There is no doubt that English rugby is facing some significant challenges in organisation, financial structures, and future growth.
Rugby players are famously renowned for their power and resilience on the pitch; yet from a financial perspective, the sector is not currently looking so strong and flexible in terms of its forward financial planning. In turn casting doubt on its financial sustainability.
The very recent challenges endured by both Worcester RFC (Worcester) and Wasps RFC (Wasps) have been real wake up calls for rugby.
Ultimately, Industries, such as sports, in which participants seek a prize, will always encourage a greater degree of risk or financial imprudence, and that will never change unless the governing body wants it to.
Worcester and Wasps woes .
The financial integrity of the sports industry was highlighted in late 2022 when Wasps quickly followed by Worcester, appointed Administrators after facing financial difficulties and significant HMRC pressure that they blamed on the Covid-19 Pandemic and subsequent lockdowns.
As a result of these insolvencies, the Rugby Football Union (RFU), Rugby Union’s governing body, suspended their involvement in this year’s Gallagher Premiership competition and relegated them to the second tier of the rugby union pyramid for the 2023/24 season.
Under current RFU rules, relegated clubs are entitled to retain their perpetual share (P share), which entitles shareholders to a percentage of the central income of the Premiership and the right to vote on key issues.
Under RFU rules, in the event of relegation, clubs can keep its P shares for at least one season, so softening the financial impact of relegation and providing the opportunity to regain promotion.
The Administrations of Wasps and Worcester, however, resulted in those clubs losing their P share, which undoubtedly had a detrimental impact on the Administrators’ ability to effectively rescue the business, as the P share is considered the most attractive asset in the context of a Premiership standard club.
In addition, there is one further rugby specific rule that new owners have to contend with in order to be eligible to compete in the second tier of rugby (the Championship) next season. That is the RFU rule that rugby creditors must be paid by the new entities that acquired the businesses and assets of these clubs.
‘Rugby Creditors’ are defined as players, ex-player, coaches, and other employees of a club. Outstanding wages in relation to both Wasps and Worcester form a substantial liability.
Whilst it appears that Wasps have managed to secure a place in next season’s Championship, it appears Worcester have not been so fortunate.
The RFU has acknowledged that Wasps have put in place ‘clear processes and procedures for financial transparency and payment of the Rugby Creditors’.
In fact, Wasps have put together a detailed insolvency plan in consultation with the RFU, which should, hopefully, ensure payment of all of their creditors, and ensure the longer-term financial security of the club.
In contrast, Atlas, the buyers of Worcester decided to withdraw their application to join the Championship.
As a result, the club continues to follow insolvency and there are no solid solutions in place yet to pay Rugby Creditors and secure a future for Worcester at a high level in the game’s domestic structure.
Vital Role of Robust Financial Modelling .
These examples are stark reminders that the rugby sector is in a precarious financial position and is desperate for financial reform.
Many commentators and rugby experts agree that the way in which rugby is funded really needs to be transformed into a system that is fit for purpose.
It is true to say that immense talent, a proud English sport, and promising leadership are all at risk because of a lack of robust financial modelling that is fully costed and managed with a future-facing perspective.
There is a recognised distinction between the financial processes and modelling available at club level, in comparison to international operations, with the England team set up significantly better funded and structurally more robust.
A critical issue at the moment is that there is a salary cap imposed on clubs, temporarily reduced to about £5m, but there are amounts paid to clubs who provide England selected players, to compensate them and top up finances.
Salary Cap Constraints .
With an eye on the long term, the Rugby Premiership reduced its yearly player salary cap per club from over £6m to £5m for the start of the 2021/22 season.
But many commentators have questioned this; not just is the reduction enough in the present climate but also its basis.
The salary cap was introduced into the Premiership in 1999. This was specifically created to restrict the most significant financial outlay for rugby clubs, which is the overall wage bill.
Currently (and which is an ongoing issue with the salary cap) is that it is a set figure applied uniformly across the Premiership and does not adopt any variable such as a revenue percentage.
This can lead clubs into the troubled waters of trying to spend as much as the salary cap dictates, rather than what is affordable.
In addition, there have been reports of other English rugby clubs struggling with their financial structures and organisational assets.
It is more important than ever for English Rugby to address their financial challenges with transparency, authenticity, and a committed sense of purpose.
Enacting Transformation in English Rugby.
In addition to Wasps and Worcester there have been reports of other English rugby clubs struggling with their financial structures.
The financial issues plaguing the sector are deep-rooted but possible to turn around. A
Accordingly, it is more important than ever for English Rugby to address their financial challenges with transparency, authenticity, and a committed sense of purpose.
Creating positive financial change can be tough, that much is clear for all stakeholders interested in the future prosperity in English rugby, but many in the rugby world see this as an opportunity to re-boot how top-flight domestic rugby is organised.
Some have suggested a review of the system to enable it to work more efficiently as has been seen in countries like France.
Taken as an example, French Rugby organises it’s structure in terms of Pro D2 and Top 14, which creates independent club oversight.
When clubs are flagged to be potentially overspending in contrast to their incomings, they can be issued with a warning and given a deliverable process to follow with the intention of ensuring club survival and prosperity.
Another example, when CVC, the private equity group, bought into rugby, for 27% of club’s income, Ireland’s four provinces talked about expansion by improving the product, improve the experience, and collectively heading in the right direction.
In English Rugby, CVC’s money didn’t go into infrastructure, it went into survival.
The Covid-19 pandemic saw to that with Wasps and Worcester not surviving.
It will be interesting to learn whether CVC’s involvement is now helping rather than hindering, especially as the next round of Premiership Rugby’s TV rights are on the market later this year.
Whilst reforms may be a step in the right direction, rugby needs to address the fundamental issue of costs exceeding revenue.
Until this is addressed, domestic rugby union’s problems will continue, which may have a knock-on impact on prospects for the national side.
Leading Authentic Change .
The only way to enact real change is to create transparency for all stakeholders, but in this case the RFU.
Documenting everything so that honest transformations can take place, which will result in a stronger, more resilient business over the long term.
One where people respect each other and the business itself, a workplace to be proud of, reflecting the core values of the game.
Prioritising practical cost savings and encouraging regular communication with creditors are both integral to positive financial transformation, proactive steps every elite English rugby club will want to take to ensure survival and long-term prosperity.
What’s maybe forgotten or over-looked by club directors, is that legally, of course, regardless of any specific rules and regulations of any industry, directors’ responsibilities and obligations remain the same, and any resultant adverse issues arising from a club insolvency may impact their other business interests.
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