THE NRL faces the prospect of a $10 million black hole annually for six years after beginning legal action against naming rights and new media sponsor Telstra.

In a worrying development for the game, it emerged yesterday that Telstra had not paid a cent of its $90 million deal because it believes it is being undermined by News Ltd over the use of NRL footage on the Fox Sports website.

The NRL cannot afford a cashflow crisis as it has not budgeted for a surplus for the next six years and has not generated any significant revenue in recent seasons.

For now, the NRL competition will still be known as the Telstra Premiership and signage will be present at matches this weekend.

"We will continue to honour obligations under the sponsorship agreement at this stage," NRL chief executive David Gallop told the Herald last night. Of greater concern is what any shortfall could mean for the game.

The NRL started proceedings yesterday in the Supreme Court against Telstra for withholding "substantial monies" under its six-year agreement.

Telstra is paying the NRL $6 million a year for internet and telephony rights under a deal signed in March. It also agreed to pay the NRL $4m a year to be the major naming rights sponsor. The final $30m exists in contra advertising.

Telstra believes its new NRL deal has been undermined by rival websites and telcos for using extensive footage in their news reports free of charge and last month started proceedings against News Digital Media and Fox Sports.

The NRL took sides with Telstra and said the action would not affect it supporting it as an applicant in its proceedings against News Digital Media and Fox Sports regarding the online use of NRL footage.

"There can be no reason to withhold payments to the NRL," Gallop said in a press release. "Telstra's decision to withhold payment is highly disappointing and quite unreasonable. It is without any basis at law or otherwise.

"We have been left with no alternative but to resort to court to get the money owed to us."

A spokesman for Telstra last night said the company was "surprised and disappointed at the NRL's actions".

"We need to consider our position under the new media rights agreement as a result of News' conduct in using excessive amounts of NRL footage, which in our view is unlawful," a Telstra spokesman said.

It is not known how long it could take for the new matter to get before a Supreme Court judge. The dispute between Telstra and Fox Sports is set down to be heard by the Federal Court on September 2.

A delay in receiving sponsorship and new media money for the whole season would be a disaster for the game. It could have an impact on future grants to clubs and any expected increase in the salary cap.

There is no major sponsor waiting in the wings.

The NRL believes it is caught in the middle of a fight between two of the country's major companies. It is clear Telstra is withholding the much-needed cash in retribution for News Ltd's websites undermining its online rights deal by showing extended highlights footage of games. Telstra hopes News Ltd is forced to step in and use its own cash to keep the NRL running day-to-day.

Telstra and News Ltd are partners in Foxtel but the relationship is clearly in freefall.

Gallop is believed to have taken the matter to court without informing all the directors of the NRL partnership committee.

The Herald first reported a breakdown in the negotiations in February but the NRL denied there was a serious problem.

Gallop claimed at the time that the only sticking point in discussions had been about who owned the right to technology that did not exist yet.

It is now clear the dispute is over who has the right to show footage from the games and how much of the footage on websites.

Telstra has claimed websites owned by News Ltd and Fox Sports ambushed its rights as soon as they had all left the negotiating table.

The $90 million deal also included Telstra managing the NRL website and paying for production costs.