J7496 PUBLIC VERSION COMMERCE COMMISSION DETERMINATION DECISION 580 Determination pursuant to the Commerce Act 1986 in the matter of an Application for authorisation of a restrictive trade practice. The Application is made by the: NEW ZEALAND RUGBY FOOTBALL UNION INCORPORATED. The Commission: P R Rebstock, Chair D F Caygill G Pickering Summary of Application: The Applicant has applied for authorisation to enter into and give effect to arrangements to: (a) Institute a salary cap for the Provincial Unions competing in the Premier Division of the new inter-provincial rugby competition. (b) Apply new rules governing player transfers. Determination Pursuant to sections 58 and 61(1) (a) of the Commerce Act 1986, the Commerce Commission determines to authorise the Application, subject to specific conditions. Date: 2 June 2006 CONFIDENTIAL MATERIAL IN THIS REPORT IS CONTAINED IN SQUARE BRACKETS. 2 TABLE OF CONTENTS TABLE OF CONTENTS ........................................................................................................2 EXECUTIVE SUMMARY .....................................................................................................9 Introduction.........................................................................................................................9 Problem Definition..............................................................................................................9 Proposed Resolution............................................................................................................9 The Proposed Arrangements ...........................................................................................10 Previous Authorisation .....................................................................................................11 Framework for Consideration .........................................................................................11 Commission Procedures ...................................................................................................12 Draft Determination and Further Submissions .............................................................12 The Factual and Counterfactual......................................................................................13 The Factual.....................................................................................................................13 The Counterfactual.........................................................................................................13 Recent developments re counterfactual..........................................................................14 Conclusion on the Counterfactual..................................................................................14 Discretion to Grant Authorisation...................................................................................15 Section 44 exclusion .......................................................................................................15 Commerce Act definitions of “market” and “services”.................................................15 Market Definition ...........................................................................................................16 Competition Analysis........................................................................................................16 Effects in the Premier Player Services Market ..............................................................17 Salary Cap - s 27 and s 27 via s 30 ................................................................................17 Transfer Fees and Transfer period - s 27.......................................................................18 Transfer Fees - s 27 via s 30 ..........................................................................................18 Effects in the Market for Sports Entertainment Services .............................................19 Section 27 .......................................................................................................................19 Section 29 analysis.............................................................................................................19 Conclusion re Exercise of Discretion...............................................................................20 Public Benefits and Detriments........................................................................................20 Potential Limitations of the NZRU’s Proposed Salary Cap...........................................21 Detriments..........................................................................................................................23 Allocative Inefficiency ....................................................................................................23 Productive Inefficiency...................................................................................................23 3 Loss of Player Talent......................................................................................................23 Reduction in Player Skill Levels.....................................................................................24 Innovative Efficiency Losses...........................................................................................24 Overall Conclusion on Detriments ..................................................................................25 Public Benefits ...................................................................................................................25 Competitive Balance and the Uncertainty of Outcome Hypothesis .............................25 Enhanced Provincial Union Financial Performance .....................................................27 Enhanced International Performances ...........................................................................28 Evaluation of Above Claimed Public Benefits................................................................29 Spectator Enjoyment.......................................................................................................29 Viewer Enjoyment...........................................................................................................30 Increased Funding..........................................................................................................30 Indirect Benefits..............................................................................................................31 Balancing Public Benefits Resulting from the Proposed Arrangements .....................31 CONCLUSION ......................................................................................................................32 DETERMINATION ..............................................................................................................34 Condition 1.........................................................................................................................34 Condition 2.........................................................................................................................34 Condition 3.........................................................................................................................34 Condition 4.........................................................................................................................35 Condition 5.........................................................................................................................35 Time Period........................................................................................................................35 INTRODUCTION..................................................................................................................36 The Arrangements ............................................................................................................37 Salary Cap......................................................................................................................37 Player Transfer Rules.....................................................................................................39 Withdrawal of Proposed Changes to rules for Modified Division One Unions.............40 FRAMEWORK FOR CONSIDERATION .........................................................................40 COMMISSION PROCEDURES..........................................................................................41 Draft Determination and Further Submissions .............................................................42 Decision Not to Hold a Conference..................................................................................42 Preparation of Determination..........................................................................................43 THE PARTIES.......................................................................................................................43 4 NZRU .................................................................................................................................43 Provincial Unions ..............................................................................................................44 Rugby Players Collective Incorporated (RPC)/New Zealand Rugby Players Association (NZRPA)........................................................................................................44 Players ................................................................................................................................44 Sponsors .............................................................................................................................45