South Sydney and Jason Taylor are headed for a legal showdown after the coach was sacked because the NRL club could not afford a blot on its reputation.

On the day it was also revealed Taylor had been involved in previous alcohol-related incidents during his three years at the Rabbitohs, Souths officials said sponsors were "fed-up" with the NRL's spate of off-field dramas.

Taylor, 38, had the final year of his contract terminated after he was punched by second-rower David Fa'alogo at an inner Sydney hotel 11 days ago.

Fa'alogo, whose deal was due to expire at the end of next month before he joins English club Huddersfield, also had his contract torn up, reportedly costing the Kiwi international $45,000.

Souths football manager John Lang, a veteran mentor who coached Penrith to a premiership in 2003, was appointed Taylor's successor for the next two seasons.

"We viewed the (CCTV) tape, we viewed the evidence, we viewed everything about it and we came to the conclusion that (Taylor's) conduct was not in the best interests of South Sydney and was not the sort of conduct that a head coach of South Sydney should have, as simple as that," Rabbitohs chief executive Shane Richardson told a media conference on Thursday.

Richardson and Souths chairman Nick Pappas said sponsors had raised the issue with them.

"I don't think there's any doubt or question that the sponsors are fed-up with this type of publicity," Richardson said.

"If we sit out there and think that's not the case, we're kidding ourselves.

"... The reality is the board felt that we could not let this go past without taking action regarding it and unless we as a game take positive action without slaps on the wrists and warnings and sometimes fake apologies, we're kidding ourselves."

Richardson said Taylor had been involved in other alcohol-related incidents in a previous season, the Nine Network reporting the coach had broken a curfew on a trip to New Zealand to play the Warriors.

"We've had previous situations and a previous situation in particular, but the reality is we've assessed this on this occasion," Richardson said.

Taylor, though, was maintaining he'd done nothing wrong, releasing a statement which said he would pursue the matter further.

"I was never told I should not attend and no time restrictions were ever put on my attendance (at the hotel)," it read.

"I drank responsibly at (the) Forrester's (hotel). I was not intoxicated. I have three independent witness statements from Forrester's bar and security staff that confirm this.

"Along with players (including David Fa'alogo), I engaged in pretend, light-weight, kung-fu play. David was a willing participant.

"... I did not breach my contract of employment or any code of conduct.

"I deeply regret the impact that this has brought to my family, the players, the members and the club.

"I believe that I have been treated unfairly by the club, I will be taking the matter further and doing all I can to defend my honour and clear my good name."

Pappas responded to Taylor's claim he was not intoxicated by calling it "a gross over-simplification", but was not surprised the parties could be headed for the courts.

"It's something we thought might happen as a result of this process," he said.

"The board and the club generally is confident of its position."

Fa'alogo issued an apology in a club statement, saying he took "full responsibility" for his actions.

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