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?
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.
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?
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
Should've done this years ago. Change Saturday kick off times to around 11am. Up and off and back home before 3pm, limit travel time too. Allows players to actually do something else with their Saturday that's family oriented or being rugby fans they could ‘watch’ pro rugby. Increases crowds etc. How can anyone that enjoys grassroots and pro rugby have to choose between the two on Saturdays?
9 Go to commentsI bet he inspired those supporters just as much.
1 Go to commentsBen Smith Springboks living rent free in his head 😊😂
67 Go to commentsGood to hear he would like to play the game at the highest level, I hadn’t been to sure how much of a motivator that was before now. Sadly he’s probably chosen the rugby club to go to. Try not to worry about all the input about how you should play rugby Joey and just try to emulate what you do on the league field and have fun. You’ll limit your game too much (well not really because he’s a standard athlete like SBW and he’ll still have enough) if you’re trying to make sure you can recycle the ball back etc. On the other hard, you can totally just try and recycle by looking to offload any and everywhere if you’re going to ground 😋
1 Go to commentsThis just proves that theres always a stat and a metric to use to justify your abilities and your success. Ben did it last week by creating an imaginary competition and now you did the same to counter his argument and espouse a new yardstick for success. Why not just use the current one and lets say the Boks have won 4 world cups making them the most successful world cup team. Outside of the world cup the All Blacks are the most successful team winning countless rugby championships and dominating the rankings with high win percentages. Over the last 4 years statistically the Irish are the best having the highest win rate and also having positive records against every tier 1 side. The most successful Northern team in the game has been England with a world cup title and the most six nations titles in history. The AB’s are the most dominant team in history with the highest win rate and 3 world cups. Lets not try to reinvent the wheel. Just be honest about the actual stats and what each team has been good at doing and that will be enough to define their level of success.
19 Go to commentsHow is 7’s played there? I’m surprised 10 or 11 man rugby hasn’t taken off. 7 just doesn’t fit the 15s dynamics (rules n field etc) but these other versions do.
9 Go to commentsPick Swinton at your peril A liability just like JWH from the Roosters Skelton ??? went missing at RWC
14 Go to commentsLike tennis, who have a ranking system, and I believe rugby too, just measure over each period preceding a world cup event who was the longest number one and that would be it. In tennis the number one player frequently is not the grand slam winner. I love and adore the All Blacks since the days of Ian Kirkpatrick when I was a kid in SA. And still do because they are the masters of running rugby and are gentleman on and off the field - in general. And in my opinion they have been the majority of the time the best rugby team in the world.
19 Go to commentsHaving overseas possessions in 2024 is absurd. These Frenchies should have to give the New Caledonians their freedom.
21 Go to commentsBell injured his foot didn’t he? Bring Tupou in he’ll deliver when it counts. Agree mostly but I would switch in the Reds number 8 Harry Wilson for Swinton and move Rob Valentini to 6 instead. Wilson is a clever player who reads the play, you can’t outmuscle the AB’s and Springboks, if you have any chance it’s by playing clever. Same goes for Paisami, he’s a little guy who doesn’t really trouble the likes of De Allende and Jordie Barrett. I’d rather play Carter Gordon at 12 and put Michael Lynagh’s boy at 10. That way you get a BMT type goalkicker at 10 and a playmaker at 12. Anyways, just my two cents as a Bok supporter.
14 Go to commentsThanks Brett, love your articles which are alway pertinent. It’s a difficult topic trying to have a panel adjudicating consistently penalties for red card issues. Many of the mitigating reasons raised are judged subjectively, hence the different outcomes. How to take away subjective opinions?
9 Go to commentsYes Sir! Surprising, just like Fraser would also have escaped sanction if he was a few inches lower, even if it was by accident that he missed! Has there really been talk about those sanctions or is this just sensational journalism? I stopped reading, so might have missed any notations.
9 Go to commentsAI is only as good as the information put in, the nuances of the sport, what you see out the corner of the eye, how you sum up in a split second the situation, yes the AI is a tool but will not help win games, more likely contribute to a loss, Rugby Players are not robots, all AI can do if offer a solution not the solution. AI will effect many sports, help train better golfers etc.
45 Go to commentsIt couldn’t have been Ryan Crotty. He wasn’t selected in either World Cup side - they chose Money Bill instead. And Money Bill only cared about himself, and that manager he had, not the team.
28 Go to commentsYawn 🥱 nobody would give a hoot about this new trophy. End of the day we just have to beat Ireland and NZ this year then they can finally shut up 🤐
19 Go to commentsTalking bout Ryan Crotty? Heard Crotty say in a interview once that SBW doesen't care about the team . He went on to say that whenever they lost a big game, SBW would be happy as if nothing happened, according to him someone who cares would look down.. Personally I think Crotty is in the wrong, not for feeling gutted but for expecting others 2 be like him… I have been a bad loser forever as it matters so much to me but good on you SBW for being able to see the bigger picture….
28 Go to commentsThis sounds like a WWE idea so Americans can also get excited about rugby, RUGBY NEEDS A INTERNATIONAL CALENDER .. The rugby Championship and Six Nations can be held at same time, top 3 of six nations and top 3 of Rugby championship (6 nations should include Georgia AND another qualifying country while Fiji, Japan and Samoa/Tonga qualifier should make out 6 Southern teams).. Scrap June internationals and year end tours. Have a Elite top six Cup and the Bottom 6 in a secondary comp….
19 Go to commentsThe rugby championship would be even stronger with Fiji in it… I know it doesen’t fit the long term plans of NZ or Aus but you are robbing a whole nation of being able to see their best players play for Fiji…. Every second player in NZ and AUS teams has Fijian surnames… shame on you!!! World rugby won’t step in either as France and England has now also joined in…. I guess where money is involved it will always be the poor countries missing out….
90 Go to commentsNo surprise there. How hard can it be to pick a ball off the ground and chuck it to a mate? 😂
4 Go to commentsSometimes people just like a moan mate!
9 Go to comments