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Wasps as we know it 'very unlikely' to continue

By Paul Smith
(Photo by Getty Images)

A deal which sees Wasps continue in its present form is now ‘very unlikely’ according to Coventry sources.

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As a result, it now seems extremely doubtful that the 155-year-old club will retain its place in the Gallagher Premiership next season while the worst-case London Welsh scenario which sees it liquidated looms into view.

Hopes that the Wasps Holdings can be sold in its entirety – along with around £90 million of debt – were raised over the weekend when it emerged that Racecourse Association CEO David Armstrong is allegedly leading a private equity backed consortium seeking to buy the stricken business.

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Sky News reported that Armstrong and Terminum Capital were considering tabling an offer “worth more than £50 million with another £12 million earmarked for working capital.”

A capital sum of this size would enable Wasps to clear their debts to HMRC and pay off the £35 million (plus interest) owed to bondholders who funded the club’s purchase of the Coventry Building Society Arena in 2015 at an annual cost to Wasps of £2.3 million.

Meanwhile, the working capital would cover interest being paid on both owner Derek Richardson’s £18 million loan and cash owed to the Government-created Professional Sport Survival Fund, which provided Premiership clubs with more than £100 million of funding during Covid. Importantly, it would also support a streamlined operation with reduced trading losses while it restructured over perhaps two or three years.

However, speaking exclusively to RugbyPass, an insolvency expert and a specialist in local politics both separately voiced the same opinion – that a so-called ‘pre-pack’ deal which jettisons large swathes of debt through a receiver is now by far the likeliest outcome with ‘more than one’ party apparently having expressed interest in doing a deal on this basis.

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“Why would any interested party pick up all that debt when an alternative exists?” RugbyPass was told. “Only someone desperate for the rugby brand to survive would do that – but at a huge cost.”

If the pre-pack route is followed, HMRC plus potentially bondholders and any number of smaller creditors face significant losses since the new company created has no responsibility for Wasps’ historic debt.

Under this scenario, any RFU and Premiership Rugby interest in invoking the ‘exceptional circumstance’ clause, which Lawrence Dallaglio and several other prominent rugby names have called for, would surely instantly disappear.

After all, how could the sport’s governing bodies be seen to turn a blind eye to seven figure losses being inflicted on local business, rugby fans who invested in Wasps and HMRC just to keep a failed club in the Premiership? A morally bankrupt reputation would surely be forever established.

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Pre-pack means Wasps almost certainly lose not only their Premiership status (under the regulation requiring clubs that fail mid-season to be relegated) but also in all probability the shares in Premiership Rugby Ltd (PRL) which their most recent accounts value at £17.6 million.

Despite nominally being the Premiership’s governing body, PRL is in the unusual situation of also being entirely owned by its member clubs. It is therefore in effect governing itself and self-interest is likely to be a not insignificant factor in what happens to both Wasps and Worcester’s ‘P’ shares.

While PRL’s clubs in late 2018 were happy to take £200 million from CVC for a 27 per cent share in English rugby’s top flight, nearly four years later and post-Covid much has changed. Most have long since spent their share of this pie and now receive only 73 per cent of their former dividend. The chance to reclaim two of the 13 ‘P’ shares at no cost by simply invoking a longstanding insolvency clause will therefore be very hard to resist as it cuts the number of mouths to feed.

Sources close to the Coventry Arena business have suggested that this reported interest from Armstrong – who was Wasps CEO between 2014 and 2017 before moving to a Non-Executive Director role for the next four years – could also represent a wider last-gasp effort by the club’s current owner and board to salvage a solvent solution.

This line of thinking suggests that by making Armstrong’s initial enquiry public other potential bidders for the whole of Wasps Holdings may be ‘smoked out’ before time expires and an administrator and/or receiver is appointed.

Wasps Ashley takeover bid
(Photo by David Rogers/Getty Images)

If no such interest is forthcoming, the return of the man who was the architect of the bond and the driving force behind Wasps’ move into netball – a venture more successful in sporting than commercial terms – is where black-and-gold salvation hopes will all be pinned.

According to the insolvency expert, although five bidders are reportedly already engaged, unless Wasps are purchased on a solvent basis ahead of next week’s deadline, an administrator will be appointed – and this is where most of those bidders are focused.

This administrator is then responsible for making a decision on how the creditors are best served – either by the company continuing to trade with a skeleton staff in the hope that a deal may quickly follow or by it ceasing trading and being placed in receivership.

Should Wasps appoint a receiver it is anticipated that a number of other event management companies will follow the NEC Group in expressing an interest in buying the Arena, which houses a substantial exhibition hall plus a hotel and a range of other facilities attractively located next to the M6, but not the rugby club.

Local knowledge suggests that although the venue has failed to generate profit either before or since it was purchased by Wasps, it is also yet to be operated by a specialist. The previous incumbent was a joint venture operation co-owned by Coventry City Council and a local charity – and it is considered that plenty of potential remains for an event management company able to purchase the former Ricoh Arena from the receiver through an attractively-structured pre-pack deal.

The long-term lease (understood to be of ten years duration) which exists between Wasps Holdings and Coventry City could potentially transfer to any new owner of the Arena as part of such a deal.

Few of those commenting on Wasps’ situation have noted that the club’s recently-built Henley-in-Arden based training facility is not owned by Wasps Holdings and is therefore not an asset which will realise any worth. In a recent deal club owner Derek Richardson sold his part of this development to Chris Holland – who is also a Wasps director. The site was previously owned by Stratford District Council.

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In the insolvency expert’s ‘most probable’ pre-pack scenario Wasps therefore lose their stadium and ‘P’ shares and are relegated to the Championship for 2022/23. To start that campaign they will need someone to buy the brand, put together a competitive semi-pro squad plus management and support team and find them somewhere suitable to play in addition to satisfying any additional RFU criteria.

Alternatively, is another name about to be added to those of London Welsh, Richmond, West Hartlepool and Orrell as giants who went to the bottom rungs of English rugby’s league ladder? Time will tell.

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