The Commerce Commission is considering revoking its decision that authorised the New Zealand Rugby Union (NZRU) to have a salary cap and player movement regulations.

In June 2006, the Commission authorised the NZRU to enter into and give effect to a salary cap arrangement and to player movement regulations. As a result of changes made by the NZRU to its employment arrangements, all players in its premier division must now be employed and cannot be engaged as independent contractors.  

As the restrictive trade practice provisions of the Commerce Act do not apply to arrangements with employees, there can no longer be a breach of the Commerce Act. Since these developments represent a material change in circumstances around which the Commission granted the original authorisation, the Commission is considering revoking its decision.

The Commission invites submissions on the possible revocation by 18 March 2011.

The draft determination is available on the Commission's website at: http://www.comcom.govt.nz/anti-competitive-practices-authorisations-register/detail/717

 

Background

The NZRU applied to the Commission in November 2005 for authorisation of its proposed salary cap, and other arrangements relevant to the new modified Division One. After the Commission issued its draft determination in March 2006, indicating the salary cap was likely to be authorised with conditions but the other arrangements were not likely to be authorised, the NZRU withdrew the other proposals, leaving only the salary cap and player movement regulations for authorisation.

The NZRU submitted that the salary cap would create a more even spread of players, resulting in closely contested matches that would attract bigger television audiences and earn more money. The Commission analysed four years of viewing figures and found that closely contested games were not necessarily more popular with the public. However, the Commission found that the quality of players in a match did affect the match's popularity. The Commission concluded that, by encouraging a more even spread of good rugby players, the salary cap could increase the quality of play, and hence the popularity of rugby and the income to be earned from it.

The Commission may authorise anti-competitive arrangements if it decides the benefit to New Zealanders outweighs the detriment to competition.

In June 2006, the Commission authorised the NZRU to impose a salary cap to limit the amount each union can spend on players. The Commission approved the salary cap subject to the following conditions:

  • The salary cap will last for six years, with a review beginning after four years.
  • The NZRU must monitor and enforce compliance with the salary cap framework. This will include putting in place anti-avoidance clauses and ensuring they are complied with.
  • The NZRU must ensure that no remuneration is excluded from salary cap calculations.
  • The NZRU must evaluate the effectiveness of the salary cap in the review after four years.