player development and management. One of the primary aims of these changes is to enable the more effective management of players leaving for foreign clubs, in conjunction with improved succession planning. We consider whether these aims will be achieved.
The new model for player contracts
Cooperation between the three primary stakeholders in South African rugby, being SA Rugby, MyPlayers and SAREO, resulted in an innovative new contracting model being incorporated into the terms of the 2020 collective bargaining agreement (CBA) entered into between the collective representatives of the players and the fourteen unions, being MyPlayers and SAREO respectively. In agreeing to the new model, the parties were able to set aside purely sectional interests to jointly craft a plan to maximise the use of limited resources, countering the numerous challenges faced by rugby in the country.
When the contracting model was announced in June 2019, SA Rugby CEO Jurie Roux spoke about the rationale behind the changes and how they would improve the effectiveness of the system. He said that the large professional workforce in place was not sustainable and that the strategy to retain top players in South Africa had become “too narrowly focused”. Roux spoke about how the new model would look after the best players financially and improve player management and development. National Director of Rugby Rassie Erasmus spoke to the SABC in March 2019 about how the changes will assist with managing game time, player welfare and sharing medical records. He also spoke of the anticipated improvement in the financial sustainability of the unions as a result of the budget controls introduced and through the distribution of funds through the unions for Springboks and other selected players.
This was all developed and agreed to prior to Covid-19, but put in place structures which should lessen the destructive effects of the pandemic on the industry in terms of finances, from an employment relations perspective and as regards on-field matters. The model is thus proving its worth early on, despite this disruption not being on the radar. It left the industry far better equipped to deal with the effects of the pandemic than it would otherwise have been.
The primary elements introduced by the new contracting model are the following:
Caps on remuneration (i.e. salary caps) and limits on squad size.
New categories of players, which determine minimum salaries and have a bearing on other contractual terms. These categories are “professional”, “semi-professional” (i.e. club players) and “development” players (i.e. under 21s not contracted as professional players).
The concept of designated players of national interest (PONIs), which sees joint development of players by the Springboks and the unions. This involves Springboks no longer being contracted directly by SA Rugby, but instead being seconded to the national team by the unions.
A “commitment clause”, which seeks to retain young players in South Africa subject to certain conditions.
Salary caps and limits on squad size
The Super Rugby and PRO14 franchises (the franchises) are limited to contracting 45 professional players, but are entitled to contract an unlimited number of development players. In 2020, the salary cap for the franchises is R60 million per annum in respect of professional players and R10 million for development players, with the former limit increasing incrementally every year over three years and the latter decreasing marginally over the same period. Griquas and the Pumas, who are referred to as the “emerging franchises”, have an annual salary cap of R15 million for 2020 and the “non-franchises”, who are the teams in the Currie Cup First Division, R6 million. Unused cap space will be carried forward year on year, but not beyond the end of the contracting cycle, at the end of 2023.
To give an idea of the levels at which players are paid, according to News24, of the 717 professional players in South Africa prior to the termination window, 45 earned more than R2 million annually. CEO of MyPlayers Eugene Henning referred to players being better off financially, on average, under the new system. In a report by Jon Cardinelli for SARugbymag, Henning was quoted as saying that with the introduction of limits on squad size, whereas in the past players would be kept in the system until thirty or 32, now they would be encouraged to follow the club route where they do not get a contract at 21. The changes see club players and development players being used as temporary replacements for injured professional players on an ad hoc basis. Semi-professional players, who include students, may only be contracted to play in the Currie Cup First Division and the SuperSport Rugby Challenge.
Speaking to News24, the Director of Rugby of the well-run Pumas, Jimmy Stonehouse, welcomed the introduction of salary caps and lamented the delay in its implementation, saying that this has damaged the sport almost irreparably. He referred to the tendency of the bigger unions to stockpile talent in the past, with players often receiving large sums even where they were surplus to requirements on the field.
In comparison, a salary cap was introduced into the French Top 14 in 2010 and now stands at €11.3 million per annum, the highest in world rugby. In England, an annual salary cap of £6.4 million is applicable in the Premiership. We have seen Saracens’ breaches of the cap resulting in their relegation from the Premiership. In the midst of Covid-19, we have also seen clubs in the Premiership seeking to reduce the salary cap, to £5 million, and the players’ union challenging these efforts. As reported by News24, the French cap will drop by twelve percent to just under €10 million for the next Top 14 season, although this decision by the clubs is subject to ratification by the league’s executive body. In France, too, there are questions of breaches of the cap, with RMC Sport reporting that there is evidence of Montpellier having broken the salary cap through disguising the salaries of players including Johan Goosen.
The South African salary cap system is not a “hard cap” system as one finds in the National Football League (NFL) in the United States, which franchises cannot exceed for any reason. Instead, the CBA contains penalties of fines for a union’s first two breaches of the cap and possible suspension from competition for a third offence. A “salary floor” is also applicable in the NFL, which is a minimum amount that must be spent on a team’s pay. There is no such provision in the South African rugby CBA, although there are minimum salaries applicable, which depend on the category of player and the competitions they are involved in.
Salary caps have been a tool used mainly in professional sport in the US, together with the “luxury tax” concept. The intricate, mechanised contracting systems which have been used in the US for years are epitomised by the terms of the current NFL CBA. As a topical example of how these systems work, Patrick Mahomes, the quarterback for the reigning Super Bowl champions the Kansas City Chiefs, has just signed a ten-year extension of his first contract, his rookie contract, which will provide him with a total pay packet of approximately $500 million including incentives, if he sees the contract out. Mahomes is currently in the fourth year of his rookie contract, in terms of which players earn a limited amount. He will earn $5.3 million in 2020, on the rookie wage scale, and $24.8 million in his fifth year. As a first round draft pick, the franchise has a unilateral option of extending his contract for a fifth year with a significant, but limited, salary increase. The Chiefs exercised this option prior to the new agreement being reached. Any time after the completion of a rookie’s third season, the player and the franchise can negotiate a new deal, extending the player’s employment contract for any duration to which they agree and paying the player in excess of the rookie wage scale from that point forward. In the agreement governing the extension, the Chiefs and Mahomes agreed to leave his pay for the initial (i.e. rookie) term of his contract, being the first five years, untouched.
The NFL salary cap is linked to revenue generated in the sport, as is the case in the NBA, meaning that players win and lose, financially speaking, relative to the revenue generated by the sport as a whole. The financial success of leagues and players alike is closely determined by the demand for particular sports from online and television audiences, which essentially sets the value of broadcasting rights. Logic tells us that the salary caps in the South African rugby CBA have effectively been set relative to the income of SA Rugby and the unions, which would be based on the current and forecasted value of broadcasting and other revenue in the game. However, if all, or more, South African franchises move north, one expects that it would become necessary to renegotiate the CBA, including the salary caps, to account for the related financial changes.
The NBA and NFL systems would be less reliant on renegotiation and the ability to reach agreement in the event of unforeseen changes in financial conditions, due to the salary cap in each case being calculated on a set formula in relation to revenue. Nonetheless, in South Africa the parties would be likely to have confidence in their ability to renegotiate an appropriate deal. There is evidently sufficient trust and credibility between the parties that such confidence would be warranted, due to the bargaining processes that have been ongoing for the past year and longer, and the relationships that have been built.
We would cautiously predict that the South African salary caps and contractual system will become more mechanised and detailed as the parties become accustomed to a salary cap system, perhaps with revenue being brought into the terms of the CBA. In terms of the challenges which will face the parties on this front in forthcoming years, we foresee that there could be tension between the desire of SA Rugby and the franchises to increase the number of matches on the annual calendar and the need to prioritise player management and well-being. On the part of the players, there would be temptation to accede to any such efforts to increase the number of matches in order to increase the level of pay, but this is a double-edged sword.
PONIs and succession planning
Since rugby turned professional, SA Rugby had contracted Springboks directly, making the changes in this regard significant. Erasmus, who will lead succession planning as the Director of Rugby, said at the announcement that there would be upwards of sixty PONIs involved in an integrated Springbok plan with the unions, allowing national and franchise coaches to work together. Importantly, there are no limits placed on the selection of foreign-based players for the Springboks. According to Erasmus, in the past, thirteen to twenty Springboks would be contracted, with the aim being to keep them in the country. The wider player base in the new model makes it less prone to disruption due to injury. A PONI agreement, including a high-performance programme, will be entered into between the franchises and SA Rugby in respect of each PONI, meaning SA Rugby will maintain some control over player management of Springboks.
Erasmus spoke to the SABC about how the player retention strategy will be put into practice. He explained that there is a ranking system. They started by looking at the thirty first choice players, to determine how many of them would stay in South Africa. Erasmus said that if a big-name player leaves, they will start putting money into the second and third choice players, presumably in the same position. He said that if a marquee player accepts the smaller offer in South Africa, there might be five less players that “sign at the bottom”, showing the flexibility and potential volatility of the system, with player development at the younger end of the spectrum closely dependent on the decisions of established players to stay or leave.
Erasmus emphasised the importance of talent being distributed across the franchises, so that stockpiling of players in the same positions is avoided. Putting this in place will need the buy-in of the franchises, though, as they are the primary employers and cannot be forced to “sell” players. Every franchise will have a person in charge of succession planning and the Springbok plan and player rankings will be shared with these people by SA Rugby at regular intervals.
According to News24, Yaw Penxe of the Kings, the Stormers’ Rikus Pretorius and new Bulls recruits Schalk Erasmus and Sintu Manjezi are designated as PONIs, Pretorius since 2019. This provides a glimpse into the thinking of Erasmus and his broader management team.
Interestingly, as reported by SARugbymag, Erasmus has said: “What we saw in the past was a guy, for example, like Eben Etzebeth leaving and the next guy in – say a more junior lock like JD Schickerling or Salmaan Moerat – stepping into the Stormers starting lineup and getting Eben’s salary. This was done simply because he was the next guy in line. The junior guy’s salary got inflated and, on a bigger scale, we inflated our own market. That will have to change.”
Recently appointed Bulls Director of Rugby Jake White has spoken about the need for unions to work closely with SA Rugby and Erasmus. He talked about recruitment and the manner in which financial assistance from SA Rugby for PONIs can assist unions, implying that these “top-ups” contributed to the Bulls being able to secure the returns of Arno Botha and Nizaam Carr to South Africa.
The commitment clause
The commitment clause referred to above applies to all players under the age of 27 who are contracted by a franchise to play in Super Rugby or the PRO14 for the first time on or after 1 November 2019. The clause provides an option to all franchises to contract such a player for a period of three years in total where the initial duration of their contract is shorter than three years. In other words, where such a player enters into a contract with a particular franchise for two years, for example, that franchise and all other franchises can exercise an option to contract the player for a total term of three years. Where there are multiple offers from franchises, players will be free to choose which offer to accept. If eight months prior to the expiry of the player’s contract, no offer is forthcoming – on terms of employment not less favourable than the prevailing terms – the player will not be obliged to continue his career in South Africa.
This provides players with certainty, as opposed to them seeing out their contracts, risking injury, without knowing whether they will need to look for a move when the contract ends. Where a player is selected in the Springbok squad during this three-year period, the franchises’ option becomes for a total contractual term of four years instead of three. Unions and players can nonetheless agree to include in a contract an exclusive right of first refusal for the particular franchise. If no such exclusive option applies, then players would be able to select the best offer available to them, but would be retained in the domestic structures. The commitment clause provides an incentive for Springbok management to select a young player in the Springbok squad to increase the likelihood of them remaining in the local game for an additional year through the application of this clause.
How will these changes affect South Africa’s ability to retain its best talent?
The three primary stakeholders in South African rugby understand that retaining marquee players in the country is a battle they cannot win. This much is clear from the changes brought about by the restructuring, from the risk which the unions took in agreeing to the inclusion of the termination clause in the agreement on pay cuts and from comments made by each of these parties. The innovative new contracting model puts structures in place which, if successful, will sustain South African rugby as a force in the global game despite the excessive exchange rate and the exit of marquee players. The changes in the system should enable the retention of a higher proportion of the best young players in the country, a fundamentally important potential result of the restructuring.
In the past, especially in the case of players not yet at the requisite level for Springbok selection, SA Rugby would have had difficulty in incentivising promising players to stay in the country, aside from telling them “we have you in our plans” and opening dialogue with unions to convince them of the importance of keeping these players in the local game. Under the new model, however, SA Rugby can take the initiative and formally earmark players for higher honours by contracting them as PONIs and contributing to their pay through the unions. The changes should assist in moving the needle towards competitive salaries in global terms for a broader pool of players, especially those identified by SA Rugby. It seems likely that the changes, collectively, will result in the average age of franchise squads continuing to get younger, which would have its benefits and drawbacks.
The increased capacity for succession planning will allow SA Rugby to strategise more effectively to achieve its transformation targets. SA Rugby recently announced that its annual audit for 2019 shows that it has made notable progress on the transformation front, in terms of improvement in the areas of access, demographics and empowerment. The audit covered players, coaching staff, administrative staff and board members in the rugby industry. The transformation barometer jumped from 59% success in 2018 to 81% in 2019, in the first year of SA Rugby’s refocused Strategic Transformation Development Plan 2030 (STDP 2030). The new contracting model should enhance these improvements.
One expects that the changes in the system will result in a higher proportion of the most highly-rated young players in the country remaining in South Africa and doing so for a period of at least three to four years through the commitment clause. This would still allow players to optimise their career earnings through an overseas move at a later stage whilst still in their athletic prime, barring injury. Players may be willing to forego relative riches overseas for a few years, because, on average, they would be receiving more competitive salaries in South Africa than they would have previously and would have an improved chance of playing for the national team. We could see a situation where Springbok squads become even more clearly stratified, being made up of experienced players based at foreign clubs and young locally-based players. This will also depend to a large degree on trends in recruitment by foreign clubs post Covid-19.
With the successful implementation of the new model and the astute use of its features by the unions and SA Rugby, the competitiveness of the Springboks should be enhanced, as opposed to being negatively affected in any way. A further protective measure that will complement the new model in this regard, which Erasmus highlighted to the SABC as being important, is the decision by SA Rugby to enforce more strictly World Rugby’s Regulation 9, which governs the right of international teams to summon players for matches and training. SA Rugby is viewed as having taken a soft stance on this issue in the past, so as to avoid interfering with the ability of players to earn well overseas, but stricter enforcement of the regulation is seen as necessary to protect South African rugby going forward.
Concluding thoughts
It is important to bear in mind that this is a dynamic industry, particularly at this time. In addition to the reports of the South African Super Rugby franchises moving to northern hemisphere competition from as early as 2021, New Zealand Rugby (NZR) conducted a three-month review of that country’s Super Rugby future model, for implementation in a post Covid-19 world. NZR CEO Mark Robinson announced in July 2020 that they were looking at a restructured eight-to-ten team tournament, which would exclude South African and Argentine teams and with the establishment of a Pacific Island team a key objective. This has caused tension between Robinson and his Australian and South African counterparts.
Jurie Roux briefed the media in response to these developments, as reported by News24 and SuperSport. Roux said that “the unbundling of Super Rugby can only be a Sanzaar executive decision” and that a unilateral decision by any of the parties that forces a split would leave them at risk of legal liability through their breach of the joint venture agreement. Roux made it clear, however, that discussions are ongoing and that the decision could be made to disband Super Rugby in its current format, whilst still maintaining the Rugby Championship under Sanzaar. He made reference to SA Rugby having “two strong alternative options in the northern hemisphere”.
Roux described maintaining the status quo as being the approach which would make the most sense for SA Rugby, and the franchises, from a purely commercial perspective, due to the valuable broadcasting revenues from the Sanzaar competitions. However, he referred to there being wider criteria influencing the decisions on South Africa’s involvement in southern hemisphere competition, including the quality of rugby and the impact of club competition on international performances.
NZR’s “revolutionary” new deal with Sky – reportedly worth US$251.9 million over five years – will significantly increase NZR’s bargaining power and contribution within Sanzaar in terms of broadcast revenue, and must be underlying the talk of New Zealand’s breakaway from South Africa. Nonetheless, with the country’s traditional rugby supporter base and the time zone alignment with northern markets, South Africa’s contribution in terms of broadcasting revenue will be an important bargaining chip in SA Rugby’s armoury, despite the weak rand.
According to the Daily Maverick’s Craig Ray, despite Roux’s talk of legal restrictions, disbanding Super Rugby would suit South Africa as much as it would New Zealand. Ray painted a picture of the fallout from Covid-19 being opportune for SA Rugby in providing an entry into what he describes as “the lucrative northern hemisphere competition structures”, which includes the European Cup.
In spite of the extreme uncertainty which prevails, the strong relationship between the stakeholders in the local game should allow them to navigate the constant changes in the industry in an agile manner. The foundation of collaboration and trust between MyPlayers, SAREO and SA Rugby and the equitable nature of this tripartite relationship has proven to be a protective measure for the parties, mitigating against the effects of the coronavirus. The unanticipated Covid-19 disruption is an interesting test case for the robustness of CBAs and for collective bargaining relationships the world over. Trust in partners is less required when the future is known and predictable; it is when unanticipated shocks emerge that coordination and cooperation become vital. The proximity of the parties in South African rugby allowed them to negotiate efficiently and swiftly in response to the pandemic and its impact, to minimise the harm suffered. These challenges would be viewed as intractable by many parties in the same position. Even though certain unions dissented, the nature of collective representation meant that an agreement was concluded nonetheless.
One could misunderstand this narrative as encouraging an over-reliance on trust and cooperation at the expense of focusing on structural change. However, collaboration can result in institutional structures being put in place which provide protection for all parties, even in the event of relationships deteriorating, and set the foundation for their subsequent engagements. The agreement on the new contracting model is an example of this. It has implemented structures that will reduce the reliance on individuals for mutually beneficial outcomes for the duration of the agreement and potentially beyond.
In stark contrast to this constructive relationship between employees and employers, the detriment suffered by business and labour alike in the absence of collaborative collective bargaining and trust has been on full display in Major League Baseball (MLB) in the US. In the MLB, failed negotiations between the league and the players’ union on the terms of the commencement and completion of the season, in the face of Covid-19, have resulted in an outcome which is widely regarded as inefficient, to the detriment of the parties and fans alike. Positional approaches to the negotiations saw the parties engaging as adversaries, exchanging formal offers and counter offers and demanding concessions of one another. They accused each other of negotiating in bad faith and have threatened to file disputes against one another. There was no willingness to compromise and there was a distinct lack of effort to explore possibilities for mutual gain or to find overlapping interests. The extent of the misalignment between these parties is displayed in the fact that an agreement was reached between them in March 2020, but within a matter of weeks they were in dispute about its interpretation.
This is evidently the result of a relationship riddled with mistrust, as has been the case over a number of years. This short-termist approach resulted in less games being scheduled for the season – done unilaterally by the MLB Commissioner in the absence of an agreement – than should reasonably have been agreed on, which will ultimately cause a decrease in revenue in a sport which is progressively being left in the dust by the NBA and NFL in terms of viewership, popularity and cultural importance. With the current MLB CBA expiring in 2021, trouble is brewing. They could do with a measure of the goodwill present in South African rugby.
A fascinating counterpoint to the situation in baseball and a further example of a constructive collective bargaining relationship is the conclusion of a CBA by the National Hockey League (NHL) and the players’ union in July 2020, in the midst of the devastation caused by Covid-19 in the US. The most salient feature of this agreement is the scheme to reduce the financial harm suffered by both the franchise owners and players and to ensure certainty, by effectively amortising reductions in player remuneration over a number of years and avoiding salary cap reductions even in the event of severe drops in revenue. Seasoned NHL journalist Pierre LeBrun said that there has been a level of collaboration between the league and the players that he has never seen in his career, putting it down to the prevailing fear and uncertainty.
The varied responses to the economic upheaval caused by the pandemic provide us with a number of learning points in labour relations and collective bargaining, in the sporting world and more broadly.
The success of South African rugby in the foreseeable future will be closely dependent on the ability of the new contracting model to facilitate the financial sustainability of the fourteen unions whilst allowing for the retention of sufficient talent to ensure on-field success of both the unions and the national team. Furthermore, the extent to which the three primary role-players will be collectively able to adapt to a changing industry will be pivotal to the success of the professional game in the country.
Of course, there is considerable uncertainty regarding the future of the sport, locally and internationally, and the financial impact of changes going forward would be difficult to forecast. The smart money is on the stakeholders in the South African game being able to adapt and develop the terms of their engagement, through the CBA and the contracting model, to respond effectively to the changes which will take place. The proof of the proverbial contracting model pudding will be in its eating. Whilst there is certainly reason to be positive about the forecasted impact of the restructuring, we will have to monitor its effect on the game relative to the projections made at its announcement. South African rugby fans should have faith that regardless of the challenges which arise, the custodians of the sport in the country are largely pulling in the same direction and have proven themselves to be committed to acting in the best interests of the game.
Rest in Peace Kaunda Ntunja and Paul Dobson
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