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The Awful Truth About The ARU's Financial Position

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lou75

lou75

Ron Walden (29)
Wayne SMith reported it on 1 APril 2016:
"The Australian Rugby Union has given the Melbourne Rebels’ private owner Andrew Cox financial support worth more than $6 million for five years to stop the bleeding from a club that has cost the game between $15 million and $20m since its inception.

Because the deal is front-end loaded, it is understood the Rebels are being paid $2.6m for 2016, the initial year of the deal, but that payments are reduced considerably in value over the remaining four years."
 
Braveheart81

Braveheart81

Will Genia (78)
Staff member
lou75 said:
Wayne SMith reported it on 1 APril 2016:
"The Australian Rugby Union has given the Melbourne Rebels’ private owner Andrew Cox financial support worth more than $6 million for five years to stop the bleeding from a club that has cost the game between $15 million and $20m since its inception.

Because the deal is front-end loaded, it is understood the Rebels are being paid $2.6m for 2016, the initial year of the deal, but that payments are reduced considerably in value over the remaining four years."
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It seems that those numbers are a mix between what the ARU provides every franchise and what it is providing the Rebels in additional funding.

In 2016 they are providing the Rebels with an additional $900k compared to the other sides and that drops to $100k in the fifth and final year of the arrangement.

If you assume that drops on a straight line basis, then the ARU would be providing the Rebels with an additional $2.5m over the next 5 years compared to what the other franchises get.

The Rebels will get $6.5m from the ARU in 2016 but every other franchise will get $5.6m.
 
lou75

lou75

Ron Walden (29)
Braveheart81 said:
It seems that those numbers are a mix between what the ARU provides every franchise and what it is providing the Rebels in additional funding.

In 2016 they are providing the Rebels with an additional $900k compared to the other sides and that drops to $100k in the fifth and final year of the arrangement.

If you assume that drops on a straight line basis, then the ARU would be providing the Rebels with an additional $2.5m over the next 5 years compared to what the other franchises get.

The Rebels will get $6.5m from the ARU in 2016 but every other franchise will get $5.6m.
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Thank you. So the ARU have a present obligation as a result of past events, the settlement of which will result in an outflow of economic benefits within 12 months and again beyond that time - classic definition of current liability and non current liability - but where is this in the financials??
 
Braveheart81

Braveheart81

Will Genia (78)
Staff member
lou75 said:
Thank you. So the ARU have a present obligation as a result of past events, the settlement of which will result in an outflow of economic benefits within 12 months and again beyond that time - classic definition of current liability and non current liability - but where is this in the financials??
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It's not a present obligation. To be recording a liability at 30 June 2015 they either need to have recorded an expense or have created an asset at 30 June 2015.

The expense relates to 2016 which is why it will be recorded then.

They also have a contractual obligation to pay the other Super Rugby sides $5.6m each in 2016. That doesn't mean they record that as a liability at 30 June 2015.
 
I like to watch

I like to watch

David Codey (61)
Braveheart81 said:
It's not a present obligation. To be recording a liability at 30 June 2015 they either need to have recorded an expense or have created an asset at 30 June 2015.

The expense relates to 2016 which is why it will be recorded then.

They also have a contractual obligation to pay the other Super Rugby sides $5.6m each in 2016. That doesn't mean they record that as a liability at 30 June 2015.
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The franchise payments are subject to services to be provided at a later date.
if the Tahs for example,did not field a team next year,clearly the ARU are not obligated to make the payment they have scheduled.

I would expect these other payments are essential terms in a contract of sale.
If so they are liabilities.

Obviously to recognise them as liabilities,,the expense would have to be recorded on settlement date.
Making a bad year worse.

but we all know, to best interpret a set of circumstance, one first has to understand the targeted profit/loss for the year.
Once you know what number you are working to,the correct interpration becomes crystal clear. :)
 
Braveheart81

Braveheart81

Will Genia (78)
Staff member
I like to watch said:
The franchise payments are subject to services to be provided at a later date.
if the Tahs for example,did not field a team next year,clearly the ARU are not obligated to make the payment they have scheduled.

I would expect these other payments are essential terms in a contract of sale.
If so they are liabilities.
Click to expand...


I think they are exactly the same thing. The ARU has just agreed to pay the Rebels more than the other franchises.

Each year's payment is contingent on the team playing that year of Super Rugby and hence why they haven't been expensed already and recorded as a liability.

If the expense hasn't yet been incurred, it likewise isn't a liability. There is absolutely nothing untoward or unusual about this accounting treatment.
 
Hugh Jarse

Hugh Jarse

Rocky Elsom (76)
This thread has become a Bean Counters field day.

Almost as good as seeing G&GR lawyers whipping themselves into a frenzy on the legal rights and wrongs on the KHunt does coke Thread.
 
I like to watch

I like to watch

David Codey (61)
Braveheart81 said:
I think they are exactly the same thing. The ARU has just agreed to pay the Rebels more than the other franchises.

Each year's payment is contingent on the team playing that year of Super Rugby and hence why they haven't been expensed already and recorded as a liability.

If the expense hasn't yet been incurred, it likewise isn't a liability. There is absolutely nothing untoward or unusual about this accounting treatment.
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its facile to suggest that all payments from ARU to rebels should be accounted for in the same way, ignoring the purpose of individual payments.
The ARU sold the Rebels at a loss, this is not recorded in their P&L.

Had the ARU sold the Rebels at a profit, I have no doubt at all, that it would have been booked for the period being reported.

Are you suggesting that had the ARU made a $10M profit(just saying) there is no need to declare this profit,if they had agreed to accept payment over 5 year period.
 
Braveheart81

Braveheart81

Will Genia (78)
Staff member
I like to watch said:
its facile to suggest that all payments from ARU to rebels should be accounted for in the same way, ignoring the purpose of individual payments.
The ARU sold the Rebels at a loss, this is not recorded in their P&L.

Had the ARU sold the Rebels at a profit, I have no doubt at all, that it would have been booked for the period being reported.

Are you suggesting that had the ARU made a $10M profit(just saying) there is no need to declare this profit,if they had agreed to accept payment over 5 year period.
Click to expand...


Seemingly the ARU offloaded the Rebels for no consideration. They weren't carrying the Rebels in their balance sheet because an asset that is costing them multiple millions of dollars a year has a fair value of zero.

They recorded the loss they incurred in funding the Rebels in 2015 as part of the Super Rugby expense line item and then provided further details on the breakdown of that expense item in the notes to the accounts.

Of course it would be in the accounts if they had sold the Rebels for a $10m profit then that would be recorded in the accounts. There is no way it can't be.

If you have an asset that is worth nothing and then you dispose of it for nothing, there is no accounting entry to make. There is just the potential to disclose it in the accounts which is what has been done.

From an accounting perspective future payments to the Rebels for each year of Super Rugby are not a current year expense (in 2015) and therefore shouldn't be recognised. From an accounting perspective there is absolutely no difference between those and the Super Rugby payments to the other franchises.

The ARU will have contracted to incur many expenses in the 2016 year by the end of the 2015 financial year just like any organisation. That doesn't mean they are recorded as current liabilities at 30 June 2015 because they will be paid within the next 12 months.
 
I like to watch

I like to watch

David Codey (61)
The ARU seemingly offloaded the Rebels for zero consideration if you rely on the annual report.
It's common knowledge that they offloaded the Rebels for a negative consideration,which is not reflected in the accounts.
Which is the issue.

Again, I'm comfortable that if the ARU did not have a negative net worth,and if they were trading very profitably,this transaction would have been interpreted differently.
but it's hardly the biggest issue in the game.
I think I'm done.
 
Braveheart81

Braveheart81

Will Genia (78)
Staff member
I like to watch said:
The ARU seemingly offloaded the Rebels for zero consideration if you rely on the annual report.
It's common knowledge that they offloaded the Rebels for a negative consideration,which is not reflected in the accounts.
Which is the issue.
Click to expand...


They wrote off the $5m that was initially a loan as part of Super Rugby expenses and disclosed that.

Your issue seems to be that they didn't record an item in 2015 that wasn't an expense in 2015 and therefore isn't a liability in 2015.

There is no issue here from an accounting perspective. They have recorded everything as they should have.

Future payments to the Rebels are not a liability arising from the disposal of that entity. They are a liability that arises from the relevant Super Rugby season. The fact that they have agreed to it as part of the disposal of the Rebels is irrelevant to that fact.

I think you are entirely wrong that this transaction would have been recorded differently in the 2015 financial statements of the ARU if the entity was in a better financial position.
 
RugbyReg

RugbyReg

Rocky Elsom (76)
Staff member
yep positive.

I see the Brumbies are going to make another loss.

I hear the Reds are expected to make a profit (just).

How are the other states going?
 
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