Pat Guthrie Cross-Examines MLR Responses
Pat Guthrie Cross-Examines MLR Responses
Longtime rugby broadcast producer and minority owner in the Colorado Raptors, Pat Guthrie, has voiced rebuttals to comments made by sources in Martin Pengelly’s October 21 article in the Guardian on Major League Rugby.
Pengelly’s piece, which used Guthrie as a main source to outline some of the financial and commercial problems facing the league, can be found here—Major League Rugby faces a pandemic—and corrosive politics—and we strongly encourage you to read it.
While Guthrie was a key source for the piece, his assertions were contradicted at times by other sources within the league, including investor and New England Free Jacks part owner Errick Anderson, Michael Jacquet, chief partnership officer at Dragonfli, which worked on broadcast production for the league, and representatives for Austin Gilronis and LA Giltinis owner, Adam Gilchrist.
Below are what those critical of Guthrie’s stance said, and we at Goff Rugby Report gave Guthrie the opportuity for rebuttal. Guthrie, who had a small stake in the Raptors before the team left MLR, is mostly known as the main broadcast director and producer for rugby in the USA, having packaged Eagles, club, college, and professional rugby broadcasts for roughly 25 years. He asserts that Major League Rugby has painted itself into a corner with sweetheart deals, poor attention to revenue generation, and overspending on broadcast.
We’d like to point out that Martin Pengelly did a large amount of work over a period of months gathering comments and getting opinions on the issues. This follow-up is in no way a criticism of his reporting.
Assertion: Major League Rugby is financially healthy.
Pengelly wrote, using his varied sources, that "In reporting for this article, league, ownership and broadcast representatives told the Guardian MLR was healthy and on course to thrive and expand."
Guthrie disputes what those sources are saying. “There is no basis in fact to support this statement. There is zero reported sponsorship revenue in their own post-COVID 2020 budget. MLR is not thriving now on reported sponsorship revenue of zero.”
But more than that, Guthrie’s point is that there’s a some-are-more-equal-than-others situation within the league. Howes and Anderson worked to insert section 9.1(a) into the February, 2019 (first revision) of the MLR Operating Agreement. That provision enables Anderson’s financing company, URU, to invest in multiple MLR teams. On June 6, 2019, the Commissioner sold the right to invest in multiple teams to Gilchrist’s company, LA Loyals.
"In fact, the Commissioner and the General Counsel worked in isolation, effectively and purposefully in secret, with Gilchrist’s group across the final ten days of negotiations, without seeking (or receiving) approval from the Board of Governors in advance of signing the Loyals Joinder agreement," Guthrie tells GRR. "Neither Anderson nor Gilchrist is happy that the other has the same set of rights to own multiple teams, but it is clear that other ownership groups do not have the same rights. As a result, says Guthrie, new groups that are unaffiliated with either Gilchrist or Anderson cannot be shown a reasonable path to MLR becoming an actual going concern business with revenue inside of five to ten years from now. If you join MLR, and struggle with your cash calls down the line a few years, URU or Gilchrist will be happy to snap up your team at a depressed cost.
“MLR is not on course to fairly expand while the uneven corporate playing field, as that impacts future groups' desire to join the MLR. Until the current Operating Agreement is dissolved, and the common-sense ban against multiple club ownership is restored as it was in the original agreement, no unaffiliated new group that reads the current Operating Agreement would join a league where two ownership groups have superior rights to all the other teams."
No expansion money, no financial bridge to a future season where fans can actually show up, and sponsorship money shows up.
(While many of the issues Guthrie speaks on arose when Dean Howes was Commissioner of Major League Rugby, we did seek comment from current MLR Commissioner George Killebrew, but had not received a reply when we went to publication.)
Assertion: Broadcast bottom line suffered from a failure to secure more revenue, not because of over-the-top production costs.
In Pengelly’s article, Jacquet said that CBS Sports and ESPN dictated the production standards, and “those production standards were met.” And Jacquet added, “the first two years, the production budgets that I helped craft and create came in on budget every year.”
Jacquet referenced the Glendale Raptors’ November 2018 job performance review of then-commissioner Dean Howes, which found that broadcast had $2 million in lost revenue and additional costs. Jacquet said this was “entirely a revenue miss. That was not an expense miss.”
The disagreement between Jacquet and Guthrie is based heavily on Jacquet's use of the word "entirely." Guthrie, who has executed hundreds of broadcast productions for FOX Sports, Infinity Park, ESPN, CBS, NBC, The Rugby Channel, and FloRugby, says that a significant part of that broadcast loss, about 25%, was due to overspends.
"The issue was the amount billed for the profile of TV coverage provided at the venues, and not whether Howes reserved too much money for broadcast in the 2018 budget. Jaquet's answer is actually non-responsive to the fact that they overbilled 40% for inferior rugby coverage. I have the historical rugby broadcast budgets and line item details to prove what I am talking about. Dragonfli actually deployed 4-camera solutions at venues in 2018, and yet they billed MLR for 8-camera sized productions—or about $55,000 per CBSSN match. And when the MLR Finance committee requested the line-item accounting details for the CBSSN broadcast undertakings across the first season, the League office refused to provide those details to the owners in the Summer of 2018, or any time after through May 2, 2020."
Guthrie sent a letter to MLR attorney Peter Moore on November 1, 2018 in which he pointed out that the broadcast job was never put out to competitive bid. In that letter Guthrie also says—to Jaquet’s point—“the sales agent was a failure” which resulted in revenue $1.63 million less than projected. But Guthrie also hits Dragonfli because their costs were, by his calculations, $520,000 more than what they should have been. So MLR realized a broadcast-related loss of $2.15 million, of which about a quarter was broadcast cost overruns.
Across the CBS package, MLR paid Dragonfli approximately $55,000 for each CBS show they produced, when the actual reasonable costs of a four-camera production from Dragonfli should have been around $30,000, Guthrie says.
“The Commissioner has refused and failed to disclose the line-item production budgets, so the MLR owners cannot precisely measure the magnitude of the overcharges from Dragonfli, but a reasonable estimate is that MLR were overcharged by at least 40% by Dragonfli. And notwithstanding the unusually high costs, the Commissioner nonetheless approved payments to Dragonfli for '8-camera' sized shows, even though they only used four cameras on-site.”
The financial information isn’t as precise as it could be because, Guthrie says, the MLR financials were withheld from the owners by the former Commissioner Howes. But, “the total broadcast spend was at least $1.3 million, and 40% of that is $520,000 in additional broadcast spend caused by hiring Dragonfli.”
Assertion: MLR’s deal with Anderson was a reasonable move.
As Pengelly reports, Anderson and Global Rugby Ventures chief executive Paul Hourigan said their deal didn’t make them a cash machine for Major League Rugby.
“We want to do this in a way that brings capital into the league and scale things behind an investor-operator model, like an owner-operator model. So what that means is one owner, one team,” said Anderson. “GRV only takes minority positions in teams behind a management team that we believe in. It’s just like every other investment we make as an investor, which is you’re always betting on the team. So we don’t see ourselves as … the management team to own and run more than one team.”
Guthrie points out that URU touts in its investment literature that it has various levels of ownership in three separate teams.
“[A]nd the URU prospectus from Park Lane was clearly written with the goal of selling the value of being with the insiders influencing the future of the MLR and USA Rugby's next RWC bid. The Gilchrist group website claims to sell a commercial upside in the same basic ideas and sets of rights. The fact is that the operative MLR Operating Agreement allows Gilchrist and Anderson to own interests in more than one team, but does not allow other owners to do so. And neither Anderson's nor Gilchrist's groups have a written agreement in place with USA Rugby relative to the RWC bidding process (as Ross Young confirmed) which both groups now offer as a payoff for investing in their unrelated rugby growth ventures."
"The fact is that the operative MLR Operating Agreement allows Gilchrist and Anderson to own interests in more than one team, but does not allow other owners to do so"
Assertion: Anderson and Gilchrist are collaborating.
Pengelly’s sources say everyone gets along: “As (Anderson) put it, ‘inside the boardroom, the owners are very coordinated. We might disagree on tactics, but we’re all allowed to do what we want in our own region. And we’re good partners.’”
Guthrie says that statement strains credulity since the two are actively pursuing the same business opportunities at the same time (namely, a 15s Rugby World Cup) via unrelated financial offerings. "Anderson (URU) and Gilchrist are selling similar interests via two completely separate financial offering documents, which does not signal cooperation, but rather, competition between them.”
And, adds Guthrie, “Errik Anderson's clear outrage on the authority overreach by Dean Howes in selling Gilchrist the MFN Clause is well-documented from the emails between Errik Anderson, Peter Moore and Ryan Patterson. Errik complained in writing that Dean was not authorized by the Expansion Committee to sell Gilchrist ‘any set of rights Dean wanted to’ and, specifically, that the grant of license was to be ‘co-exclusive’ in scope, meaning that the League would reserve the right to place another team in LA later.
“With honest and loyal management, these two ‘final days’ terms would normally be brought back by the managers (Commissioner or General Counsel) to the attention of the owners representatives, the MLR Board of Governors, for discussion, and perhaps their approval. But that did not happen in this case because Errik Anderson would have never approved that the MFN clause be added to give Gilchrist the same rights that URU had to acquire multiple team interests. At the Commissioner’s Removal Extraordinary Meeting convened twenty (20) days later on July 26, 2019, at the Denver Airport, the BOG voted 13-1 in a straw poll to remove Dean Howes on the spot for doing the Loyals deal without vetting the final key terms, and other serious management failures on high costs with no sales.
"But the BOG lost their nerve that day and decided to be polite and give Dean six months to clear his desk; they should have removed Dean formally on the spot and rescinded the LA Loyals Joinder Agreement immediately. But the owners decided on July 26, 2019 that dealing honestly with grave internal mismanagement and outright insubordination by the Commissioner (and his General Counsel) might embarrass the MLR owners more than being truthful and acting swiftly with integrity was worth.”
Assertion: Major League Rugby is in strong financial standing
Several comments quoted in Pengelly’s article said the financial numbers and prospects for MLR are good.
(Again, we asked for comment from MLR Commissioner George Killebrew on this topic specifically and as of publication we had not received a comment.)
Guthrie disagrees: "How can the MLR claim they are in strong financial standing when there is no revenue coming into the business?” Guthrie says. “If the owners were hobbyists, that might make some sense, but this is a $19 million annual spend business operation.”
The Major League Rugby budget for 2020 obtained by GRR shows league expenses to be just over $19 million, with sponsorship revenue at $0.
“Yes, the league saved some spending from the COVID 2020 season cancellation, but COVID did not provide any new revenue, nor does ‘fewer expenses’ make the league financially stable,” said Guthrie. "There are no meaningful and growing metrics that provide any revenue upside. Sponsorships are zero, gate remains low, there is no TV money, plus CBS does not provide cable ratings data to MLR, so all the matches other than the final on CBS broadcast are unrated.
“So by every metric, MLR is losing money and is projected to do so for many years by any reasonable analysis. But they will not have that luxury of time, unless they first replace the current operating agreement with a new one that eliminates the insider advantages for only two preferred ownership groups, over the individual interests of all of the other teams that founded the league, or new ones might want to join later.
"So long as the MLR continues to refuse to retire their twice compromised operating agreement, they will be unable to attract any informed new money for the next expansion team(s) and that’s a shame, as new teams have been the only source of meaningful income for the league so far."
Is a failure to bring in revenue always a bad thing? While GRR didn't get any official statement from the MLR, we did receive an unnamed source that says the losses are not the result of wasting money, but are the results of investments in fan exposure, youth outreach, and building a fan base. "There are not," said the source, "red-flag issues you see in startups like being late on payments or not investing in the future."
Meanwhile, the upshot of Guthrie’s rejoinders is that the most logical source of big-time revenue for Major League Rugby is expansion fees, and with an operating agreement that gives special rights to two ownership groups, but only two, other potential franchise owners will be reluctant to pay to join. And going forward, MLR needs to drastically cut its broadcast expenses, and raise sponsorship funds to mitigate what remains a costly league to run.