If the salary cap fits
5 May 2010
Sean Russo
FOR heaven’s sake what’s all the fuss about with the Melbourne Storm? Firstly, it’s only rugby league. Secondly, they made league outside State of Origin almost watchable. Given the word on the street is that “half the clubs are doing it” perhaps the guys who should be getting the bollocking are the ones that are breaching the cap and still can’t produce watchable games or winning seasons.
I actually feel for the players and the coach because if they were genuinely kept in the dark they will never know if they could have won without breaking the rules. I suspect that had the management come clean with them and had a different set of decisions been made Melbourne may still have won everything it did or at least the lion’s share. Most people when questioned about where they work and why, don’t list money as the top reason. There are always exceptions (and most people don’t refuse if silly numbers are offered) but in the main money doesn’t come first. It seems no-one told that to the guys who thought the only way to hold the Storm together was money by any means. Perhaps their mistake was thinking they were running a big publicly listed corporation where it seems the thinking seems to be that paying more increases the chances of success.
The whole idea of a salary cap is quite bizarre if you are more likely to read the Australian Financial Review than the Telegraph. Reading the AFR you would come to the conclusion the salary cap is a mythical peak our leading companies (sorry largest, because that often seems to be the only metric they deliver on) are striving to beat each other to reach; with some companies clearly trying much harder than others. Many boards seem to be of the view the more you pay the CEO and his team the more you get. Take LGL (the team formerly known as Lihir) as an example. While certainly not in a league of their own, the money paid over the last five years to the recently departed MD is quite spectacular. Particularly, if you consider they haven’t even looked like they could beat the mining equivalent of the De LaSalle College reserve grade team in any of his seasons. Interestingly the Head of Selectors, who was there before he signed on, is still around. No doubt many will think that the recently proposed super-franchise proposed with those guys from Melbourne will surely launch two perennial “future premiership contenders” into a new Super League. All I can say is they better hope, together or apart, that they get to keep running with the golden wind behind them because I’m not sure that either would know what to do if they actually have to run into the wind for a while.
The Storm storm was inescapable but how many column inches of righteous indignation did we see in the financial press about the gross level of payments being made for what must be considered a wooden spoon performance? Where were the shareholders camped outside LGL HQ demanding the head of the captain, coach or head of selectors, or tossing back those blue and gold LGL jerseys they had hung onto, year after year, watching the gold price quadruple while not even getting a finals berth? Barely a whisper was heard. It seems we hold rugby league administrators to a much higher standard than we hold the corporate executives and directors who are ultimately playing with our superannuation and savings. Oh yes, I forgot the latter didn’t break any rules/laws – more’s the pity!
Perhaps that’s all about to change. Rugby League likes to promote itself as the sport for Struggle Street and I am going to suggest to you that the outrage we have just witnessed reflects that despite what our politicians tell us Struggle Street doesn’t think things are going to get better anytime soon. If the economy was really booming and everyone was feeling alright about life and the future I suggest to you what has been revealed would have been a storm in a middy glass (sorry!). I think that even though fans would like to think players may not have known they we being “paid overs”, what we have seen reflects that there is an increasing backlash against how much professional sports people get paid. Particularly when people also feel that players have totally disconnected from the fan base and almost imagine the fans are lucky to have them, not the other way around.
League players are in the entertainment business and they had damn well better entertain or that discretionary expenditure might just be put towards the mortgage or the credit card bill instead of tickets to the footy or Foxtel. It’s not a “Tall Poppy” syndrome, our expectations change with our own changing circumstances.
p>If, as I suspect they will, the broader equity markets run in to serious headwinds in the year ahead I think we will see similar outrage expressed in the market place in relation to companies that seem to have forgotten they are there for the benefit of the shareholders; not for the management and board. Polling shareholders on executive remuneration and then ignoring them “because the board knows better” may be harder to carry off in the years ahead. We won’t need a salary cap imposed but we will see the market punish those who pay overs and under deliver. As we feel pain we will tolerate unearned success less and less in the custodians of our retirement and punting funds.What we seek from entertainers can be difficult to quantify; for the custodians of our savings and super it’s very clear. They are supposed to be in the business of delivering a return on shareholders funds and building a better business. They should be measured and rewarded based on what they have done to deliver a superior return to shareholders by way of dividends (so we the punters don’t have to sell out to see benefit); how they have invested shareholders funds to improve their future prospects; what they have done to enhance the perception of the corporation such that they are the employer of choice in their sector (putting the best possible team on the paddock should be a key role of the MD); what they have done to enhance the perception of the company in the eyes of professional investors (attracting the people spending other people’s money is often the best way to drive a premium for all shareholders); and, finally they should be able to say as they leave, “I leave this company in better shape and with better prospects than when I arrived”. Do that and we won’t mind if you earned a motza but expect us to get upset if you think you should get paid for just turning up!
Were “Fatty” Vautin (if you ever watched Paul Vautin give his all, week in week out, when he played you would never begrudge him a dollar he earned from football) of The Footy Show (NRL) fame, reviewing the performance of a corporate CEO as they finished up at a company you owned shares in you would hope he would say, “ it didn’t matter what he had been paid while he had been in charge because he leaves behind: a winning culture and good depth in the lower grades, both of which drives and supports an almost maniacal support base from the fans”.
Or he might simply say, “he done good”.
I strongly believe that as this gold bull market matures the best returns will come from backing those companies with management teams that clearly “give their all”. Teams that make tough decisions in the best interests of all stakeholders, based not on a borrowed view on the future direction of the gold market, but a sound medium term strategy of maximising the chances of near term profitability and corporate longevity, will stand out more and more as the season draws out. Look for a high work rate, honesty about their inability to predict the future and incentives aligned with yours. Avoid teams where a life altering financial outcome is almost assured at the coin toss: “heads they win, tails you lose”.