A tale of two football codes: Corporate governance failings and performance enhancing drugs Abstract In 2013, two well-known Australian sporting clubs – the Essendon Football Club (AFL) and the Cronulla Sharks Rugby League Club (NRL), were both investigated for performance enhancing drugs in their elite sports science programs. News of the initial investigations was met with disbelief by supporters, players, club administrators and the respective governing bodies – the AFL and the NRL. What followed was a period of intense and rigorous independent investigation by Australian Sports Anti-Doping Authority (ASADA) and the AFL and the NRL. In August and December 2013 respectively, severe sanctions were handed down to the Essendon Football Club and the Cronulla Sharks. This paper provides an overview of the background to the saga in each of the respective clubs. It provides a time-line of the events before, during and after the initial investigation by the independent bodies. The paper concludes by linking the events at the respective clubs, to short-comings in a number of important corporate governance practices. Keywords: accountability, corporate governance, international sports associations, crisis, performance enhancing drugs, National Rugby League (NRL), Australian Football League (AFL) 1 A tale of two football codes: Corporate governance failings and performance enhancing drugs 1. Introduction Financial stakes involved in professional sport can create powerful incentives for the use of performance enhancing substances (Rapp 2009). Much empirical evidence supports a strong link between on-field results and club revenues (e.g. Morrow 1999; Barajas, Fernandez- Jardon et al. 2005; Pinnuck and Potter 2006; Bernile and Lyandres 2011; Bell, Brooks et al. 2012). Detection of drug use in sport, however, can undermine the good standing of sport, bringing it into disrepute and fracturing the relationship it has with sponsors (Senate Standing Committee on Environment Recreation and the Arts 1988; House of Representatives Standing Committeee on Finance and Public Administration 1990). For this reason, football codes governing bodies are opposed to the use of drugs by any one team because the strength of their product is contingent on joint production from all teams in the competition. For example, the greater the emotions, tensions and uncertainty of result, the greater the financial strength the league could be expected to have through gate receipts, broadcast rights, sponsorship and merchandising (Cashmore 2005). As a result, administrators invest much effort to strengthen the appeal and reputation of their football code, which can include: changes to make on-field play more exciting; public investigations and sanctioning of on and off-field player misconduct; and mobilising crisis management strategies in order to contain serious scandals (Andon and Free 2012). The objective of this paper is to provide an overview of the background to the use of and subsequent investigation of performance enhancing drug use by two well-known Australian sporting clubs in 2013 – the Essendon Football Club (AFL) and the Cronulla Sharks Rugby League Club (NRL). The paper then discusses issues of corporate governance at both of the clubs and possible short-comings in their practices in recent times. Public announcements of the initial investigations into supplement use was met with disbelief by supporters, players, club administrators and the respective governing bodies – the AFL and the NRL. What followed was a period of intense and rigorous independent investigation by ASADA and the AFL/NRL. In August 2013, severe sanctions were handed down to the Essendon Football Club and in December 2013, sanctions were also handed down to the Cronulla Sharks Rugby Club. This paper provides a time-line of the events before, during and after the initial 2 investigation by the independent bodies. It reports on the declining profitability in both clubs, on and off-field pressures and short-comings in a number of corporate governance practices such as staff recruitment and fuzzy lines of decision making. The remainder of this paper is organised as follows. Section 2 discusses the burgeoning industry of the NRL and the AFL. Section 3 provides a brief history of the two clubs. Section 4 outlines the corporate governance structure in the two codes. Section 5 provides an overview of drugs in sport generally and section 6 provides a background and time line of events leading up to the investigation of each of the respective clubs. Section 7 discusses issues of corporate governance and Section 8 outlines some of the lessons learned by the drugs in sport saga. Section 9 concludes the paper. 2. Burgeoning industry of NRL and AFL The NRL Evans (2012) explains that the origins of NRL lie in the English Rugby Football Union (RFU). Class struggles between largely upper-class leaders and working-class players led to player’s demands for compensation in lieu of time taken off work to play. Rejection by upper-class leaders saw a breakaway movement (the Northern Union) being formed in 1895 where rules were also modified. Not long after the landscape of Australian football changed. Rugby union was being run in a strict amateur orthodoxy by upper-class leaders and players revolted by switching to rugby league. By 1908 the first Australian rugby league competition had been formed, known as The New South Wales Rugby League (NSWRL). Since the inception of the NSWRL, rugby league has become one of Australia’s most popular professional football codes. Reflecting a seismic geographic expansion of the game, 1995 saw governance of the game transferred to the Australian Rugby League (ARL). Shortly afterward, Kerry Packer and Rupert Murdoch, two of Australia’s most powerful media identities began the Super League War (1995-1997). Fuelling the war was competition for pay television content, which culminated in a breakaway Super League competition in 1997. Following an acrimonious battle, a merged National Rugby League (NRL) competition was formed in 1998, which was initially structured as a 20 team competition but has now decreased to 16 teams. All but one team are based along the east coast of Australia, the only exception being in New Zealand. This merger saw the NRL competition between 1998 and 2011 run under a power-sharing arrangement between News Corporation Ltd and the Australian Rugby League (ARL), known as the Australian Rugby League Commission 3 Limited. However, from 10 February 2012 the Australian Rugby League Commission (ARLC) was formed and took control of all aspects of the game in Australia. The ARLC is the peak governing body of rugby league in Australia. The ARLC is a public, not-for-profit company domiciled in Sydney, Australia. Performance is measured through participation numbers, television viewers and attendances. In 2012, its first year, the ARLC enjoyed a bumper season with 3.48 million supporters attending matches; club memberships of more than 200,000 for the first time; increases in free-to-air and subscription television ratings during the year; 61 of the top 100 most-watched programs on subscription television, including eight in the top 10; as well as the largest social media following of any sport in Australia, with a total of 2.8 million fans on Facebook (Australian Rugby League Commission 2012). As at 31 October 2012, consolidated operating profit for the year was $4,675,845, total assets were $110,740,295 and total equity was 19,349,876. The AFL The Australian Football League (AFL) is the most popular and best-attended sporting league in Australia (Big Footy AFL, 2013). The AFL is administered by the AFL Commission which was established in 1985. The commission members of the AFL are elected by the clubs. The origins of the AFL relate back to an Australian sportsman Tom Wills who had played sport in the United Kingdom and wanted a comparable sport for cricketers to maintain their fitness in their off-season (AFL, 2013). The first AFL club formed was the Melbourne Football Club in 1858. The Victorian Football League (the precursor to the AFL) was formed in 1896 and there were initially 8 foundation clubs consisting of Carlton, Collingwood, Essendon, Fitzroy, Geelong, Melbourne, St Kilda and South Melbourne. The first season of the VFL was 1897. There were 4 more clubs added to the foundation clubs and the total clubs remained at 12 until 1987. In 1987 major changes occurred in the VFL when two interstate teams entered the competition (the West Coast Eagles and the Brisbane Bears) and in 1990 the VFL became the AFL. This change from the VFL to the AFL, led to significant changes in the way the game was marketed, player salaries, media coverage and weekly attendances. Today, there are a total of 18 teams including 7 interstate teams. In 2013, over 33,000 people attended each home and away game (there are 22 weeks in a season) and 9 games on every weekend. The AFL is the 2nd most watched sporting game on TV in Australia behind cricket. It is in the top 10 leagues in the world in terms of average attendance and the only Australian football team in the top 10 (see Table 1). There are a 4 number of media organisations that share broadcasting rights including TV and the internet. Current members at 2013 for the AFL are over 756,000. INSERT TABLE 1 ABOUT HERE 3. History of the two clubs Cronulla Sharks The Cronulla Sharks Rugby League Club resides in the southern suburbs of Australia’s largest city, Sydney. This area is known as the Sutherland Shire. Rugby League was first played in the Shire in 1912 when the Sutherland Rugby League Football Club was formed (Larkin 1998). Initially it was Rugby Union that was played but by the 1930s League had all but extinguished its competitor’s profile (Brawley 2012). During the 1960s there was a seismic shift, Rugby League in Sydney moved from a non-profit ethos to one of capital accumulation through use of poker machines in leagues clubs and the arrival of corporate sponsorship (Brawley 2012).