Golden Lions rugby is hopelessly insolvent

2012-02-12 10:00
Jacques Pauw
Golden Lions rugby is hopelessly insolvent.

This despite on Thursday announcing a three-year multimillion-rand sponsorship deal from property firm Redefine.

A 140-page forensic report compiled by accounting firm KPMG last year, and other documents in the possession of City Press, paint a dismal picture of the Golden Lions and its marketing and managing company, Ellis Park Stadium (Pty) Ltd (EPS).

The report shows that Golden Lions rugby nearly lost its most prized asset – Ellis Park – and the company managing Ellis Park was so mismanaged that it had exposed its directors to possible criminal prosecution.

The last financial report (2010) shows that its total liabilities exceeded its assets by R73 million.

According to the documents and a reliable source close to the developments, Golden Lions rugby owes different parties about R90 million.

This is far less than their total income of around R44 million from the Saru-SuperSport television rights and stadium naming rights from Coca-Cola.

The money is shared with Ellis Park World of Sport (Epwos), the Ellis Park stadium management joint venture that also incor-porates Johannesburg Stadium and the Standard Bank Arena.

The union reportedly makes about R400 000 per home game (13 games per season) on gate takings. This depends on SuperRugby/Currie Cup match attendances, which average about 15 000 before match expenses, including Epwos’ share.

All suites income goes to Epwos.

There is a huge shortfall to cover players salaries and the operations budget of about R90 million per annum.

Another disturbing revelation was the disparity between the salaries of black and white players in the Golden Lions.

Springbok Butch James earned over R3 million for the 2011 season in contrast to flyhalf and Currie Cup final man of the match Elton Jantjies’ less than R500 000.

The KPMG report also raises questions about the deal brokered in 2007, where EPS entered into agreement with Orlando Pirates and a little-known empowerment company, Inza.

The deal gave Pirates and Inza 51% of Epwos, leaving EPS with 49%.

Inza are said to have been brought in by Kevin de Klerk as BEE partners before he became Golden Lions rugby president.

The KPMG forensic report makes serious reservations about the Epwos deal. It states the company didn’t have a VAT number nor complied with PAYE, income tax nor did it operate the necessary company bank account since inception in 2007.

Instead, it used the EPS bank account and VAT number to bill clients, which was illegal according to the Companies Act and also exposed its directors to criminal investigation.

Furthermore, rugby revenues had been passed through to Epwos, leaving EPS/Lions exposed to undeclared tax and liabilities.

The report also points out that Pirates had played very few of their games at Ellis Park, contrary to the shareholders agreement.

Epwos had a staff complement of 40, with CEO Paul Appalsamy earning R1 million a year.

None of the three Epwos general managers identified by KPMG seemed to be properly qualified for the positions they hold. The general manager of operations was a former paramedic and fire instructor, it said.

Epwos has never declared any profit or paid dividends.

The union’s financial affairs were also brought under the spotlight by the high court liquidation application filed by Guma-TAC (Gumede and Ichikowitz) in a lawsuit where they claim R11 million from the Lions for money loaned to pay players salaries in December 2010 and January 2011.

In an earlier (January 2012) media statement, Guma-TAC stated that “had the Lions failed to pay the players salaries over this period, it would have led to the breach of players’ contracts, which would have led to an exodus of key players, if not all. Furthermore, the loans enabled the Lions to sign top international players, such as Butch James and Lionel Mapoe, and to pay the 24 amateur feeder clubs their grants. Without Gumede and Ichikowitz money, the Lions would not have won the Currie Cup.”

They said the union borrowed the money to pay the salaries of players after they signed a conditional deal in 2010 that they would purchase a 49.9% stake in the rugby franchise, which heralded a new dawn for the Lions and rugby transformation.

The deal fell apart towards the middle of last year.

Ichikowitz and Gumede claim the Epwos deal was a bad business one for the Lions as it resulted in EPS ceding control of an asset and its income.

Epwos made a loss of R14 million in 2008 and showed a profit of R10 million in 2010 – thanks to the 2010 Soccer World Cup – although the amount paid by Fifa was the subject of a dispute. The Golden Lions won last year’s Currie Cup and are now about to embark on their 2012 Super Rugby campaign.

Announcing the three-year sponsorship deal this week, De Klerk said: “We project to be cash flush in months – we are not saying we are not – but this has gone a long way in alleviating the situation at the Lions.”

He did not respond to any questions about the KPMG forensic report or allegations of bankruptcy by Gumede and Ichikowitz, but claimed in other media interviews this week that the pair were behind a media campaign against the club.

Neither Gumede nor Ichikowitz would comment this week.

– Additional reporting by S’Busiso Mseleku