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CVC cash must ensure sustainability

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CVC cash must go towards sustainability, not players' wages - Andy Goode

The cash injection from the proposed sale of a minority stake in Premiership Rugby to private equity firm CVC must go towards making clubs sustainable and not into players’ pockets.

As exclusively revealed by RugbyPass this week that Premiership clubs are likely to agree a deal to sell around a 25 per cent stake to private equity firm CVC for somewhere in the region of £240m and they are expected to be considering the offer at the next board meeting of owners, which takes place on 11 December.

It was only a couple of months ago that they were being offered a similar sum (around £275m) for 51%, so a good deal has been negotiated in a relatively short space of time and Mark McCafferty and co would appear to have done a good job.

The original offer never made any sense because at no point should the Premiership ever be subservient to a majority shareholder from the outside but to relinquish half the amount of equity for a similarly significant amount of money would seem to represent good business on the face of it.

Premiership set for new investment. (Photo by Harry Trump/Getty Images)

The success of any deal hinges on how the money is spent for me though. Some of it will undoubtedly go on clearing debts because 11 of the 12 Premiership clubs posted a loss in their latest financial accounts, with Exeter the only exception, but where the rest goes is key.

It should be used to improve the infrastructure of the clubs and be put towards planning for the long term. If it goes into the pockets of the players, then we’ll be back at this point with everyone losing money again before you know it.

As an ex-player, I can tell you that players and agents will be looking at this news and thinking they should be getting paid more as a result and I’m all for players getting paid as much as possible but if all this money goes towards that, it will just bankrupt the game in the end.

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Players’ wages have gone through the roof over the last five years but they’ve reached the point now where if they go up much more, we are likely to see clubs go bust.

The danger is that it’s very similar to when the game turned professional in the late 1990’s and clubs spent beyond their means. The money ran out and clubs like Richmond and London Scottish ended up going into administration.

I’m not saying that is going to happen with this injection of cash but it could do if financial mismanagement is allowed to occur and the warning is there from the not too distant past.

All Blacks captain Kieran Read. Photo / Getty Images

There are already rumours of Kieran Read now coming to the Premiership instead of the Top 14 on a salary of £1 million. I don’t think he’s worth that anyway but it’s the kind of short-sighted move that would represent a bad use of the money in my opinion.

If a club makes that investment in someone like Read, they won’t get that much of an increase in the number of fans coming through the gates of their stadium or watching them.

Some clubs will look at splashing the cash on a marquee player or two in order to hopefully boost their chances of achieving short-term success in the Premiership or Europe but that isn’t a legitimate business plan for the long term.

Clearly, all the clubs are going to get a windfall if this deal is ratified but for me there should be some sort of strategic plan behind how that money gets used.

I’m a big believer that you’ve got to balance the books and make clubs viable businesses in order for the product to grow and that just isn’t happening at the moment.

If you’re losing £5 million or £6 million per year as some clubs are, then you’re up the creek without a paddle if your benefactor decides they’re no longer interested so working towards a greater level of sustainability has to be the number one goal.

The whole reason for bringing CVC on board is to grow the product. Premiership Rugby claims it has experienced 80 per cent growth in the past five years and has stated that it wants to accelerate that growth even more.

There’s no way that growth has been in the form of bums on seats but it has grown commercially and television revenue has increased dramatically. That’s obviously an area CVC will be looking at closely with the BT Sport deal due to run until 2021.

They’ll also be able to have an impact on the sponsorship side of things because both Premiership Rugby and the Six Nations didn’t find it particularly easy when it came to securing a new title sponsor in the past year or so.

Businesses don’t just want to have their name associated with a competition any more, they want to see the value that’s coming back to them and that’s where CVC will come into its own.

Eddie Jones celebrates after win over Springboks at Twickenham. (Photo by Shaun Botterill/Getty Images)

I’m very surprised that the RFU haven’t tried to get involved in these negotiations because if they were ever going to wrestle back control of the English game, this would have been the time.

If this deal goes ahead, they can have no complaints about access to players but a £40 million overspend on the East Stand at Twickenham and an overall operating loss of £31 million for 2017-18 probably didn’t put them in the ideal position to make a move.

If a private equity firm gets involved in something, it’s doing so to increase the value of it for itself. They will be looking to take money out but they’ll have a plan and leave no stone unturned in their quest to make the business more valuable. That can only be a good thing for Premiership Rugby.

If they’re paying somewhere in the region of £240 million for a quarter of Premiership Rugby, that means the business is being valued at almost a billion pounds already and I’m sure they’ll want to see that double at least while they’re involved.

Right now, clubs are making losses and if we carry on doing what we’re doing in English rugby, there has to be a question mark over whether these 12 Premiership clubs will still be around in 10 years’ time. A £240m investment will certainly help but the devil will be in the detail and certain strings need to be attached to ensure the deal is a success.

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CVC cash must go towards sustainability, not players' wages - Andy Goode