The new Melbourne Super 15 franchise is in disarray after failing to agree to terms with the Australian Rugby Union over funding.
A spokesperson for the group who were involved in the winning bid for the new licence in the expanded 2011 competition says they have "ceased negotiations" with the ARU.
VicSuper15's Ray Evans says the parties have reached an impasse over funding, with the ARU unwilling to match an annual grant of $4.2m to the existing Australian Super sides.
They've offered $3m but members of VicSuper15 say it's insufficient.
The Melbourne side was set to be the first privately-funded franchise in a departure from traditional state-owned Super rugby teams, however if the ARU runs the team it will put it in a position of conflict of interest with the other state-run sides.
Evans says the ARU won't provide parity so its not commercially viable.
Mining magnate Kevin Maloney, one of the main backers of the franchise, is among investors to walk away saying the operation isn't viable.
Another investor, media buyer Harold Mitchell, is also said to be disillusioned with the ARU offering but is attempting to continue negotiations.