A tale of two football codes: Corporate governance failings and performance enhancing drugs

Abstract In 2013, two well-known Australian sporting clubs – the (AFL) and the Cronulla Sharks 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 of important corporate governance practices.

Keywords: accountability, corporate governance, international sports associations, crisis, performance enhancing drugs, (NRL), Australian Football League (AFL)

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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 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 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

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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 , 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 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 and the ) 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.

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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). In fact, Cronulla and the Penrith Panthers were the first Rugby League teams within the state of New South Wales to enter the first grade competition with their football club fully financially supported by their social Leagues Club (Brawley 2012).

It wasn’t until 1973, however, that Cronulla reached their first Grand Final. The next Grand Final appearance was in 1978. With help from the Sutherland Shire Council, Cronulla were the first Rugby League team in Sydney to own their own ground (Brawley 2012). In addition to the playing ground, Cronulla also owned a larger parcel of land which they planned to build a Leagues Club on. However, by 1974 these plans were undermined with financial uncertainty with the stadium only partially completed after spending three million dollars (Brawley 2012). At the time, bank interest rates on their loans were between 18 and 20 per cent, which meant that the club was unable to repay its loans. Following a failed one million dollar debenture share offer, financial assistance from the State Government and the New South Wales Rugby League saved the club. The club premises and stadium were completed in 1977. Much effort was made to boost membership and on-field performance so as to ensure financial viability. After some success in this regard, however, Australia moved into recession in the early 1980s, which brought the club to crisis point (Brawley 2012).

Cronulla experienced a particularly bad year in 1983. The Leagues Club’s bottom line had diminished through recessionary pressures as well as the impact of instant lottery tickets on

5 poker machine receipts and the introduction of random alcohol breath testing of vehicle drivers as the club was rather remote and required members to travel by vehicle (Brawley 2012). No parties presented to bail the club out of these financial difficulties and players were forced to accept a 50 per cent pay cut. The players accepted this, however, only under the agreement that the whole committee of the football club resigned. Following this, Peter Gow, a flamboyant businessman was elected to the Board of Directors of the football club. Gow embarked on a campaign aimed at saving the Sharks from oblivion, which involved a letter- box drop advising residents that if they are not successful in raising funds then the club would most likely disappear from the 1st Grade League competition. The aim was to have people buy shares in the club. By the end of 1985 the campaign was deemed a failure. Following this, a wealthy local named Dr Geoffrey Edelsten made a bid to take over the club. This was met with stiff opposition from club members and ultimately failed. The club remained in financial distress for much time until in 1992 things came to a head when the club’s major creditor, Westpac instructed receivers to take over the club. The Sharks owed A$7 million (Brawley 2012). At this time Peter Gow then became president of the Leagues Club. Not long afterward Gow had secured major sponsors and turned the fortunes of the club around, which heralded a golden period for the club. During the period 1994 to 2002, Cronulla made the semi-finals every year except 1994 and 1998. The image of the club improved and record crowds were being attracted, which ultimately improved the financial position of the club.

From 2003 onwards fortunes of the club began to waver. In 2003, the club finished only 11th in the premiership. There was much infighting between the board and coach , which ultimately saw Anderson sacked at the end of the season and replaced by . Cronulla’s on-field performance did not improve and in fact their win percentage worsened from 49 per cent under Anderson to 43 per cent with Raper. Several seasons of poor results saw the board announce Raper’s sacking on 22 September 2006 and replacement with . Stuart was unable to turn the club’s performance around quickly and in 2007 Cronulla finished in only 11th place. The year 2008, however, saw a reversal of form as Cronulla came second in the premiership. This was to be short-lived, however, as during the 2009 season Cronulla’s dire financial problems became public. The main issue involved poor cash flow brought on by low home game average gate takings, several seasons of poor on-field performance which led to lower than average merchandise and corporate sponsorship. Cronulla went on to finish second last in the premiership. Following the troubles of 2009, 2010 saw a major club restructure with a new board constructed by Chairman Damian Irvine

6 and a new CEO Richard Fisk as well as club debt refinanced with the leagues club. Despite this, poor on-field performance continued, which after acrimony with Chairman Damian Irvine saw head coach Ricky Stuart and close friend CEO Richard Fisk resign. Cronulla finished only 14th of the 16 clubs in 2010. The year 2011 marked yet another horrible year in terms of on-field performance finishing only 13th of the 16 clubs. An upward movement was apparent across the years 2012 and 2013, however, as Cronulla finished 7th and 5th respectively in the NRL premiership. Figure 1 below highlights the tumultuous financial fortunes of the Cronulla Sharks in terms of net profit and operating cash flows during the period 2007-2012. Figure 2 highlights the uncertainty of the revenues during this period. The main categories of revenues for Cronulla Sharks are sales, services and other revenues. Sales includes sale of goods and royalties. Service revenue includes gaming, match and advertising revenue. Other revenue includes functions, members’ subscriptions, interest, rent etc. The service revenue in particular appears to have declined during this period. Closer examination of the Cronulla Sharks annual report reveals that specifically gaming and advertising revenue have decreased over the past 5 years. Figure 3 illustrates the concentration of expenses and the volatility of certain expenses particularly the football expenses. Further, Figure 4 and Figure 5 respectively outline the Cronulla Sharks Return on Equity and Return on Assets ratios during the period 2007-2012.

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Essendon Football Club The Essendon Football Club was one of the foundation clubs of the VFL (now the AFL) and commenced operations in 1873. The first ground of the football club was in Flemington, and the club moved to East Melbourne, Victoria in 1882. In the late 19th century, Essendon became the first club to win 4 premierships in a row and then in 1898 became the first team to score over 100 points. After the World War I, Essendon left its home in East Melbourne in 1921 and moved to its current home at Windy Hill in Essendon. In 1933, a young player by the name of played his first game and went on to win a total of 7 awards. He also won 3 Brownlow Medals which is the highest honour bestowed on any VFL/AFL player. He has since been voted the best and most successful player ever to have played for EFC and also spent several years as captain, captain coach and coached the club for 416 games.

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In the 1940s, 1950s and 1960s, EFC was very successful, winning numerous premierships. In the 1970s and early 1980s the club was not as successful and did not win their next premiership until 1984. The club was successful again in 1985 and in 2000 won their 16th premiership. To this day, the club has been the most successful VFL (AFL) club winning a total of 16 premierships. Currently the club has over 50,000 members and in 2012, attendances at home and away matches exceeded over 1,000,000.

The past 10 years have been mixed for the EFC in terms of financial performance and on- field performance. The club has reached the finals a couple of times but overall has had several periods of disappointing on field performance. There have been several changes in the coaching team during this time including the longest serving coach ever – Kevin Sheedy who coached the club for 27 years and 4 premierships leaving the club in 2007. Since then, a new coach was appointed and sensationally made redundant in 2010. On the 28th September 2010, former champion was appointed coach and former player and former Geelong premiership coach Mark Thompson was appointed assistant coach.

Between 2001 and 2012, EFC’s total revenue increased from $22,660,527 to $65,431,425. Basically the revenue tripled over these years. A large component of the revenue was marketing revenue which increased from $14,769,411 to $25,287,219. In terms of expenses the football expenses which largely represent player payments increased from $10,096,869 to $19,200,759. Figures 6 and 7 respectively provide an illustration of the individual revenues and expenses for the period 2001-2012. EFC’s overall profit improved from $1,249,081 to $12,345,536 in 2012. However, upon closer examination this profit is misleading as a large component of it, over $12,000,000, was contributed through club donations to its building program for a new, state of the art Sports Centre. In fact, in 2010 the EFC made a loss of $1,528,682 and a very small profit of $1,609,379 in 2011. Without the large building donation, the club would have just broken even in 2012. Figure 8 shows the club’s net profit and operating net cash flows for the period 2000-2012. As is illustrated in the graph, the club appears to be under financial pressure during this period and leading up to the injection of donations for the building fund in 2012. Figures 9 and 10 also provide an illustration of the club’s Return on Equity and Return on Assets ratios respectively.

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4. Corporate structure of AFL and NRL NRL club corporate structure differs amongst various clubs. Clubs incorporated as public companies and limited by shares, include the (listed on ASX), Manly- Warringah Sea Eagles, and . Clubs incorporated as public companies limited by guarantee include the Cronulla-Sutherland Sharks, Raiders, Canterbury-Bankstown Bulldogs, , , New Zealand Warriors, , , Penrith Panthers and . Finally, there are those clubs incorporated as private companies limited by guarantee which include the St George Illawarra and . As this information illustrates, with the exception of the Brisbane Broncos, all NRL clubs are unlisted.

In terms of the AFL, all AFL clubs are now incorporated. 17 of them are limited by guarantee (including the Essendon Football Club). There is one AFL club which is a company limited by shares and that is the West Coast Eagles. For the clubs that are structured as limited by guarantee, the ownership is vested in the hands of its members which provide certain rights (Foreman, 2006). The members of the club are defined in the club’s constitution as individuals who hold membership tickets. The members’ rights are outlined in the club constitution, the Corporations’ Act 2001 and the Common Law. The club constitution outlines the rights for the members to vote at annual general meetings and elect directors to the board. The Corporations’ Act 2001 states the guidelines for requisitioning a general meeting and for proposing a resolution to members. The Common Law also specifies certain rights of the members such as voting at annual general meetings and being provided with a certain period of notice before the annual general meeting. However, there are important differences between AFL club members and shareholders of a listed company. Even though both have voting rights and both pay an amount of money for membership (shareholding) in a club (company) there are also major differences. Motivations for membership in an AFL club are quite different to the motivations for owing shares in a company. Obviously, the supporter (member) is motivated for entertainment purposes and subscribing as a fan of the club, whereas shareholders are motivated towards financial rewards.

English soccer is a good example of a combination of both members and shareholders. Many clubs are listed in the capital markets (Bell, Brooks et al. 2012) and club shareholders can comprise both conventional investors motivated purely by returns but also club fans who

9 arguably care less about money making as they can be expected to some extent to hold shares for sentimental reasons (Bell, Brooks et al. 2012). Smaller clubs tend to have more fan shareholders, while larger clubs tend to have more conventional shareholders (Bell, Brooks et al. 2012). Investment in football clubs, however, can often be seen as high risk and this highly volatile situation typically yields low dividends and trading volumes, which can keep institutional investors away (Mazanov, Tenero et al. 2012). Investment from fans and speculators can sometimes be made more on personal or emotional reasons (Marotta 2008). Compared to the open market, football clubs also tend to operate under a different set of market assumptions, which include unpredictability of sports results, joint production of the sports event and atypical competitive mechanisms within the sector (Marotta 2008). Unpredictability of results impacts heavily on financial risk, which managers can find difficult to mitigate because financial results are influenced by match events.

Although results of football matches are not cash flows, Bell et al. (2012) explain that they are expected to impact the share price of football clubs as winning games is likely to increase the club’s subsequent cash flows and value. For example, this might include larger game attendances (assuming no capacity constraint), higher ticket prices, higher prices for leasing stadium boxes, increased advertising revenue, greater sponsorship income and merchandise sales, higher revenue from TV deals and radio commentary on games, higher payments from the league according to their finishing place, increased prize money, and increased revenue from associated businesses.

Empirical evidence supports a strong link between on-field results and club revenues. Bernile and Lyandres (2011) found winning European Champions League and UEFA Cup games had a positive effect on a club’s return on assets. Morrow (1999) found wins increased and losses reduced the club’s share price. Spanish football club’s success on the pitch has been shown to have a positive effect on club revenues (Barajas, Fernandez-Jardon et al. 2005). In the Australian Football League (AFL), Pinnuck and Potter (2006) found that match day receipts, membership receipts, sponsorship and other marketing receipts are a positive function of winning games. Aside from direct effects on a company’s cash flows, results of football matches can also indirectly affect share prices by altering the mood, confidence and emotional state of investors (Bell, Brooks et al. 2012). For example, despite only minimal aggregate effect on a country’s companies, international football results have been shown to affect national stock market indices (Ashton, Gerrard et al. 2003; Tufan 2004; Berument and

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Yucel 2005; Dohmen, Falk et al. 2006; Edmans, Garcia et al. 2007; Kaplanski and Levy 2010). Results of football matches have also been shown to influence the medical, social and political behaviour of supporters (Witte, Bots et al. 2000; Carroll, Ebrahim et al. 2002; Kirkup and Merrick 2003; Wilbert-Lampen, Leistner et al. 2008; Kaplanski and Levy 2010). Such noneconomic effects can also reinforce the cash flow effects of football results (Bell, Brooks et al. 2012).

5. Drugs in sport Stewart et al. (2011) explains that over the last four decades there has been a serious drug-use problem in sport (Hunt 2007; Rushall and Jones 2007; Hanstad, Smith et al. 2008). From the 1950s to the 1970s athletes used substances such as caffeine and painkillers to boost performance (Dimeo 2007; Hunt 2007). During the 1980s athletes moved onto more advanced substances like androgenic and anabolic agents, stimulants, and human growth hormone (Taylor 1991; Hoberman 1992). By the 1990s use of erythropoietin (EPO) had become prolific and in the 2000s insulin, diuretics, adulterating agents to mask positive drug tests as well as beta and cortisol blockers to reduce anxiety and improve motor skills became prevalent (Pampel 2007). Rapp (2009) explains that the financial stakes involved in professional sport create powerful incentives for the use of performance enhancing substances. At the same time, however, detection of drug use in sport 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).

Rapp (2009) outlines five main arguments in favour of testing athletes for use of performance enhancing drugs. First, performance enhancing drugs should be banned in order to ‘level the playing field’. Second, player health suffers via use of performance enhancing substances. Third, players using performance enhancing substances make poor role models for children who often idolise professional athletes. Fourth, the black-market that sells performance enhancing drugs can use the leverage provided by their knowledge of an athlete’s use of drugs to blackmail them into manipulating on-field competition in order to produce ill-gotten gains. Finally, fans can enjoy a game that is clean, free and untainted by use of performance enhancing drugs. All of these reasons provide appropriate ground for imposing harsh sanctions for drug use.

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In response to several drug scandals such as those that occurred at the 1996 Atlanta Olympics and the 1998 Festina affair at the Tour de France, athlete’s continued use of performance enhancing drugs saw the International Olympic Committee (IOC) in 1999 establish the World Anti-Doping Agency (WADA) (Mignon 2002; Kirkwood 2004; Pampel 2007). Part of the reason for this is that scandals can harm the economic viability of sport (Mazanov, Tenero et al. 2012). As such the IOC saw investment of money toward implementation of anti-doping policy as a reasonable response so as to reduce revenue risks associated with drug scandals (Mazanov and Connor 2010). Scandals, for example, see spectators shift away from sport (Carstairs 2003) which can reduce revenue associated with gate takings, sponsorship and broadcast rights (Leeds and Von Allmen 2011). According WADA’s 1999 policy statement, their mandate was to: (1) test athletes for drug use; (2) investigate allegations of use, possession or trafficking; (3) apply sanctions for violations of the code; and (4) communicate the virtues of drug-free sport so as to promote fairness and equality for all (Houlihan 2003; Park 2005). Following from this came WADA’s more precise World Anti-Doping Code (WADC) of 2004. According to WADA regulations, a substance would be banned if it met at least two of the following criteria: (1) it enhances performance; (2) consumption of the drug poses a risk to the athlete’s health; and (3) use of the drug(s) violates the spirit of sport (WADA 2003). The WADA Code distinguishes between in-competition drug use and out-of- competition drug use. Performance enhancing drugs are banned throughout the year while illicit drug-use is banned only during periods of athletic competition (Horvath 2006).

Within Australia, the Australian Commonwealth Government (ACG) adopted WADA’s 1999 policy statement in 1999 and established the Australian Sports Doping Agency (ASDA). ASDA undertook drug testing to ensure that policy was effectively delivered. It was around this time that the NRL implemented its first performance enhancing drug policy (Stewart, Adair et al. 2011). Football codes’ governing bodies, for example, have a vested interest in sustaining and growing their fan base, as this can bring greater economic capital from merchandise royalties, competition sponsorships and broadcasting rights contracts (Andon, Free et al. 2013). Governing bodies would therefore be 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

12 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).

Following adoption of the WADA Code in 2004, however, ASDA was renamed the Australian Sports Anti-Doping Authority (ASADA) in March 2006. ASADA’s main purpose was to protect Australia’s sporting integrity through eliminating doping being given greater power to investigate drug use allegations. In 2004 the NRL also adopted the WADA Code. Following a series of drug use incidents, by mid-2007 the NRL had extended more stringent measures as stipulated by the WADA Code, which involved its own out-of-competition illicit drugs policy. A player’s first offence was met with a suspended mandatory fine of 5% of the player’s salary, a second offence saw the fine demanded and up to a twelve NRL game suspension. The Australian Commonwealth Government was supportive of this initiative from the NRL (Wiseman 2007).

6. Events leading up to the Cronulla supplement scandal The public was informed on February 12 2013 that the Cronulla Sharks may be involved in a drugs scandal (ABC News 2013). At this time Cronulla came forward to note that they had been implicated in the Australian Crime Commissions (ACC’s) report concerning drugs in sport. Cronulla issued a statement confirming that they were one of six NRL clubs referred to in the ACC report, but that there would be no further comment. On this same day, and following a meeting with the six clubs involved, NRL Chief Executive David Smith pointed to the league’s establishment of a new integrity unit and a phone hotline to allow people to come forward with information (ABC News 2013). The next day the Cronulla Sharks revealed that a period of their 2011 NRL season was under scrutiny (ABC News 2013). However, the Sharks said that none of their players had tested positive to performance enhancing substances. On March 6, the Australian Sports Anti Doping Agency (ASADA) revealed that they had interviewed up to 14 players in connection with banned supplements distributed or used in 2011 (News 2013). The following day former ASADA Chief Executive Richard Ings urged Cronulla players to come forward while they had a chance to avoid a maximum two-year ban (ABC News 2013). On March 8 the Cronulla Sharks stood down head coach Shane Flanagan, pending a full management review at the club (News 2013). Chief Executive of the Rugby League Players Association chief executive David Garnsey said anti-doping authorities should not punish players for taking performance-enhancing

13 drugs if they were unwittingly sanctioned by their clubs. Garnsey felt that because rugby league players place trust in those who are in positions of knowledge and authority within their clubs, as an employee players merely follow the directions of their employer. In fact, within the ACC report, it was noted that illegal substances had been administered to players by club staff without players understanding the nature of the substances. If this were the case, then athletes were said to have been exploited and were not drug cheats. However, such players would be subject to the same sanctions as those who deliberately take prohibited performance enhancing substances. Former ASADA Chief Executive Richard Ings warned, however, that if Cronulla players attempted to claim consumption of banned substances was done unknowingly, ignorance would be no defence.

On March 13 Chairman Damian Irvine stood down and claimed that players had been injected with horse drugs in 2011 when a sports scientist named Dr was at the Sharks. Head coach Shane Flanagan was also stood down on full pay pending the outcome of a management review while football general manager Darren Mooney, head trainer Mark Noakes, club doctor David Givney and physiotherapist Konrad Schultz were sacked. Deputy Chairman Keith Ward announced that Cronulla, with support from the NRL, would bring in the former boss of the Brisbane Broncos Bruno Cullen to act in an interim chief executive role.

Following the revelations of the previous week, on March 19 Cronulla told ABC Radio's AM program that Stephen Dank was never employed by, or had never received money from, the club (Meldrum-Hanna 2013). As former ASADA chief executive Richard Ings pointed out, however, surely there must have been someone at Cronulla who had approved Dank's presence. Ings said “To have someone in such a position of being able to treat players, without them being formally on the books or formally acknowledged as being on the books, is extremely unusual and highly risky … I find it very difficult to believe that someone would work gratis in providing treatment to elite professional sporting athletes" (Meldrum-Hanna 2013).

By July 24 financial implications of the Cronulla drugs scandal began to surface. Current and former directors of Cronulla sought assurance from the ARL Commission that an emergency loan would be forthcoming if the fallout from Australian Sports Anti-Doping Authority investigation were to potentially decimate the club (Proszenko, Walter et al. 2013).

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Contingency plans were discussed if several players were to be suspended as this were considered to have a catastrophic impact on the club’s bottom line. In addition to assurance from the ARL Commission, club officials also asked the NRL for a loan on favourable terms should the worst-case scenario eventuate. The ARL Commission, however, who had already provided staffing and financial assistance since the scandal broke intimated that they would provide a bailout loan. The main reason for this is that the ARLC has a commitment to schedule eight matches per round in order to receive their $1billion television rights deal. As such, they would be prepared to prop up Cronulla – or any other club – to meet their obligations (Meldrum-Hanna 2013). It is notable, however, that normative commentary (e.g. Kent 2013) suggests that if the Cronulla Sharks were fined $2m like Essendon, Cronulla would need to move to another district.

Following former Chairman Damian Irvine’s comments on March 13 concerning Dr Stephen Dank’s involvement in injecting players with horse drugs in 2011, on July 27 it became public that Dank was suing the Cronulla Sharks over the drug allegations (SBS 2013). In another surprising twist, perhaps as a result of potential legal implications, on July 28 Cronulla reinstated the staff it had initially sacked in March following the ASADA investigation of the supplements program. In response, the interim chief executive Bruno Cullen who was appointed to the Cronulla club in March quit and said that the board's reinstatement of the four sacked staff members was premature. Cullen said the club should have waited until the completion of the anti-doping investigation before it moved to re-instate the four sacked staff members.

As outlined by Meldrum-Hanna (2013), following former interim chief executive Bruno Cullen’s resignation following reinstatement of the four sacked staff members, he was interviewed and explained that the organisational structure of the Cronulla Sharks football club was like a football club of 20 years ago and was a disaster waiting to happen. Cullen felt that the Board disregarded his advice that they shouldn't do anything concerning reinstatement of sacked staff until the ASADA investigation had been completed. Further, with regard to Dr Stephen Dank, Cullen confirmed that according to club records, he was certainly not on the payroll and Cullen had not been aware of any direct payment to him. However, an investigation by ABC television’s 7:30 report of internal emails sent by head coach Shane Flanagan in February 2013 discovered that a bank account was being run outside of the club's books to fund what was known as the High Performance Unit (HPU).

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According to the 7:30 report’s investigation, the HPU was operating outside of the board's control after it was ordered to shut down. Flanagan told the 7:30 report that the account was used only to pay for Cronulla's new gym. The account, however, was kept from the attention of interim CEO Bruno Cullen. Cullen noted that according to his knowledge, Cronulla did not have a bank account with the Westpac bank as it did all of its banking with the St George bank.

Following several months investigation into governance issues surrounding the supplements program run by former strength and conditioning coach Trent Elkin in 2011, the NRL announced sanctions to be taken against the Cronulla Sharks on December 17, 2013. Sanctions imposed saw Cronulla Sharks coach Shane Flanagan be suspended by the NRL for 12 months and the club fined $1 million. Flanagan, however, is able to have his suspension reduced to 9 months if he undergoes “further education and training” (Walter, 2013). Further, regarding the proposed penalty of $1 million, $400,000 can be suspended if certain corporate governance issues are resolved (Walter, 2013). Chief Executive Officer of the NRL, Dave Smith indicated that the well-being of the players had been put at risk and that inadequate supervision was in place at the club which enabled the injections to take place. Smith said that the club breached the NRL code of conduct and that both Flanagan and Elkin were responsible for the failings. That is, they were to be held largely accountable for the player’s welfare. Elkin was accused to altering the club’s supplements program without the consent or indeed knowledge of the club doctor. Elkin was said to have carried out the injections himself and allowed others, who were not adequately trained to also administer injections. Elkin’s registration was therefore cancelled with the NRL and he was advised that any seeking of employment with the NRL would not be viewed favourably until at least two years had elapsed. Flanagan’s suspension for one year was implemented due to his failure to properly supervise Elkin and also failing to act appropriately when he discovered the changes made to the supplements regime.

Sanctions imposed on Cronulla by the NRL are, however, separate to ASADA’s investigation. As at 19 December 2013, ASADA had not yet completed their report. As a result, NRL CEO Dave Smith said that no action would be taken against any players until the ASADA investigation was finished. It is notable that within the NRL’s report, they appear to make a case against individual player sanctions. For example, the shortcomings of Flanagan and Elkin were said to have caused the club to breach the NRL code of conduct “through a

16 serious failure to safeguard the health and welfare of its players” Smith said. Also, “These failures have potentially put the well-being of players at risk and also exposed them to possible violations under out anti-doping code.” In addition, Dave Smith and Chief Operating Officer Jim Doyle said that Stephen Dank had not been interviewed and that instead their focus was on governance and player welfare issues. Further, no action was to be expected to be taken against the four Cronulla officials who were sacked after the earlier internal investigation, Darren Mooney, doctor David Givney, trainer Mark Noakes and physiotherapist Konrad Schultz (Walter, 2013).

As outlined by Walter (2013), the specific issues raised in the NRL’s statement listed the preliminary findings against the Cronulla Sharks for breach of the NRL Code of Conduct as follows:

 Exposed players to significant potential risks to health;  Exposed players to possible breaches of the NRL anti-doping rules;  Allowed persons without the necessary qualifications and training to administer supplements to players;  Failed to obtain the fully informed consent of players to the administration of particular supplements;  Failed to ensure proper supervision and controls were in place;  Failed to devise and implement systems to ensure compliance with appropriate standards to safeguard the health and welfare of its players;  Failed to take appropriate action when it became aware that unsafe practices had been employed in the administration of supplements to players.

The preliminary findings against Shane Flanagan include that he:

 Failed to ensure a safe and healthy work environment;  Failed to properly supervise the head of strength and conditioning;  Failed to ensure the head of strength and conditioning complied with his obligation to inform the club doctor about changes that had been made to the supplement program and to obtain his prior approval with respect to those changes;  Failed to take appropriate action when he became aware that unsafe practices had been employed in the administration of supplements to players;

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 Failed to ensure that the head of strength and conditioning complied with a protocol that had been agreed on April 7, 2011, to the effect that the prior approval of the club doctor is obtained with respect to any supplements that were intended to be administered to players.

The preliminary findings against Trent Elkin include that he:

 Exposed players to significant potential risks to health;  Exposed players to possible breaches of the NRL anti-doping rules;  Allowed persons without the necessary qualifications and training to administer supplements by injection;  Personally injected players without adequate qualifications and training to do so;  Failed to obtain the fully informed consent of players to the administration of particular supplements;  Failed to comply with his obligation to inform the club doctor about changes that had been made to the supplement program and to obtain his prior approval with respect to those changes;  Misrepresented material facts to players in relation to the supplement program;  Failed to comply with a protocol that had been agreed on April 7, 2011, to the effect that the prior approval of the club doctor is obtained with respect to any supplements that were intended to be administered to players.

Essendon Football Club The investigation into the EFC’s sports science program began in February 2013 when the club invited the AFL and ASADA to investigate its supplements program under Dr Stephen Dank in 2012. Interestingly this is the same Dr Stephen Dank that was referred to in the previous section on the Cronulla Sharks. At the same time EFC appointed former Telstra boss Ziggy Switkowski to conduct an independent review of the program and its’ corporate governance practices. For the next 7 months leading up to the August 2013 charges and severe sanctions to EFC, there were a number of significant developments and new information in the case which came to light.

In March 2013, it was revealed that some EFC players may have had up to 40 injections each in 2012 including the anti-obesity drug AOD-9604 which was declared by the World Anti-

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Doping Agency and ASADA as off limits and illegal. Some of the EFC players had signed consent forms that prescribed weekly injections at off-site locations near the EFC. In April 2013, Dr Stephen Dank made the claim that coach James Hird had personally taken one of the drugs that was banned for the players which was subsequently denied by the coach. In response to this revelation, the AFL Chief Executive Officer Mr Andrew Demetriou made a public statement that coach James Hird should consider standing down. At the same time, coach James Hird was interviewed at length as part of the ASADA/AFL investigations.

In May, it was revealed that Dr Stephen Dank ordered a second banned substance, Thymosin Beta 4 CJC-1295 from a biochemist Shane Charter. The independent investigation by Ziggy Switkowski reported that the EFC had used exotic supplements, frequency of injections and marginalisation of traditional medical staff and this had created a “disturbing picture of pharmacologically experimental environment never adequately controlled or challenged or documented within the club” (EFC, 2013). In response the club chairman Mr David Evans apologised to supporters and other stakeholders and promised “zero tolerance” toward risky procedures. Following this statement, ASADA commenced interviews with EFC players, and asked them about 35 substances. Amidst the on-going pressures and the mounting evidence against the club, the then CEO of the club Mr Ian Robson resigned and in his statement admitted that he was accountable for everything that happened at the club, including the supplements program even though he didn’t know anything about it. He also admitted that the club had let down their players and their families.

This surprise shock resignation by the CEO, was followed a statement by the captain of the team, Mr who admitted publicly on television to taking the drug AOD-9604. He claimed that he had signed the consent form and thought that the drug was legal at the time. A couple of weeks later, the chairman of the club – Mr David Evans also resigned, claiming that he had had a physical breakdown. A new chairman of the club was immediately appointed, board member Mr Paul Little.

In August 2013, the AFL received a 400 page interim report from ASADA and following this report, the AFL announced that the club, the coach James Hird, the assistant coach Mark Thompson, the football manager Danny Corcoran and the club doctor Dr were all charged with the conduct of bringing the game into disrepute or prejudicing the interests of the AFL. However, the AFL stated that the players were not issued infraction notices for anti-

19 doping violations. Following the charges being made public, the coach James Hird launched a very public Supreme Court of Victoria action. In the following weeks, the AFL subsequently and sensationally dropped all charges against Dr Bruce Reid.

On 27 August 2013, sanctions were handed down to the Essendon Football Club, James Hird, Mark Thompson and Danny Corcoran. The AFL Chairman Mike Fitzpatrick in his statement to the media highlighted that: 1. The EFC had failed to ensure it adequately protected the health, welfare and safety of the players; 2. there was a risk Essendon players could have been administered substances prohibited by the AFL Anti-Doping Code and the World Anti-Doping Code and any such risk is an unacceptable risk; 3. the Essendon FC is unable now to determine whether players were administered some substances prohibited by the AFL Anti-Doping Code and the World Anti-Doping Code

Further, it was determined by the AFL Commission that the EFC had breached Rule 1.6 of the AFL Rules for bringing the game into disrepute. Specific charges against the club included:

 establishing a program relating to the administration of supplements to its players in preparation for, and during, the 2012 AFL premiership season (the Program);  engaging in practices that exposed players to potential risks to their health and safety as well as the potential risk of using substances that were prohibited by the AFL Anti-Doping Code and the World Anti-Doping Code;  disregarding standard practices involving the human resources department when employing and Dr Stephen Dank at EFC;  failing to conduct routine, systematic pre-employment checks in respect of Dean Robinson and Dr Stephen Dank;  failing to ensure that persons with the necessary integrity, reputation and training were engaged by EFC to implement the Program;  failing to ensure that those implementing the Program were adequately supervised;

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 failing to devise or implement adequate systems or processes to ensure that some substances provided to and used by players were safe and were compliant with the AFL Anti-Doping Code and the World Anti-Doping Code;  failing to have proper regard to player health and safety, including failing to ensure that some substances had no potentially negative effects on players;  failing to identify and record the source from which some substances used by players were obtained;  failing to adequately monitor and record the use of some substances;  failing to audit or monitor some substances held on the premises of EFC;  failing to implement a system for recording and storing some substances held on the premises of EFC;  failing to meaningfully inform players of some substances the subject of the Program and obtain their informed consent to the administration of some of the substances;  failing to take appropriate and adequate action when it became aware of facts that suggested that unsatisfactory and potentially risky practices were occurring in relation to the administration of supplements; and  permitting a culture at EFC of frequent, uninformed and unregulated use of the injection of supplements (AFL, 2013).

James Hird, Mark Thompson and Danny Corcoran were found to have breached AFL Player Rule 1.6. Specific charges against James Hird included:

 contributing to the Essendon FC’s failure to take sufficient steps to ensure the health, welfare and safety of players in relation to the Program;  when becoming aware of facts suggesting that unsatisfactory practices were occurring, not taking sufficient actions to stop those practices;  not taking sufficient steps to avoid there being a risk that players may have been administered substances that were prohibited by the AFL Anti-Doping Code and the World Anti-Doping Code, and any such risk is an unacceptable risk;  as Senior Coach, he shares responsibility for the inadequate governance within EFC’s football department (AFL, 2013).

The sanctions handed down to the Essendon Football Club included paying a fine to the AFL of $2,000,000, forfeiting its place in the 2013 finals series and being prohibited from

21 exercising its round 1 and 2 selections at the AFL national draft. James Hird was suspended from the AFL for 12 months, and prohibited from accepting any AFL work during this period. Mark Thompson received a $30,000 fine. Danny Corcoran was also suspended from the AFL for 6 months.

Similar to the Cronulla Sharks, the charges and sanctions handed down to the Essendon Football Club by the AFL are separate to the ASADA investigation. The ASADA investigation is continuing and the final findings and any subsequent charges will be announced in early 2014.

7. Corporate Governance The corporate governance practices in sporting clubs have become a critical issue in the past couple of years (O’Brien 2013). Corporate governance refers to the relationship between the board, management and its owners (Foreman 2006). It is important to note that in most AFL/NRL clubs, the owners are the clubs’ members. In March 2013, the Australian Sports Commission (ASC) issued new governance principles whereby sporting organisations must now comply with the ASC’s principles to receive their government funding. The ASC recognises that sports governance consists of leadership, integrity and good judgement. The sporting organisation also must demonstrate transparency, accountability and responsibility (ASC 2012). There are six major corporate governance principles stipulated by the ASC: Principle 1 - board composition, roles and powers; Principle 2 - board processes; Principle 3 - governance systems; Principle 4 - board reporting and performance; Principle 5 - stakeholder relationship and reporting and Principle 6 ethical and responsible decision making.

Previous research has investigated crises in European sporting clubs in the last five years and these have been explained by examples of weak corporate governance (Dietl and Franck 2007; Andreff 2007; Michie and Oughton, 2005). Deitl and Franck (2007) provide a case study of the current crisis in the German Football League. They conclude that the financial crisis is caused by governance failures and the peculiar German club governance structure characterised by wide discretionary freedoms. The so-called ‘wide freedoms’ can result in clubs investing in risky ventures. Andreff (2007) also concludes that French Football suffers from weak governance which results in lax financial management and a soft budget. Michie and Oughton (2005), investigate the corporate governance practices in professional football clubs in England and conclude that English clubs took advantage of a lack of guidelines in

22 terms of disclosure, the appointment of directors, induction and training of directors, risk management etc. The standards of corporate governance in these clubs was significantly below those of listed companies.

These studies provide examples of weak governance in sporting clubs. Weak governance can include practices of shareholder/members who do not efficiently supervise their managers, a lack of transparency and disclosure in financial reports, a lack of internal audit of the club’s financial reports, weak licensing and enforcement mechanisms and a low application of accounting standards (Dietl and Franck 2007).

Interestingly, the only club listed on the ASX, the Brisbane Broncos from a financial point of view has been described as the standout performer among all clubs (Badel 2013). The series of events leading to the drugs scandal at Cronulla and EFC could be viewed based on the theory of moral hazard. The main proposition is that the managers of the football club acted in a way that was contrary to the interests of those to whom they owed a fiduciary or other duty of care, such as owners of the club, the association to which they belong, club fans and the players themselves. They acted in the way that they did because their incentives to act in the interests of their principals were weak. This is a similar situation to the weak corporate governance principles that were illustrated in the German Football League. For example, the managers of Cronulla and EFC were insufficiently accountable to their principals and it was those principals who judged the actions that they took. Although the managers’ actions were contrary to the interests of their principals, they were the right ones in pursuit of their own interests.

Further, at the EFC, The Switkowski report (2013), which conducted a review of the club’s governance processes made a number of important findings. It found that at EFC there had been significant staff changes in a period of transition for the club (2009-2013). During this period, a number of management processes had deteriorated including the selection and recruitment of staff, induction processes and hierarchy and decision making in the football department. The Switkowski report (2013) specifically mentions that there were “fuzzy lines” of responsibility in the football department and confusion as to the individual who was in charge, and ultimately responsible for the department. The report concludes by stating that compliance rules and governance existed at the club but normal controls and checks were insufficient to detect and rectify the inappropriate behaviour of certain individuals and the

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CEO and the board of directors were not informed of the breaches conducted by certain individuals. In the EFC 2013 annual report, the chairman Mr Paul Little states “in 2012 the club employed the wrong people in the high performance area and allowed them to operate in a poorly supervised manner. Protocols and procedures were vague and resulted in blurred accountability throughout most operational areas of the football department” (EFC, 2012). An independent examination of the club’s annual reports highlights that although an audit committee existed at EFC, there was no report of the committee in the 2012 annual report. Also, while there is mention of a corporate governance and nominations committee, there is no mention of any meetings in the 2012 annual report or no separate report.

8. Lessons learned This case study has shown that 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 (Morrow 1999; Barajas, Fernandez-Jardon et al. 2005; Pinnuck and Potter 2006; Bernile and Lyandres 2011; Bell, Brooks et al. 2012). A particularly striking feature of this case study analysis is that the governing bodies of the AFL and NRL have demonstrated reasonably stable growth throughout the decades. Alternatively, AFL and NRL clubs have exhibited much variable performance. From the governing bodies’ point of view, variability in on-field performance is welcomed as this leads to a more interesting competition. If the same team keeps winning, for example, this would likely lead to a loss of interest in the code and diminished revenues. As such, governing bodies have an incentive to investigate drug use.

Although this study has highlighted deficiencies in corporate governance practices leading to the use of drugs in both Essendon and the Cronulla Sharks, it is notable too that neither the AFL nor NRL governing bodies appear to have a system in place whereby clubs are explicitly remunerated for finishing position all the way down to the bottom of the ladder. Instead, the ARLC makes club grants as well as one-off bailout grants for clubs experiencing financial difficulty. Perhaps the ARLC could consider revamping the way in which clubs are remunerated based on finishing position; this might provide additional financial stability to clubs. For example, a minimum amount for last position in the competition. If clubs were more certain of revenue streams, this might help alleviate the pressure to engage in performance enhancing drug use.

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This case study also highlights that sports supplements and recommended practices of using such supplements in clubs should be undertaken by the Australian Sports Commission. It should not be left to an individual club’s discretion to undertake testing and research on what supplements clubs should be using and implementing in their sports science programs. It is important that the CEO of any organisation (and especially sporting clubs) is ultimately responsible and with such an important role, the CEO needs to be fully aware of all day to day developments in a club. It is important for sporting clubs to have clear lines of decision making and this needs to be transparent for all employees at any level in the organisation. Clubs policies and procedures need to be updated and must include full details on recruitment and procurement (Switkowski 2013). For example, full details on medical-staff accreditation need to be maintained by the football codes. This could also involve having random checks my medical authorities such as the Australian Medical Association to conduct their own audit of a clubs policies and practices in the sports science area.

9. Conclusions The objective of this paper has been 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). It was noted that over the past several decades governing bodies of the NRL and AFL have been going from strength to strength recording strong growth in all key areas. Clubs, however, have not enjoyed a particularly high degree of financial success and stability. The Essendon Football Club, for example has had much on- field success during the 1940s, 1950s and 1960s which then waned during the 1970s and 1980s. By the mid-1980s the club then improved but ran into considerable variability during 2000s. Likewise, the Cronulla Sharks Rugby League Club has seen substantial variation in on-field performance during almost every decade since the 1970s. Variability in the on-field performance of both clubs was noted as appearing to have contributed to periods of financial prosperity and hardship. Football clubs for example typically demonstrate 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).

Given the variability in on-field performance and the considerable financial pressure that this bestowed upon the Essendon and the Cronulla Sharks football clubs, it is somewhat unsurprising that this tipped both teams in favour of use of performance enhancing drugs.

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What this case has highlighted, however, are the many failures in corporate governance structures, which should have stemmed this propensity. Both the clubs illustrated in the case study were characterised by weak corporate governance, particularly in the areas of staff recruitment, fuzzy lines of seniority and a lack of reporting to the CEO.

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Wikipedia. (2013). “List of sports attendance figures”, http://en.wikipedia.org/wiki/List_of_sports_attendance_figures, accessed 1 November 2013. Wilbert-Lampen, U., D. Leistner, et al. (2008). "Cardiovascular events during World Cup soccer." New England Journal of Medicine 358: 475-483. Wiseman, J. (2007). Hardline drugs policy to stay. Weekend Australian: 32. Witte, D. R., M. L. Bots, et al. (2000). "Cardiovascular mortality in Dutch men during 1996 European football championship: Longitudinal population study." British Medical Journal 321: 1552-1554.

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Table 1: Top 10 Leagues in average attendance

Source: List of Sports Attendance Figures, Wikipedia, 2013.

Figure 1: Cronulla Sharks Net Profit and Operating Cash Flows 2007-2012

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Figure 2: Cronulla Sharks Breakdown of revenues 2007-2012

16'000'000

14'000'000 Services 12'000'000 Sales 10'000'000

8'000'000 Other

6'000'000 Non-Operating 4'000'000 Revenue

2'000'000

0 2007 2008 2009 2010 2011 2012

Note: services revenue consists of gaming, match and advertising revenue

Figure 3: Cronulla Sharks Breakdown of expenses 2007-2012

10'000'000 9'000'000 8'000'000 7'000'000 Marketing 6'000'000 COGS 5'000'000 Football 4'000'000 Admin 3'000'000 Other 2'000'000 1'000'000 0 2007 2008 2009 2010 2011 2012

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Figure 4: Cronulla Sharks Return on Equity 2007-2012

Return on Equity 0 -0.02 2007 2008 2009 2010 2011 2012 -0.04 -0.06 -0.08 -0.1 Return on Equity -0.12 -0.14 -0.16 -0.18 -0.2

Figure 5: Cronulla Sharks Return on Assets 2007-2012

Return on Assets 0 2007 2008 2009 2010 2011 2012 -0.02

-0.04

-0.06 Return on Assets

-0.08

-0.1

-0.12

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Figure 6: EFC Breakdown of Revenues 2001-2012

30'000'000

25'000'000 AFL

20'000'000 Marketing

15'000'000 Sales

10'000'000 Other

5'000'000 Non Operating Revenue

0

2006 2010 2002 2003 2004 2005 2007 2008 2009 2011 2012 2001

Figure 7: EFC Breakdown of expenses 2001-2012

25'000'000

20'000'000

15'000'000 Marketing COGS 10'000'000 Football Admin 5'000'000

0

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Figure 8: EFC Net profit and Operating cash flows 2000-2012

Figure 9: EFC Return on Equity 2001-2012

ROE 0.5

0.4

0.3

0.2 ROE 0.1

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -0.1

-0.2

36

Figure 10: EFC Return on Assets 2001-2012

ROA 0.35 0.3 0.25 0.2 0.15 ROA 0.1 0.05 0 200120022003200420052006200720082009201020112012 -0.05 -0.1

37