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Apr 23, 2010

The buck stops with News Ltd in the Melbourne Storm scandal

News Limited executives should have been paying far more attention to the way the Storm was being run than they obviously were.

The Melbourne Storm salary cap scandal has shocked the sporting and business worlds.

Never before has a sporting organisation cheated so brazenly and been punished so savagely.

Never before has a company the size of New Corporation — which owns 100% of Melbourne Storm and 50% of the entire National Rugby League competition — been involved in a sporting scandal of this magnitude.

News Limited boss John Hartigan moved swiftly yesterday to distance himself from any blame about the scandal, saying in a statement that the “elaborate collusion and the scale of the deception has been concealed from News Limited and it is our understanding that it has been concealed from the board of the Storm”.

He has also brought in external auditors from Deloitte to fully investigate the extent of the scandal, referred the matter to police and generally vowed to pursue every person at the Storm who might have been involved in the matter.

But it appears to be a case of too little too late.

While the Melbourne Storm is a tiny speck in the News Corporation universe from a business point of view, the huge profile that rugby league enjoys in Australia means News Limited executives should have been paying far more attention to the way the Storm was being run than they obviously were.

These breaches were not simply a one-off event at the end of one season — this was $1.7 million worth of payments made over a five-year period. It was systematic rorting at one of the most prominent clubs in the league.

It simply should have been picked up far earlier than it was.

Hartigan might claim he has fallen victim to a few rats in the ranks, but questions should and must be asked about why News Corporation was apparently unaware that anything was wrong in a business it owns.

In the corporate world, the “I was duped” excuse does not wash — the bucks stops at the top.

News said in a statement yesterday that it “makes it a condition of the internal and external audits that are conducted into the club’s affairs annually, that Storm management must verify in writing each quarter that its contractual obligations to the NRL under the salary cap have been complied with and, specifically, that there is no fraud”.

Clearly those checks were not enough as they were too easily bypassed by a group of Storm officials.

But News should have known that annual audits and a signed bit of paper every three months would not be enough to ensure salary cap breaches were not occurring.

After all, rugby league and the AFL have seen several instances of salary cap breaches in recent years, most notably with the Canterbury Bulldogs in 2002.

There have also been rumours of problems at the Melbourne Storm for years — surely the scuttlebutt from the organisation’s sports reporters would have led someone within News to ask a few more questions more often.

News Corp should have known that these breaches could have occurred at the Storm and should have been watching much more closely — what extra governance controls and processes did News put in place to ensure cap breaches did not occur?

Did forensic accountants examine every player’s contractual arrangements on a regular basis?

Did News Corp ask auditors to examine how money was flowing through the club?

Were invoices checked regularly and thoroughly? There are allegations that suppliers submitted inflated invoices so that overpayments could be made to players. Surely a study of a sample of invoices would have raised questions that might have uncovered these breaches much more quickly.

If the answer to any of these questions is “no”, then News Corporation, and specifically John Hartigan, must ask why not.

It’s all good and well for Hartigan to come out after the fact threatening legal action against everyone in sight, but the question must be asked —  what have he and News Limited been doing for the past five years?

I bet Rupert Murdoch might be asking a similar question this morning.

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42 thoughts on “The buck stops with News Ltd in the Melbourne Storm scandal

  1. Pete from Sydney

    why should News have known that ” annual audits and a signed bit of paper every three months would not be enough to ensure salary cap breaches were not occurring”…it seems that’s the system that every other business in Australia uses …. if someone is going out of their way to deceive a company, they can be very successful in the endeavour, quite obviously…

    James, could you not ask the same question of David Gallop and his administration as well? They were getting the same/similiar assurances, and it’s taken 5 years to figure it out…. they’re pretty close to the game, aren’t they?

  2. macadamia man

    Congratulations on the (inadvertent?) juxtaposition of your two top stories today.

    Am I so very wrong is seeing the insurance “debacle” (as even ABC News continues to categorise the story in news bulletins) and the Storm rorting kerfuffle as being virtually identical moral and governance issues on which News Ltd is taking a diametrically opposed approach?

    Clearly by News’ standards the response of chief executives to fraud or malfeasance orchestrated by third parties (allegedly) on a systematic basis is resignations at the very top. Whether they knew about the problem or not?

    Bye bye, Mr Hartigan? Or do I mean Mr Murdoch?

    Perhaps Cabinet should have sought to sell off its interest in running the country at breakneck pace before the problem broke? Or does the suggestion the wrongdoing took place for five years at least (according to the investigations conducted by NRL-salaried officer Schubert on behalf of the 50% News-owned NRL) constitute a get-out-of-jail-quick card?

    I’d post this comment on The Australian’s site, but why waste my time?

  3. Fowls

    Corporate governance issues aside, who really cares outside NSW and Qld? The club may be called Melbourne Storm, but in Melbourne they only have a handful of supporters, they have never had any Victorian players, they have never had any resonance with the Melbourne public. And it’s the most god-awful, boring, skill-free, troglodyte game anyway, with misogynist, bogan supporters, so why would the rest of Australia ever want to embrace it?

  4. Greg Angelo

    Any competent company board has an audit committee with the specific responsibility of ensuring compliance with policy and procedures. If the corporation fails to comply with its own policy and procedures, responsibility is squarely with the directors of the company as they are responsible for selecting the chief executive officer and oversight of governance standards.

    Leaving aside the issue as to whether the game of football is for troglodytes, the issue of governance goes right into News Corporation as the effective owner of the club. What policy does News Corporation have in relation to its executives being involved in related companies and what is its internal governance process in relation to fraud and misrepresentation? I would be extremely surprised if Herald-Sun or the Australian took an active interest in the governance failure dimensions of this particular situation.

    It would be appropriate for the NRL to subject all of its teams to an immediate audit and seek statutory declarations from each team member and its board members they are not aware of, nor participated in, any salary cap breaches over the past five years. This would really set the cat among the pigeons and am equally sure that they won’t do it because there would be almost certainly skeletons in various closets around SinCity.

  5. Brad Sprigg

    A company owned by Rupert Murdoch did something unethical. I’m shocked!

  6. macadamia man

    On the subject of News and ethics (even in public) this may raise a titter of recognition or two:

  7. Pieman

    If this is to stop they have to sanction everyone that was involved or knew of it…players included. And in time amend the policy to reward player loyalty and junior development….

    And by the way there is already a game to play online.

  8. klewso

    It was only 5 years.

  9. klewso

    “Ministerial/executive accountability”, “bats in the ceiling”, “approximate parity in executive/politician’s pay” – which “standards” are we going to see “applied”?
    “Id Like to Know, Right”!

  10. John

    Fool me once, shame on you. Fool me twice, shame on me.

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