English clubs can't continue to pretend the basics of running a business don't apply to rugby

Before becoming a rugby journalist Paul Smith spent over 20 years in the logistics industry where he created and ran two successful businesses. Using this experience, he asks where now for professional rugby in England?

Will Carling was a pioneer, Sir Clive moved it on a level and with the encouragement of the RPA a steady trickle of ex or soon-to-be ex-players are now forging second careers which take rugby’s traditional values – teamwork, resilience, leadership and the like – and apply them in a business context.

Leicester back-rower Guy Thompson – an intelligent and engaging man with the most inspiring of back-stories – has recently stepped into the corporate world with just such a venture, which doubtless will be a huge success.

Latest News Northern Edition

Latest News Northern Edition

But while business is receptive to learning from sport, professional rugby desperately needs to heed a few of the basic lessons which the commercial world long since took as gospel.

It is now 25 years since rugby union reluctantly replaced the blazer brigade with what was supposedly a cloak of professionalism, but in truth a cohesive, profitable industry with a sustainable future remains a distant dream.

The English Premiership’s 12 clubs lost a combined £50 million in their most recent trading year. The Championship is so commercially fragile that the majority of clubs are in panic mode following the withdrawal of half of their RFU funding – a sum which, incidentally, does not cover the national team’s match fees for a single international. Meanwhile National League clubs, who receive no financial support, are required to negotiate a 30-match season spanning Tynedale to Redruth while simultaneously providing the proving ground for future stars.

Even the top flight’s current precarious commercial position is far from secure. BT Sport have declined to renew their multi-million pound deal without it first going to market – on which basis the TV rights are clearly falling in value – while few signs yet suggest that Premiership Rugby’s sale of a chunk of equity to CVC has done anything other than prop up its clubs’ short-term liquidity.

Meanwhile, matchday revenues are not growing at a pace which enables clubs to keep pace with wage demands from the sport’s top performers. For context, an entire six-match Championship weekend programme draws fewer people than Leicester v Northampton, while the rugby-loving public has shown little interest in new products such as the Premiership Rugby Cup or Shield.

Should anyone doubt the extent of the financial mire in which the Premiership finds itself, look no further than its response to the coronavirus crisis. Such is the financial instability faced by the clubs, each week seems to bring a new (and more desperate) plan to finish the current season and in the process cling on to TV and matchday revenues. Considerations of employee welfare, what customers actually want and simple common sense seem to have gone out of the window.

The development of most businesses happens in manageable steps, built bottom-up with costs and revenues broadly keeping pace. For example, in my former industry a haulier would only buy vehicles and trailers and employ drivers when he had work for them. This simple logic appears not to apply to our fully professional clubs, who instead establish a cost base then try – not that successfully – to find the revenues to cover it.

One of the biggest factors in this commercial disaster area has been the Premiership’s inability to find a sustainable response to foreign competition – namely the French Top 14.

While English clubs rely largely on the deep pockets of their sugar Daddy owners, their rivals across the channel have a business model underpinned by a combination of huge global corporations and local councils. This means big wages exist not just in the Top 14, but also Pro D1 and Federale 1.

Fearing a player exodus to France and resulting reduction in domestic playing standards, the RFU excluded overseas-based players from the England team. Clearly international caps do not buy many Range Rovers however, which is why an England appearance now earns our top stars close to £25,000 per test match.

Putting the RFU’s other significant financial liabilities to one side, the huge revenues generated by international rugby go at least some way to balancing these costs. However, the annual salary bill of around £9 million confronting most Premiership clubs is a different story. With just under two million fans watching a Premiership match last season, an estimated average ticket price of £25 grossed £50 million – or around £4 million per club – which clearly leaves a huge shortfall to be filled by TV revenues and commercial activity.

Control of non-direct costs is another key area in building a successful business, and recent unrest around the scale and costs of Premiership Rugby’s ‘head office’ reflects this. Functional activities like finance, marketing and communications are essential to the growth of any enterprise, but in the eyes of those at the coal face only the creation of tangible value justifies the overhead levels involved.

At the centre of all this is a real paradox, since the Premiership clubs’ owners owe their wealth to their previous successful business careers. This reminds us just how difficult it is to transition between industry sectors, and that lessons learned in property development, insurance, telecoms or retail do not necessarily provide a precise overlay with professional sport.

In addition, when a hands-off senior executive takes charge he is mostly a figurehead, reliant on his loyal foot soldiers. If these troops also have no industry experience, they face a learning curve during which middle management inherited from the previous owners shape the vital ‘first hundred days’ during which the pace of change should be at its quickest.

History also tells us that many more attempts to turn round a failing enterprise fail than succeed. Professional rugby, to date, is no different. When the owner is also a fan decision-making can be coloured by emotional attachment rather than cold logic – this situation is typical of the dynamic in many family-owned firms, and is rarely helpful.

Above all, at a strategic level it is time for professional rugby to admit it is not, and never will be, football. The difference between being an international sport and a global sport is marked – and for rugby union to become commercially viable it needs to acknowledge its position in the market and seek to build a business model which reflects this. Maybe look at cricket for a few clues?