A reality of Cricket Australia's (CA) feast and famine revenue fluctuations is that their biggest pay days – the quadrennial Ashes tours by England and visits by India – subsidise the seasons when comparatively smaller series are scheduled (writes Andrew Ramsey on the CA website today).
CA ended the 2016 fiscal year (the previous corresponding point of the four-year cycle) holding approximately $270 million in cash and investments as a result of financial returns from the 2015 ICC Cricket World Cup and the T20 Champions League.
With a planned operating deficit of around $50 million to coincide with the South Africa and Pakistan tours for men's Tests in the summer of 2016-17 and with bills to pay, CA needed significant cash reserves that financial year.
One of those extraordinary items was the $70 million owed to the players payment pool at the conclusion of the Memorandum of Understanding (MOU) in 2017, and the following year it was $55 million in players' retirement funds moved to the Australian Cricketers' Association (ACA).
That retirement fund remains jointly controlled by CA and the ACA, but the decision to transfer it to the ACA's ledger underscored the growing goodwill between the two parties in the aftermath of the MOU stand-off.
That sum, alongside the $70 million paid to players and the $50m deficit in 2017, accounted for the downsizing of CA's assets from the high-watermark of 2016.
As CA approached the corresponding 'down swing' four years later – with last summer featuring lesser drawcards Pakistan and New Zealand after bumper Test seasons with England (2017-18) and India (2018-19) – total cash and investments at the end of June 2019 totalled $117 million.
That was spread across share holdings (around $40 million), risk-averse fixed-income investments ($50 million) with the balance comprising around $26 million in cash.
In a pre-coronavirus world, that safety net of cash and investments was budgeted to bottom-out at around $40 million before India arrived next summer.
Such is the financial clout of world cricket's biggest drawcard, the cash and investments balance would have bounced back to around $100 million by the start of the India Test series.
Combined with the home Ashes series scheduled for 2021-22, this would have seen CA on track to realise their four-year reserves goal of $70 million by June 2023.
But nobody in world sport, global politics or international money markets foresaw the pandemic that has sent shock waves through stock markets, entire economies and normal life from mid-March.
At that point, CA's cash position of $97 million (down from June 30's $117 million due to the FY20 deficit year) fostered cautious optimism it might be better placed to withstand the oncoming financial tsunami than were Australia's football codes, just embarking on their 2020 seasons.
However, so brutal was the effect on industries and markets, CA's reserves dwindled by $20-25 million in a matter of weeks.
That was due to a raft of reasons including revenue lost from the cancelled men's ODI series against NZ, missing debt repayments, ongoing costs associated with hosting the proposed men's T20 World Cup later this year and a reduction in the value of share investments.
CA's share portfolio had grown strongly from $41 million at June 30 last year through to the market peak in February 2020, before declining to $36 million today.
Of far greater concern was the outlook for the remainder of this year, given the pace at which the financial landscape was changing, plus the growing uncertainty over when or if travel and other virus-related restrictions might be eased to allow a resumption of professional sport.
Having crunched the numbers on how their position might look if no further financial shocks were forthcoming, the $40 million CA had budgeted as the low-water mark to be reached around August-September this year was likely closer to $15-20 million.
But if the pecuniary pain continued and operating expenses were not drastically reduced, CA's reserves could evaporate to nothing in a matter of months, with that dire prospect also coinciding with the nadir of CA's four-year cash cycle.
Kevin Roberts the Chief Executive of CA cautioned "Just because the issue so far is $20-25 million less than our budgeted position, we can't put our head in the sand and hope that's the worst of it, especially given that three months ago nobody in the world would have had any idea we'd be living in lockdown for the first time in our lives.
"So as a result of what we've seen in the past few weeks, who can accurately project where the world's going to be six months from now? That said, we are doing everything possible to minimise the impact on the 2020-21 season."
Roberts, following discussions with CA's Board, announced last week that around 80 per cent of the organisation's staff – including national coaches Justin Langer (men's) and Matthew Mott (women's) – would be stood down on reduced pay for the remainder of the financial year. He said today that reduction in salary payments accounted for around $3 million of the $20 million savings CA has implemented in recent weeks.
The pruning of CA's operating costs is part of a four-pronged strategy also being adopted by the nation's major football codes – both of whom have stood down non-essential staff - as sport attempts to shock-proof itself against potentially devastating financial exposure.
Due to uncertainty surrounding its 2020-21 summer schedule, CA is also seeking credit of $150 million (somewhat less than the National Rugby League (NRL), while the Australian Football League (AFL) has reportedly secured over $600 million) to underwrite its operations lest the worst-case scenario - including no India Test series - materialise.
In order to enhance their bid for finance, they must show they have reduced business costs which will also include reconsidering player payments for 2020-21 in consultation with players and the ACA.
Roberts confirmed today that CA was working closely and regularly with the ACA. "We respect the player payment model that is in place now, we intend to continue respecting that, just as the ACA and the players and everyone acknowledges that, in the interim, we need some creative solutions," Roberts said.
Former Test allrounder and current ACA president Shane Watson said today the players recognised the importance of working collaboratively with CA to weather such an unprecedented event.
John Stephenson
john@cricketinvestor.co.uk
