News Limited confirms Melbourne Storm salary cap breaches 83% over original estimate

News Limited announced today the Melbourne Storm salary cap breaches revealed earlier this year are actually 83% higher than originally forecast, with the total value of breaches recorded between 2006 and 2010 now at $3.17 million.

The revelation was the result of an independent report conducted by Deloitte, which set up interviews with directors and players from April 22 to July 6 – although many didn’t turn up.

News Limited also announced a significant number of board changes today, with chief executive John Hartigan saying directors Rob Moodie, Petra Fawcett, Peter Maher and Gerry Ryan are all removed from their positions.

The Deloitte report found the new figure of $3.17 million could actually be an approximation, because certain players, managers and third parties did not provide information – but News says the figure should be slightly lower.

The original estimated breach for the 2010 season of $724,000 has increased to a possible $1.02 million, representing an increase of 42%, which could actually change if more information is given, News says.

The biggest change was recorded in the 2009 year, with the original NRL estimate of $365,193 blown out by a massive 164% to $964,877. The 2007 year estimate of $273,600 increased by 101% to $551,032, while the 2006 year estimate increased by 119% from $146,100 to $319,950.

The 2008 year estimate increased by just 36% to $306,508, while the 2010 estimate rose from an initial figure of $724,956 to $1.027 million – a 42% rise.

Overall, the total breaches came in at $3.17 million, an 83% increase from the initial estimate of $1.7 million.

Based on the recent $100,000 increase in the 2011 salary cap announced by the NRL last month, News says the next year’s breach will come in at a “possible” $1.2 million.

News also referenced the argument for reinstating the 2007 premiership, saying critics have pointed out that year’s breach was similar to the breach in 2003, for which the club only received a $130,000 fine. However, News says the 2007 breach has blown out by 110%, and states: “the findings… reinforce News Limited’s view that the penalties were appropriate.”

The Deloitte review also revealed that in certain cases, Storm appears to have maintained a dual-contract system. Formal contracts were lodged with the NRL, with these complemented by side letters between the club and other players that guaranteed additional benefits.

News Limited obtained a file of three of these letters, retained by Storm former acting chief executive Matt Hanson – with his signature on all three. These letters included the amounts to be paid to these players, which were in excess of the amounts in their original contracts lodged with the NRL.

The Deloitte review also revealed methods of payment. The main method was to arrange third parties to “employ” players, with these parties issuing invoices to the club for amounts described as “donations” or “consulting fees”.

The club then paid those invoices but were not recorded as payments to players. Other methods included offering gift vouchers to players, which were purchased by the club using frequent flyer or credit card points, providing rental assistance and airfares for personal travel.

Other benefits included payments for a boat, media training and guaranteeing payment of the amount equal to the value of a television broadcasting contract – ensuring payment even though the contract may never be established.

News also said a number of senior managers were responsible for the breaches, and these managers even worked collaboratively “so that payments and other benefits provided to players were not disclosed to the NRL and could not be detected by internal or external auditors”.

News Limited has cleared coach Craig Bellamy, saying the company does not believe he was aware the club was in breach of the salary cap or knew what amounts individual players were paid.

Deloitte set up appointments so it could interview “certain players” on May 17 – but none of them showed up. Subsequent requests have been ignored or declined. Two agreements were reached regarding interviews, but no other arrangements were made by the managers and agents responsible.

“Deloitte made numerous subsequent efforts to secure the cooperation and involvement of those players via letters and email requests to player managers/agents and through representations made to players via club employees, including the club’s acting CEO Frank Stanton,” News said.

On June 9, a meeting was held between Deloitte and most players, at which the company sought an agreement and asked all present to provide copies of their contracts, letters of offer from the club and letters of any other agreements – but none have provided any documents.

Acting chief executive Frank Stanton was also cleared.

Directors Rob Moodie, Gerry Ryan and Peter Maher declined to be interviewed by Deloitte – and they have all been removed from their positions, Hartigan said today. The decision was made by News subsidiary Valimanda, which acts as Storm’s financial backer.

News chief financial officer Stephen Rue has been appointed to the board.

While Deloitte said independent director Petra Fawcett was not aware of the salary cap breaches, she has also been removed. It also said the other three directors were not even aware the salary breaches had taken place.

But Hartigan said in a statement these directors were removed because:

• Moodie, Ryan and Maher declined to be interviewed;
• All of the four engaged with legal action against the NRL, despite the club engaging in “wide-ranging and elaborate cheating”;
• All four refused to agree to independent arbitration of their action, and;
• “All… have not focused on rebuilding the club by working to put a competitive and legal squad on the field in 2011”.

“The Deloitte investigation is the first vital step in uncovering how the salary cap breaches occurred and also determining how the Storm can field a team in next year’s competition that is under the salary cap,” Hartigan said.

“As the investigation was completed without three of the independent directors’ cooperation or assistance, their positions are untenable.”

He also said the cost to News of funding Storm in 2010, including fines, loss of sponsorships and cap breaches, will come to $14 million – with the normal News contribution at about $6 million per year.

Now, Hartigan says the company will be looking to finalise the appointment of a new chief executive, and will soon finalise a playing roster for the 2011 season.

“I am confident that the newly constituted board of the Melbourne Storm, together with the new chief executive officer, will address the most important issues facing the club as a matter of urgency,” Hartigan said.

Deloitte has issued a report to News Limited, which includes a number of schedules detailing payments to players, a detailed description of the assumptions used by Deloitte in interpreting the salary cap rules, and information about the investigation which scoured over 163,000 individual documents.