Australian rugby has reached its lowest point. How did it get here?

The Wallabies have suffered a record-breaking defeat to Wales at the Rugby World Cup. This represents Australia’s worst result in a World Cup match and its biggest-ever losing margin to Wales. And it will almost certainly end Australia’s 2023 World Cup campaign at the group stage for the first time.

Given pundits had suggested a strong World Cup performance was vital for the health of the game domestically, the horror result heaps further pressure onto a sport shrinking out of the mainstream and facing numerous challenges.

Sport Management 101: Investing in grassroots and junior development

A notable feature of the Australian sport system is that while organisations such as the Australian Football League, National Rugby League and Rugby Australia oversee professional football leagues and generate millions of dollars in commercial revenue, they are also tasked with looking after their sports at the community level.

The AFL understands this investment in the grassroots level is not only vital to producing the next batch of superstar players, but also key to ensuring the sport remains embedded within local communities.

Rugby Australia has not valued this necessity, with World Cup results illustrating the deleterious impact of falling behind competitors when it comes to grassroots investment.

My colleagues and I have performed a study of Rugby Australia’s financial performance since 1980. We discovered the code’s professionalisation in the mid-1990s resulted in a drastic shift in how the organisation spent its money. A clear implication from the analysis was a significant divestment from grassroots development in the past 20 years.

In 2001, 13.76% of Rugby Australia expenditure (A$7.06 million) related to community rugby. By 2015, this had hit a record low of 2.65% ($2.37 million).

And while Rugby Australia spent $4.3 million (3.59%) on community rugby in 2019, this paled in comparison to how much the AFL spent on game development ($58.8 million, or 13.7% of its overall expenditure), as well as the NRL ($43.3 million, or 8.2% of its overall expenditure).

This lack of resourcing for community rugby prompted former Wallaby Brett Papworth to quip:

[Rugby Australia has] chopped all the trees down and been a fantastic logging business and they’ve built massive timber mills, but they’ve forgotten to plant any new trees.

This lack of new tree growth appears to now be biting the code in 2023.

Fighting a losing battle for talent

Contributing further to the Wallabies’ struggles has been the somewhat unique situation whereby a significant proportion of the code’s elite juniors ‘defect’ to another sport upon turning professional.

Many rugby-playing junior athletes developed in the private school system – think Cameron Murray, Angus Crighton, Patrick Carrigan or Kalyn Ponga – instead choose the NRL and have become household names in the competing code.

Certainly, the NRL has benefited from becoming the destination code for many union-trained athletes, a phenomenon Melbourne Storm captain Christian Welch astutely described in economic terms as a “free rider problem” for Rugby Australia.

Read more: Are the Wallabies' struggles a sign of rugby union's decline in Australia?

Rugby’s challenge here is two-fold.

First, with 16 Australian NRL clubs to Super Rugby’s five, there are simply more professional opportunities available to aspiring young players – and they are far more lucrative, too.

The pragmatic reality for aspiring athletes is that the lure of a professional contract is often far more important than the rugby code they play. This is particularly the case for Pasifika rugby players, for whom maximising professional incomes is tied to familial and cultural priorities.

Second has been the growing financial superiority of the NRL compared to Australian rugby.

The salary caps (the total value a team can spend on player salaries) of the codes are instructive. Both the NRL and Super Rugby salary caps were around $4.4 million in 2012. Since then, however, the NRL cap has grown 275% to $12.1 million in 2023, while Super Rugby’s cap has lifted by only 25% to $5.5 million.

Rugby Australia has taken a more bullish public tone in recent times, suggesting the allure of participating in international competition will entice NRL stars to rugby union via the Wallabies.

Thus far, however, the code has secured only one such emerging star in Joseph-Aukuso Suaalii – and it required one of the largest contracts in Australian sport to do so. Poor Wallaby performances will only drive up the cost of buying established talent.

Where to next for rugby union in Australia?

Rugby Australia is in an increasingly perilous market position, with declining on-field performance only adding to a vicious spiral of downward pressures.

It was announced in recent days that Rugby Australia has disengaged from private equity discussions on account of disappointing valuations. This low commercial valuation was said to stem from the extension of its existing broadcast deal with Channel Nine to 2025, originally valued at $30 million per year.

By contrast, the AFL’s broadcast deal commencing in 2025 will generate $643 million in annual revenue, illustrative of the gulf between the “rich” and “poor” in Australian sport.

This gulf is only widening. In 1996, rugby union’s overall revenue ($21 million) was a quarter of the AFL’s ($85 million). By 2022, Rugby Australia’s revenue ($129 million) was just 14% of the AFL’s ($944 million).

Of particular concern is that Rugby Australia has historically focused its efforts on the men’s national team, which has now failed to yield a dividend. This focus prompted sharp criticism recently from athletes in the women’s national team, who called out perceived broken promises and gender inequalities by Rugby Australia.

Rugby Australia’s semi-professional women’s rugby program is now firmly behind both other national rugby unions, as well as the many vibrant domestic women’s leagues such as the Women’s Big Bash League, AFLW and NRLW.

Rugby Australia seems to thus be stuck with a wicked problem. The code appears underfunded at the community level, the domestic professional level and in the women’s game, yet it is not generating the revenue required to make improvements in these areas.

Meanwhile, the code’s largest competitors continue to get stronger, making it ever more difficult to cultivate the new fans required to generate higher revenues.

With a highly anticipated Lions tour in 2025 and the home World Cup in 2027 both on the horizon, the question now is whether Australian rugby will be in a position to capitalise on these opportunities.

Prior to the Wallabies’ final loss at the World Cup, Rugby Australia chairman Hamish McLennan offered some curious advice: “For all the Wallaby detractors, don’t watch the game.” McLennan well may have this request granted.

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