Coutts Speaks Out on Rift That Led to TNZ Breakup

Stuart Streuli

AUCKLAND - JANUARY 31, 2002 - Alinghi skipper Russell Coutts revealed today the circumstances of his and Brad Butterworth’s decision to leave Team New Zealand in May 2000.At the time they left TNZ, in response to a request from Tom Schnackenberg and incoming new trustees, Russell and Brad had promised not to disclose problems preceding their departure. This week, however, they have obtained an agreement from trustee John Risely to talk openly."By clearing the air we hope we can now return to a focus on the sport and to the action on the water," Russell said."I am well aware of the strong reaction in New Zealand to our decision to leave. At the time, Brad and I had been involved for over two years in very difficult discussions with the people who controlled the trust that ran Team New Zealand and controlled the rights to mount a defense. It had been previously agreed that when Sir Peter Blake left the team we and Tom Schnackenberg would take over the management. But it was only at a very late stage in negotiations that we concluded we were very unlikely to be able to reach a satisfactory agreement for this to happen.""In our view this was because of the persistent obstruction, extraordinary secretiveness about financial dealings and hostility towards our taking on management responsibilities from the chairman, Richard Green and trustee John Lusk. Both were partners at the law firm Russell McVeigh, they were the most prominent trustees and they had effective control of Team New Zealand at the time.""We wanted to take over responsibility for running the companies involved with the America’s Cup, but the then trustees refused to show us detailed accounts or existing contracts. My impression was that they did not really want to do a deal with us.In particular, following more than two years of discussion, and some weeks after we had won the cup, we were surprised to be presented with demands that:¿ We accept liability for debts incurred by the trust, while being permanently denied access to information on how large those debts were. ¿ We accept any potential tax liability of the trust, without the trust quantifying the potential liability. At the time they were concerned that the charitable status of the trust would be challenged, and if it was successfully challenged we would then have been liable for the debt. ¿ We accept serious constraints on future commercial arrangements, including a restriction on our ability to sign sponsors within a 12 month period.""At that stage Brad had been involved in challenges for Team New Zealand since 1986, and I had been involved for nine years. But we took the decision we did because we believed a very big change was needed in the attitude of the trustees if the superb organisation we had been part of building up was to be protected. In the end, we concluded that we had done all we could do within the team and had been unable to make that change happen. On a personal level, we reached a point where we felt we had to look to alternatives."Russell said that at the time of defending the America’s Cup in 2000, neither Brad nor he had any thought of sailing for any other syndicate."In 1997, Sir Peter Blake told us he would leave Team New Zealand after the 2000 event and work for the Cousteau Society. He publicly announced this plan later that year. Peter’s departure meant we needed to plan for proper succession in the management of Team New Zealand. The sailing, design, and boat-building teams wanted Tom Schnackenberg, Brad and myself to take on the management role. In late 1999, we obtained a personal undertaking from Richard Green and the CEOs of the ’family of five’ sponsors that if ’we won the America’s Cup and won it well’ they would facilitate a smooth transition of the management structure to us." "In November 1997, following initial difficulties in our progressing an agreement on the detail of the basis on which we would assume succession, we engaged Jim Farmer QC. Mr. Farmer worked with us for over two years to try to finalise an agreement with the existing trustees, while we focused on defending the challenge for the cup. He was given some initial cooperation but over the period was unable to make significant progress with Richard Green and John Lusk, the trustees with whom he was dealing, despite the fact that he had a good personal relationship with them. He told us that they would not agree to any arrangement which involved the existing trustees being replaced with new trustees under the existing trust structure and that a new structure would have to be established, existing assets sold to it and several million dollars of discretionary debt paid to the existing sponsors. He further told us that he did not receive replies to several written requests that he made for an explanation as to why we could not continue with the existing trust. He said that he could not understand why an agreement could not be reached at that time that would give us the security of knowing the basis on which we would be going forward.""Team New Zealand won the cup on March 2, 2000. On March 30th the contracts of all team members expired. When this date passed we had no agreement with the trustees. They had failed to secure the future of the team, as it existed then, as an ongoing operation.""Because of this failure, sailors and other team members who had financial obligations and families to support faced uncertain futures. They were given no firm commitments as to their future tenure. Several were accepting contracts with other syndicates. The team needed to raise funds and to sign its future personnel. We repeatedly requested meetings with the trustees to finalise a management deal as promised. They delayed, saying they were not ready. We were left with an impression that they were resisting our taking on a management role and wanted to stall this transition process despite the obvious urgency.""It was symbolic of the prevailing attitude at the time that locks to the base were changed abruptly so that sailors, who had been with Team New Zealand for more than a decade, including Brad, found themselves humiliatingly locked out.""When we did secure a meeting with the trustees they presented conditions that were totally unacceptable. In our view they were secretive about vital information. They made significant and surprising new financial demands. They did not appear to understand the urgency of the need to resolve the situation if the team was to be held together.""The terms of the proposal they offered included: 1. A demand that we shoulder a debt of more than $5 million to existing sponsors.2. A requirement that we accept any potential tax liability of the trust, without the trust quantifying the potential liability. As already noted, they were concerned that the charitable status of the trust would be challenged, and if it was successfully challenged we would then have been liable for the debt. 3. A requirement that payment of $2 million be made to provide funds for the Team New Zealand Charitable Trust to distribute to charities to help to justify its charitable tax status. 4. A requirement that we were not to pursue sponsorship for 12 months5. A requirement that we could only negotiate with the "family of five" sponsors on similar terms to those that already existed.""Our confidence in the trustees was eroded when, on March 4th 2000, 2 days after we had defended the America’s Cup, Richard Green and TNZ management convened a media conference without informing us to announce the Protocol for the 2003 America’s Cup. We would have expected to have been notified of a public announcement of such an important document. At this conference Richard Green made it clear he did not want to confirm future management arrangements.""Our confidence in the trustees was also affected after they gave us an undertaking they would sell no assets while we were in negotiation, only for us to learn that they breached this undertaking and sold NZL38 and the travel lift used to launch the boats.""In mid-April we took stock of our situation. We had no contracts. The management had not secured key personnel. Key sailors and designers had already signed with other syndicates. Having won the cup we were extremely disappointed with this situation. Later in April we began to consider leaving TNZ as a serious alternative. At this point we advised Tom Schnackenberg and John Risely of our thinking. On May 4th John Risely, Brad and myself met in New York with Ernesto Bertarelli and Michel Bonnefous. After that meeting Brad and I decided we would formally leave Team New Zealand. We immediately advised Tom Schnackenberg, John Risely, Peter Menzies and Ralph Norris of this decision."Relevant Information on Team New Zealand structure - March 20001.1 Team New Zealand Trust (a charitable trust) controlled all Team New Zealand entities. Its trustees were Sir Tom Clarke, Roger France, Richard Green, Jim Hoare and John Lusk. 1.2 The Trust owned Team New Zealand Trustee Limited. Its directors were Clarke, France, Green, Hoare and Lusk. 1.3 The Trust company owned Team New Zealand Limited whose directors were Clarke, France, Green, Hoare and Lusk, the company responsible and appointed by RNZYS to defend the America’s Cup. 1.4 Team New Zealand Limited owned AC2000 Limited whose directors were Clarke, France, Green, Hoare and Lusk, the company responsible for organising the America’s Cup Match. 1.5 Russell, Brad and Tom Schnackenberg assembled a new group of potential incoming trustees consisting of Ralph Norris, Peter Menzies and John Risely. It is understood that following the departure of Russell Coutts and Brad Butterworth, Ralph Norris and Peter Menzies gave the old trustees an ultimatum as to what conditions were acceptable. The old trustees were given two hours to accept the new trustees’ ultimatum, which was accepted.