Melbourne Storm Stripped of Two Premierships, Fined $1.6m for Cheating National Rugby League Salary Cap


Sport is based upon the principle of a fair contest. A fair contest requires two players or teams to compete on an even footing, where the physical and mental ability of those people determine the outcome of the contest as played within the boundaries of the rules of the sport and of the sports competition.

The National Rugby League (NRL) is the most successful rugby league competition in Australia and arguably the world. For the uninitiated, the NRL is a 16 club competition with clubs based in Sydney, Brisbane, Canberra, Wollongong, Newcastle, Brisbane, Gold Coast, Townsville, Auckland (NZL) and Melbourne. The Melbourne Storm Rugby League Football Club is an anomaly, it is an outpost of rugby league based in the heartland of the nation’s most successful competition (the Australian Football League).

In the past four seasons it has enjoyed a remarkable run of success; top of the NRL league ladder (Minor Premiers) at the end of the 2006, 2007 and 2008 home & away seasons, a 75.5% WPCT across the four home & away seasons 2006- 2009; Grand Finalists for four consecutive seasons (2006-2009) and Grand Final victories (Premiers) in 2007 and 2009. During this time, Storm players have represented a good proportion of the Australian National Rugby League team, the Kangaroos.

These glory days–for what was regarded as one of the great rugby league clubs of the modern era– now count for nothing.

The Melbourne Storm were today exposed by the NRL administration for breaches of the NRL salary cap of around $1.7m across the past five seasons. During this time the NRL salary cap was $3.366m (2006), $3.9m (2007), $4.0m (2008 & 2009) and $4.1m (2010). In the harshest penalty ever meted out in Australian sport, NRL CEO David Gallop today announced the Melbourne Storm would be: (i) stripped of their recognition as Premiers in 2007 & 2009, (ii) stripped of their recognition as Minor Premiers in 2006-2008, (iii) fined $500,000, (iv) required to repay $1.1m in prizemoney, and (v) stripped of all competition points to this stage of the 2010 NRL season and be ineligible for competition points for the rest of this season (dooming the Storm to a meaningless season in 2010.

Full details of this can be found at the NRL website at this link, details of the NRL salary cap are at this link, the history of NRL salary cap breaches is available here; and any Australian newspaper has blanket coverage. Further details will be posted next week as more comes to light. At this stage, it appears several Storm executives have been sacked; former Storm CEO Brian Waldren, who left the club earlier this year, may well lose his new job as the CEO of Rugby Super 15’s expansion club the Melbourne Rebels; speculation is mounting that police are likely to be asked to investigate claims of criminal fraud; owners of the Melbourne Storm, News Ltd (Australian subsidiary of News Corp) are in a compromised position for New Ltd also owns half of the NRL itself; the NRL administration, while being applauded for this stiff penalty, is also being questioned for why it did not detect the breaches sooner; questions are being raised about the appropriate level of the NRL salary cap; others are questioning the legality of salary caps per se; many fear for the future of the club itself; and speculation is also mounting that AFL Club, St Kilda, will also be investigated by the AFL administration, for Waldren was the St Kilda CEO before moving to the Storm.

As it stands, the official NRL records will not recognise a Premier in 2007 and 2009; the titles will not be awarded to the losing grand finalist.

In a city where the locals (I’m one of them) likes to boast of being the sporting capital of the world; a small number of people have been shown to lack one the most basic ingredients of sport. Our best have failed us. They deserve no acclaim. We have developed economic models of cheating in sport; but there is no economic rationale; no rationale full stop, for destroying the fabric of what we are raised to believe in. Some people in Melbourne will attempt to sleep tonight, knowing the rest of the world now know what kind of people they truly are. They are cheats.

Integrity Lost.

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Author: Robert Macdonald

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rules, salaries, salary cap

9 thoughts on “Melbourne Storm Stripped of Two Premierships, Fined $1.6m for Cheating National Rugby League Salary Cap”

  1. Nice post Robert,

    Really quite a shock reading about this this morning. I have to say, my first thought was for the players as they will forever be tarnished with the brush of cheaters when it is hard to believe they would have known anything about the cap breaches.

    I will say though, I agree with you that sport SHOULD be based on the principle of a fair contest, but in many leagues that is far from the reality of the matter. MLB or European soccer are two examples where salary caps are not enforced and that cash can essentially buy titles.

    From an Australian perspective – this sort of thing is unprecedented, The only thing that is remotely similar is the Carlton salary cap breaches at around the turn of the century, but this was minor given that wasn’t linked to a couple of premierships. However, the punishment with draft disqualification certainly hurt the club long term.

    Who knows where the Storm will go from here. Sad because that new AAMI park looks like a sensational venue!

  2. Thanks Charlie (and it’s good to hear from an Aussie in the US)

    A key difference here is that the salary cap is an accepted part of the NRL structure, the Storm were operating outside the rules of the game. In soccer and MLB a different choice has been made about structure; salary differentials may alter the competitive balance of outcomes (and there is a variety of evidence on the relationship between salary expenditure and on-field success), but buying up good players for a tilt at the World Series or the UEFA Champions League is an exercise in working within the rules, even if we may be unhappy with the subsequent outcome.

    What the Melbourne Storm have done is up there with match fixing (think cricket and baseball) or juicing yourself up (think Ben Johnson, Marion Jones) as a blow to the integrity of a sport.

    On AAMI Park, you may be interested to know it is being featured in an upcoming doco (some time in May I think) on the Discovery Channel!

  3. I too am an Australian (Melbournian) living in Canada. This is big news, and leaving moral indignation asside, an interesting response from the NRL.

    The NRL is both responsible for building an incentive system that encourages fair play, and especially in the Australian case, is responsible for growing the game and the business in what the Australian media likes to describe as “the most competitive sporting market in the world” in terms of competing for spectators, sponsors, participants with other sports (such as the Australian League Football and Soccer).

    We often look at the incentives for cheating in many realms from companies rent-seeking to employees shirking. We leave morality out of it and work out what is in the best interests of a rational agent. Clearly Melbourne Storm, like a shirking employee, taking into account the probability of being caught, etc. believed that the benefits from cheating justified their decision.

    There are certainly precedents that can be compared on cheating in the business end of sport … in the English Premier League in 2007 the illegal Carlos Tevez contract at West Ham United saga springs to mind where Tevez himself scored the winning goal in the last game of the season that relegated Sheffield United and kept West Ham in the Premier League. For West Ham’s cheating the penalty handed down by the Football Association was £5.5 million. Sheffield United followed up through the courts and West Ham were made to pay £20 million over the next 5 seasons.

    This seems like a more measured response. Ultimately the NRL need to put rules into place that significantly enough dis-incentivise cheating on the salary cap to ensure it does not happen. This response seems to be far more than that and born out of some larger play to pander to supporters of other NRL clubs sense of fair play. In my opinion it is far too much.

    The reason that it is too much is that, to fill in the foreign readers, the NRL has been in decline for a number of years. In 1997, Newscorp came in with a competing parrelell “Superleague” where it attempted to buy the players from the NRL and thus take over as the premier Rugby League competition in Australia. The ensuing battle cost the game of Rugby League enormously with interest dwindling, crowds shrinking, children deciding to take up other sports.

    Then into that landscape has come competition from the AFL (Australian Rules Football) which has set up a successful Sydney and Brisbane franchise into deep NRL territory, and has planned an expansion franchise into the Rugby League heart-land of Western Sydney as well as the Gold Coast. The A-league (soccer) is winning for participants by a large margin in Rugby League territory, and also has a new expansion club in the Gold Coast and one slated for Western Sydney. Meanwhile Rugby Union (a different yet extremely similar sport that is much more widely played in the rest of the world) has set up an international Super 14 rugby competition that goes directly after the NRL customer base …

    So into that environment, and understanding that Melbourne Storm is an expansion club from the NRL into the AFL heartland of Melbourne in an attempt to expand its supporter base where it is also competing against an extremely professionally run soccer expansion to win over AFL people, they have stripped their only outpost club of their premiers, but even more puzzlingly, made the current season count for naught. What incentive does the good people of Melbourne have turn up to watch a team that is just making up the numbers?

    It is hard to see how, by handing down this penalty — ostensibly simply to provide a disincentive for cheating the salary cap — they are acting in the best interest of the expansion of thier sport into what is the extremely wealthy sports market of Melbourne. Have they decided that they are loosing the battle in Melbourne and are wanting to kill off their franchise there?

    It is hard to see how this is not just knee-jerk and playing to short term moral-indignation in Sydney.

  4. I’d like to see more in the incentives and penalties. A $1.7 million salary breach over five years of total salary caps of $19.366 million, so this is less than a 10% breach. What did The Storm win in incremental revenues?

    I’m fascinated about the reaction in Australia. I know I’m a lowbeat American, but there is a strain of thinking that if you aren’t caught cheating, you aren’t trying hard enough. I don’t totally agree with this, but there is a element that I am sympathetic to. Paying more in salaries has more integrity to me than paying off referees, for example, or doping your opponents. I just can’t get too upset about it, just as I don’t get upset when some college basketball team is alleged or proven to have paid its players.

  5. I agree Elvin, it is excessive and makes little sense for the NRL as a business.

    From an expansion perspective, it certainly has not hurt that the new Melbourne franchise has been so successful on the field … in Australian Rules Football (the AFL) it is common practice to give new expansion franchises salary cap extensions and advantages in the “draft” system for signing new players in order to win them places on the table to attract those new fans and “band-wagoners”.

    Having Melbourne Storm win a couple of premierships is surely good for business in expanding your customer base and “growing the pie” (as opposed to increasing penetration within the Sydney and Brisbane markets). Such a good result in fact that the NRL with some foresight could have granted this small salary cap extension by design precisely to get such a result.

    Also, salary cap breaches are hardly new news in Australia. It happens all the time, Melbourne Storm have been fined before (as have many teams in the NRL), and given the precedents Melbourne Storm would have had a different expectation of the penalty. There are multiple breaches and fines almost every year, to a point where you can almost budget for fines and work out what your marginal revenue is given the cost. See a list of NRL breeches and associated fines here (if you scroll down a little to NRL):

  6. This is the comment I have left at another site….

    Like Phil Gould said on the Footy Show, it takes a lot of money to assemble a quality football team and keep them together. Woohoo at the flogging the Warriors got…..not a Storm follower but I couldn’t wipe the smile off my face. The penalty of fines is one thing but to take away ability of accumulating points for the rest of the season is ridiculous. Yes the cheating was done at boardroom level BUT how many of the players would go around talking about their pay packets? Not many, I bet. So I think it would be safer to say the players were not the masterminds of this debacle. Melbourne Storm players won their games on the football field. They are not cheats at the game on the field. They won their matches fair and square!! The cheating was done in the pay packets. Now, if I thought I could have extra dosh and get away with it , Heck yeah I would go for it. I’m a Cowboys fan but will support the Storm in their quest. David Gallop needs to get down off his high horse, he has the balls he needs to do his job but he don’t need to be shoving them down the public’s throat. GO THE STORM!!! I agree the Storm would not be the only club doing so, I bet most have got extra’s going behind the NRL’s back. My other comment to this is…. the salary cap needs to go, it is like being forced to drive a clapped out old FORD when you can afford a BMW .

  7. Hi Steve,

    Good to hear from another Melbournian – for the locals, it is ironic that the largest salary cap rorting clubs from both the AFL and the NRL in the past decade were based at Princes Park!

    Whether one regards this as a matter of moral indignation or not, what cannot be denied is that Storm executives (and possibly others), knew the rules and broke them. Our next poster, Elvin, suggests there may be an attitude that if you don’t break the rules you are not trying hard enough. Others, such as Waldren, have used the cowardly justification that “everyone else was doing it”. We can appreciate the phsychological, sociological or economic motivations for such attitudes but that doesn’t mean we should accept such outcomes as desirable.

    We have rules in sport and your duty as a player, coach or administrator is to compete to the best of your ability within those rules. If the rules are silly or cannot be enforced then change them. Before then you have no excuse for breaking those rules and ultimately, if the integrity of your sport is damaged then all involved in that sport will be worse off. No doubt clever analysts will be able to model a scenario to suggest that attendance, public interest, what have you would be in fact maximised by allowing all clubs to spend as much as they can afford on players; some may even seek to extrapolate that into a back-door justificaton for the actions of teh Storm and other rule breakers. But such a line of reasoning ignores the simple fact that the rules of the sports competition were known. They were broken. And if you can’t play nice within the rules then you miss the point of why competitive sport exists in the first place. If you want to operate outside the rules then join a street gang or oganised crime syndicate to further your career as a ‘principal clerk’; and leave sport to people who appreciate the fact that sport includes an appreciation and acceptance of the rule of ‘sporting law’.

    Was the penalty too harsh? Maybe; but it seens to have both a punitive and exemplary component.; stripping a club of premierships as well as fining the club would suggest so. In due course I’ll dig out some of the economic theory on sentencing in order to extend that debate. With reports that the club was $700K over a $4.1m salary cap THIS season leaves the NRL with few options for dealing with the current problem. On that basis I can appreciate the reasoning behind the NRL decision to strip the Storm of the right to play for competition points this season. That the players may be willing to take pay cut to get back under the cap ignores the fact that the team was put together illegally in the first place, so it would still represent an unfair advantage to the Melbourne Storm if the club were allowed to compete for competition points in 2010 if the club were able to get back under the salary cap by the close of the player transfer window, yet retain the existing list. Is there wider damage to the integrity of the competition caused by 15 clubs competing against a club that is playing for nothing? Maybe. If I were in Gallop’s shoes as the NRL CEO, I’d be inclined to think that was the lesser of two evils.

    Ironically, the AFL (as you note below Steve) has long had a policy of granting clubs in expansion markets a higher salary cap. AFL clubs, the Brisbane Lions (in 2001-2003) and Sydney Swans (in 2005) won premierships in the past decade on the strength of a playing list paid with a higher salary cap. Perhaps the NRL needs to revisit multiple aspects of current salary cap policy; but let’s not forget the other AFL clubs have cried blue murder and questioned the integrity of the AFL competition on these very same grounds.

  8. Nunyaa, nice sentiments (interesting expression…). But many clubs (in particular the Storm) struggle to break even each year.

    Thanks to all who have posted. Some underlying economic considerations about the nature of sport and how to optimise outcomes have arisen from this matter. The fallout will continue for many months. In future posts I’ll highlight some of the good economic modelling that has been published on various sub-issues: (i) the economics of salary caps, (ii) the economics (and psychology) of cheating, (iii) the economics of sentencing, (iv) profit- vs win-maximising behaviour, (v) the economics of group behaviour (such as ‘cheating because everyone else does’), as well as others This issue will play out over the next few months, so we hope you’re able to contribute again in the future.

  9. Hi Robert,

    I am just raising ideas here … I have no solutions. I agree with you that Gallop is caught in a political wrangle where he needs to be seen to be ‘doing the right thing’ by the greater public. However what is ‘the right thing’ on a moral ground for the public, and ‘the right thing’ for maximising what he is charged with maximising in his role as head of the NRL (revenues for the NRL? revenues for the clubs? crowds? active supporters? television ratings? sponsors value? games longevity and viability?) do not nessesarily co-incide. I understand that there is a ground swell of baying for blood that he has to be seen to be listening to for political reasons.

    Problems with implementation of a correction to Melbourne Storm’s playing roster for the current season can have more creative solutions than a simple stripping of playing points for the season, surely. He should be impartially looking at what his goals are (to get Melbournes playing roster under the salary cap), where he is at the moment (too many expensive players), and design a solution of incentives and penalties or a ruling that achieve his goals.

    My problem is that the season has only just begun (season for winter sports runs March to September in Australia). Melbourne Storm does not have a deep vein of one-eyed committed supporters who love the game and the club with support for the club spanning generations.

    The match fixing scandal in Italy in 2006 is an example of a similar penalty to this. Juventus were also stripped of 2 titles and relegated to Serie B (the second division). There are differences between Juventus and Melbourne Storm though … Juventus does have that deep passionate multi-generational support that immigrants even bring with them to Australia and the USA, Juventus was not a delicate strategic new franchise to win new fans, soccer is not in decline in Italy in any way … the Italian national team had just won the world cup in 2006 to mass celebrations, and the Juventus supporters could still go and follow the club and support it in Serie-B in games with real points on the line in their fight to be re-promoted into the Serie A (which they did immediately, and then also performed well in the Champions League). If the NRL had a promotion / relegation system, then relegation may be a good option.

    This reaction from Gallop may be in part because Rugby League is in real trouble. If Rugby League were not loosing its best and brigtest (like Sonny Bill Williams, etc) to the more lucrative money on offer in Rugby Union, if there were not already nasel gazing going on from its supporters and former players with established clubs teetering on bankrupcy and being bailed out by the likes of Russell Crowe, if Gallop were not already under extreme scrutiny about the state of the game, then would he have acted in the same way?

    And the answer might lie therein somewhere. Perhaps the interests of the game are best served by consolidating the support from its existing customer base with Melbourne Storm being sacrificed. Maybe he has reasoned that he can not dis-enfranchise any more supporters in the heart-land, and needs to consolidate and hold his position. Maybe he thinks this is a real disaster that could sink the game and the league … that might justify what he is doing. I note also that he was informed by the implicated executive of Melbourne Storm of the problems with the draft in the league, approached about an amnesty to fix it up, and ignored it.

    Anyway, I will be interested to read more of what you have to say … this affair is far from over.

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