For months there had been rumours circulating about the Welsh Rugby Union’s grave financial position, which were confirmed at the Principality Stadium on Wednesday when CEO Abi Tierney presented the five-year headline strategy.
Both Tierney and chair Richard Collier-Keywood told journalists there was a £35m funding gap to the professional game over the next five years. The plan is to try to formulate a strategy this summer to bridge such an astronomical gap but if they could not find a way by this October then some very tough decisions will have to be made.
One of these decisions could be activating the two-year notice period on the Professional Rugby Agreement, which would lead to going down to three regions while an aggressive tiered-funding model would also be considered. Of course, Welsh rugby’s future will be decided by the financial position of the WRU moving forward and what it can afford.
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The WRU’s chief financial officer Leighton Davies explains the governing body’s financial position to WalesOnline.
The funding gap
On Wednesday Tierney told journalists the funding gap to the professional game over the next five years is £35m, but this has since been re-evaluated. “As part of our ongoing collaboration with the four regional clubs, the analysis has been refined and the number has been recently restated as £29m, but it should be noted that this is a total sum predicted figure for a five year period until 2029,” said Davies.
“It represents the estimated gap in funding in total across all of the four regional clubs, which would be needed in addition to current funding, to facilitate the success defined by the ‘One Wales’ strategy. Put another way, the figure represents an estimated £1.45m gap in funding per year, per regional club over five years, which would be needed to achieve goals set.
“This is an estimation of the additional figure required to set us up for success in the years ahead. The figure is not exact because it is a prediction.”
The salary cap
As of next season all four regions will be operating off a £4.5m salary cap, although two marquee players are permitted outside of the cap. Part of the reason for bringing in a salary cap is because players wages were thought to be out of control in Wales and needed to be driven down to make the game sustainable.
“This number is the salary cap for each of the four regional clubs,” said Davies. “The salary cap is agreed at Professional Rugby Board (PRB) and so is a collective agreement between the four regional clubs and the Union.
“The idea of the salary cap is that it controls the market for players in Wales and guards against unnecessary inflation of wages, i.e. when two regional clubs in Wales may both wish to employ the same player and so compete for his services. Working alongside the 25-cap rule, which is intended to deter players from leaving to other markets, it has helped reset the market in Wales.
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How much does the WRU pay its professional clubs each season?
Many people confuse the £4.5m salary cap with how much the WRU actually pay the regions each season. To make it clear the WRU do not fund the regions who are all private businesses, they pay them for the services of their players.
Both the regions and the WRU are tied into a flexible six-year framework which forms the Professional Rugby Agreement (PRA). In total the WRU paid each region £4.275m this season. “This is the amount of money transferred to regional clubs, per regional club, per year from the WRU in return for their services, put crudely the provision of players for the international game,” said Davies.
“It is important to note that this is not a limit on income. The regional clubs can and do generate significant additional funds from competitions, other commercial activity, via generous partners and backers and through the shared services initiative mentioned below.
“It is obviously at the PRB’s discretion to raise the salary cap described above if enough significant income can be generated independently of the £4.275m funding allocated. This increase in funding is one of the goals of the ‘One Wales’ strategy.”
The WRU’s deficit
On Wednesday Collier-Keywood said the WRU were operating off a £15m deficit which is clearly far from a healthy financial position to be in. This is linked in with the WRU’s deal with private equity firm CVC who own a stake in the Six Nations and the United Rugby Championship.
“We have discussed a £15m deficit over the last two years in the WRU’s accounts,” said Davies. “This does not mean a £15m loss has been posted in these two years.
“The reason for mentioning this deficit is to explain that money from CVC – who invested in the Six Nations and URC competitions – has historically covered this deficit. This is important to note because the receipts from this CVC investment will stop in 2026.
“So, we need to factor in this £15m deficit from this time. The CVC deal is complex but, put simply, the WRU sold a one-seventh share in future income from both the Six Nations and 28% of the URC and EPCR competitions. The plan at the time of this deal was to use the money from this sale to invest in future projects which would bring income to Welsh rugby to replace the one-seventh shortfall from Six Nations and broadly one-third from URC and EPCR.
“It was understandably anticipated at the time that the total income from these competitions would increase with CVC involvement. These plans were upset by the advent of the Covid pandemic, which meant much of this income was used to ensure the survival of the game in Wales.”
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How much debt are the WRU in and what are the plans to improve the financial situation?
Like most major organisation the WRU are carrying some debt which has been exasperated by the Covid-19 pandemic which amounts to £20m. “Firstly, this is the amount of debt the WRU is currently carrying. This is not an unusual number for a £100m business. It is not de-stabilising,” said Davies.
“The business is in a stable condition. However, there is value to be gained from refinancing this debt and this will help us to bridge the funding gap in the professional game we describe. Secondly, this is broadly the sum of the debt taken on over the course of the pandemic specifically to ensure our regional clubs were sustained.
“This debt is held by the regional clubs, and it has an impact on their ability to raise additional debt finance. The interest on the loans negatively impacts the £29m funding gap over five-years that we have identified and Welsh rugby is engaged in positive negotiations to re-finance these loans.
“They are currently held at a commercial market rate.”
The WRU were also given £13m worth of grants by the Welsh Government during Covid while they have identified £3m worth of savings in the professional game in Wales.
“This money is saved by the introduction of a shared services collaboration with the four regional clubs in an agreement which forms part of the ‘One Wales’ strategy,” said Davies. This is an annual cost efficiency and has been considered in calculating the funding gap described.
“A new Head of Commercial Growth Officer appointment will oversee this shared services work as well as seek to grow the commercial value of the professional game in Wales – to further bridge the funding gap.”