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A toxic mix of decreasing income, increasing outgoings and living off capital
How to spend £5.3 million? That’s the question many Premiership clubs could be asking themselves, and if so, many Directors of Rugby may be pondering which of Nigel Wray’s players they could buy using Nigel Wray’s money?
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On a serious note, Saracens paying a fine that is used for compensation, distributed among Premier Rugby Shareholders, may draw a line under the whole saga. particularly if these payments circumvent the need for any more legal drama.
What would clubs do with their 9% (441k)?
Firstly they would reduce that figure to £308k because CVC owns 30% of Premier Rugby Limited (PRL). Even so, £308k is hardly a kick in the teeth for cash-hungry clubs.
Maybe, Wray’s £308k can mitigate the drop in TV money received by Premiership clubs this month?
Finance departments at clubs across the league will be opening envelopes embossed with the BT Sport wax seal, only to find the contents lighter than that of previous envelopes, lighter by 30% in fact.
The Pro14 announced that CVC would be their new investment partner last week, though it’s not rugby that CVC is investing in, it’s TV revenues and central advertising. The deal is simple, like a financial derivative or a futures contract but with added benefits of an equity stake (or risk).
There is nothing inherently wrong with this, but it is important to understand the nature of rugby’s situation. Private Equity firms do many things, they are hard to define. Probably the best definition of Private Equity is an organisation that employs clever people and backs them with money.
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In Premier Rugby Ltd’s case CVC’s objectives are to enjoy 30% of the revenues from a couple more rounds of TV deals, then sell the shares for substantially more then they bought them for.
They hope to package up all manner of rugby from the Premiership to Pro14 and eventually the 6 Nations, then sell the TV rights in order to further boost their returns but don’t be mistaken, the deal is about securing TV money and growing revenue, growing rugby would just be happy coincidence.
The idea of CVC investing in rugby is a little disingenuous, to invest in “rugby” you would of need to buy 30% in all the clubs rather than just the PRL. CVC will do well out of this deal, So the next question you might ask is why are the other shareholders, the clubs, not in great shape?
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Let’s start with the deal its self. The best way to explain this is with an analogy.
Imagine a block of flats with 13 owners (12 premiership clubs plus Newcastle) who all have an equal share. They rent out the flats, however the rent does not cover the cost of the upkeep. So they strike a deal with a third party who buys 30% of the building, giving the original 13 a cash lump sum.
A new era.
Premiership Rugby today confirms a landmark new partnership with leading private equity and investment advisory firm CVC Capital Partners
Read more ?https://t.co/g91Qqcq41X pic.twitter.com/mGvxdDz04u
— Premiership Rugby (@premrugby) December 19, 2018
The flats now have 14 owners. The new owner owns 30% (CVC), and the remaining 13 own 5.3% (the clubs).
The income from the flats are split in accordance to the shareholdings, however the quirk of this deal is that all the costs are born only by the original shareholders (the clubs).
The clubs would pay for the upkeep, the maintenance, rates, utilities, staffing costs, gardening etc exclusively from their 70% share of the rent. The risk for CVC is rents falling or the block of flats burning down.
Sadly the fundamental problem remains that expenses are higher than income, when the new partners’ capital has all been spent they will be in a worse situation then when they started. The clubs issue was never not enough capital.
CVC cash must go towards sustainability, not players' wages – Andy Goode | RugbyPass – ?@AndyGoode10?. Agree with every single word you’ve written here. Excellent article. https://t.co/sLbXeye0JV
— simon cohen (@simonjcohen) November 30, 2018
If clubs are wise they will spend their windfall on income generating assets, stands, hotels, conferencing facilities, you get the idea.
If they spend it on player wages, directors loan repayments and paying down debt the future may be very bleak indeed. Professional Rugby clubs struggle to make profits and with a 30% reduction in central revenues it might leave club owners making some very hard decisions in the future.
The problem with the CVC deal is it exchanges income for capital and as any spendthrift with an inheritance will tell you, you can’t live off capital for long.
Worse still, no matter how you look at the situation you would struggle to find a scenario where clubs would be able to buy back the shares in the league.
A total of 72 Irish-eligible players – 40 forwards and 32 backs – started for the provinces across the opening two Champions Cup rounds.@heagneyl picks the form XV ???https://t.co/lTTGxxTGoo
— RugbyPass (@RugbyPass) November 24, 2019
The most likely buyer of CVCs shares, should they decide to exit this agreement would probably be another financial institution.
It’s not even clear that if CVC were successful in increasing TV money that this would be a good thing.
It’s reasonable to say that clubs hooked on the first high of CVC cash but still not profitable might look at their balance sheets and see the huge value of their PRL shares. They then might be tempted by a further sale of shares, compounding their cash flow issues in the future even further. This might sound familiar to fans of Leeds Rugby who sold their shares to Exeter only to find, guess what? – you can’t live off capital for long.
This would be a game-changer all thanks to CVC https://t.co/FmRlPAfqoq
— RugbyPass (@RugbyPass) July 22, 2019
Not that CVC would necessarily care, clubs can go bankrupt at any time however it’s unlikely the league itself could, it has minimal overheads compared to a clubs and should one club leave the league it would simply be replaced by another, clubs are replaceable, again ask Leeds.
It’s a toxic mix of decreasing income, increasing outgoings and living off capital.
The CVC deal is probably a more an indictment of the perilous situations club owners find themselves in. It also highlights the importance of controlling expenditure and especially player wages.
My fear is that the CVC money is covering for poorly run clubs. When the CVC party finally stops there will be plenty of sore heads and regretful memories of questionable decisions. Enjoy it while it lasts!
Comments on RugbyPass
Has virtually played every minute of previous games. Back row of Li Lo Willie , Grace and Blackadder would be the 1. Crusaders issue is a very average 1st 5 who cannot run. Kicking in general play is also below par They need to put Yong Kemara in. He must have so.e talent for them to bring him down from Waikato. Hoehepa would struggle to play in so.e club sided
4 Go to commentsI hope this a good thing making all these changes!
2 Go to commentsThe Hurricanes are good, especially with a decent coach now. However, let’s be real, the Crusaders and Chiefs are clearly a good degree weaker without the players they’ve lost overseas now. The Canes lost one player. It’s also why the aussie teams ‘seem’ to be stronger.
9 Go to commentsOr you could develop your own players instead of constantly taking from the SH competition and weakening it in the process? With all the player and financial resources these unions have compared to SH countries you’d think they could manage that, or is weakening the SH comps and their national sides an added bonus? Probably.
3 Go to commentsNot so fast Aaron, we might need you in black yet lol. God knows he’d be a lot less nerve-racking than hot and (very) cold players like Perofeta. It’s really a shame Reuben Love isn’t playing 10, we’ve got enough 15 options.
4 Go to commentsAnd those from the NH still seem to be puzzled (and delighted) why NZ’s depth isn’t what it once was. Over 600 NZ players overseas, that’s insane. This sort of deal is why Super Rugby coaches have admitted they struggle now to find enough quality to fill out their squads.
6 Go to commentsArticle intéressant ! La question devrait régulièrement se poser pour les jeunes français originaires de Nouvelle-Calédonie, Wallis-et-Futuna et de Polynésie entre la Nouvelle-Zélande et la Métropole… Difficile pour la fédération française de rugby de se positionner : soit le choix est fait de dénicher les jeunes talents et de les faire venir très tôt en Métropole, au risque de les déraciner, soit on prend le risque de se les faire “piller” par les All Blacks qui, telle une araignée, essaye de récupérer tous les talents des îles du Pacifique… À la France de se défendre en développant l’aura du XV de France et des clubs français dans ses collectivités d’Outre-mer !
3 Go to commentsWrong bay. He needs to come to the REAL BAY which is Bay Of Plenty and have a crack at making the Chiefs.
3 Go to commentsIs Barrett going play full back??? They already have all the centers…
15 Go to commentsForgive my ignorance, I might not fully understand so would appreciate clarification: Didn’t the Bulls have to fly with three different carriers, paid for by the South African Rugby Union, whilst Edinburgh got a chartered flight sponsored by EPCR? Also, as far as I understand it South African teams don’t yet share in the revenue from the competition and are not allowed to host Semi-finals or Finals at home. Surely if everyone wants South Africans to “take the competition seriously” then they must make South Africans feel welcome, allow them to share in the revenue, and give them the same levels of access as the teams from the other countries. Just a reminder that South Africa has a large and passionate Rugby audience. Just by virtue of our teams being a part of these competitions means that more of us are likely to watch the knockout games, even if our teams haven’t qualified. It would be silly to alienate such a large audience by making them feel unwelcome.
18 Go to commentsFirst of all. This guy is very much behind the curve. All the bleating, whingeing, whining and moaning took place days ago already. Not adding anything to the topic other than more bleating, whingeing, whining and moaning. 🍼 Second of all, not one mention of the fact that South African teams can’t get home semi finals or finals. The tournament was undermined and devalued by the administrators. 🤡 Thirdly, football teams often have to juggle selections in mid week games, premier games, champions league games etc. and will from time to time prioritize certain titles over others. 🐒 And lastly FEK Neil, and anyone else for that matter, for insisting on telling teams how to manage themselves. If they make what is largely a business decision that suits them and doesn’t suit you - tough shite. 💩 It’s not rocket science as to why the Bulls did what they did. If this guy is too slow to figure it out (and is deliberately not mentioning one of the key reasons why) then he isn’t a journalist. He should join the rest of us pundit plebs in comments section. 🥴
18 Go to commentsSo the first door to knock on Rob is Parliament followed by HMRC. The Irish Revenue deliver a 40% tax relief rebate on the HIGHEST EARNING TEN YEARS of every pro Irish rugby players contract earnings at retirement. That goes a long way to both retaining their best talent and freeing up wages for marquee players. Who knows, if that had been in place in the UK, you might not have been able to poach Hoggy and Jonny Gray from Glasgow…!!!
3 Go to comments1. True, if that “free” ticket means access to all but the prized exhibit - EVIP only. SA cannot host semis, even if they’ve earned it (see Sharks vs ASM Clermont Auvergne at… Twickenham Stoop). 2. Why no selective outrage over Lyon doing the exact same thing a week earlier? Out of all the countries France send the most “B teams”, why nobody talking about “disrespect” and “prioritising domestic leagues” and “kicking them out”? 3. Why no mention of the Sharks fielding all of their Springboks for the second rate Challenge cup QF? No commitment? 4. Why no mention of all the SA teams qualifying for respective euro knock out comps in the two seasons they’ve been in it? How many euro teams have qualified for KO’s in their history? Can’t compete? 5. Why no mention of SA teams beating French and English giants La Rochelle and Saracens? How many euro teams have done that in their history? Add no quality? The fact is that SA teams are only in their second season in europe, with no status and a fraction of the resources. Since joining the URC, SA has seen a repatriation of a number of players, and this will only grow once SA start sharing in the profits of competing in these comps, meaning bigger squads with greater depth and quality, meaning they don’t have to prioritise comps as they have to now - they don’t have imports from Pacifica and South America and everywhere else in between like “European” teams have - also less “Saffas” in Prem and T14, that’s what we want right? 'If the South Africans are in, they need to be all in' True, and we have to ensure we give them the same status and resources as we give everyone else to do just that. A small compromise on scheduling will go a long way in avoiding these situations, but guess what, France and England wont compromise on scheduling because they ironically… prioritise their domestic comps, go figure!
18 Go to commentsthe success of the premiership can be summarized by : only 10 teams. It makes a huge difference with the overcrowded top 14 (let us not talk about Leinster and URC…)
1 Go to commentsGood for him. The ABs were fooling around again with converted fullbacks that had a penetration of a marshmallow. Laumape or as Aki has shown for Ireland, go forward is important in the centres. If it had been DMac - Aki- Aumua - Ioane- Telea- Jordan in France the final result would have been different.
4 Go to commentsDan Carter a apporté son professionnalisme, des méthodes de travail, un esprit qui manquaient à l’USAP. Son influence, même une fois blessé a été énorme. Et pour citer une anecdote, certains soirs il venait de lui-même à l’entraînement des jeunes pour dispenser ses conseils. On ne peut pas compter ce qu’il a apporté au club en heures de jeu sur le terrain. Est-ce que le club en a eu pour son argent ? Avec la publicité sur son nom et le titre, je suppose que oui.
1 Go to commentsThe SA sides are suffering from a bum rap here. There isn’t a side anywhere in the world that would do things differently in their shoes. They’ve been set up to fail in the EPCR comps by vested interests, with last minute intercontinental travel requirements that costs an arm and a leg to book in advance just on the possibility they might be required. And the total nonsense that denies any chance of home venues is entirely biased and absolutely unsporting. Either EPCR, the Top14 & the Gallagher Premiership get it sorted on a fair and equitable sporting basis for ALL participants or expect the ridicule to continue. Right now, these comps are a joke!
18 Go to commentsSA sides should do the right thing and leave the champions cup, they are lowering the standard with completely one sided games, not up to the right level. The greatest club tournament in the world is being banjaxed by the weak SA sides.
18 Go to commentsCouldnt agree more. SA sides need to show more committment and really have a go at the Champions Cup. Its quite possibly the most prestigious title in Europe and SA sides need to respect that prestige and serve up their best. EPCR needs to do more to ensure that sides from South Africa and sides travelling to and from SA have a better chance in this competition. The Bulls were put in a really difficult position of having to travel there and back in one week. One could argue that this is what the SA sides signed up for and that La Rochelle didnt complain or send out weakened sides despite having to travel to SA and back and play on successive weekends but surely the situation is also unfair on La Rochelle as well and so EPCR needs to think about successive gameweeks and the travel effect of the competition
18 Go to commentsI hadn’t watched much Canes this season but sat through a replay of that Chiefs game with no distractions. That pack is beastly. I really like the look of Iose. He loves the tough stuff. The first Quins clip may be the best I have even seen for a TH driving his opposite into oblivion. i need to take your word for the contribution of Walker, but Collier there with a straight back pushing up from under was a lovely thing to see. Have you fallen in love with Baxter also, Nick? I think Stuart Barnes may have written his column about him recently, naked. He positively frothed.
15 Go to comments