Sport Rugby

Sunday 24 March 2019

Neil Francis: English clubs have serious notions about what they are worth and a financial reality check is coming

Following investment models overseas would take us into dangerous territory

Ben Te'o. Photo: Stephen McCarthy/Sportsfile
Ben Te'o. Photo: Stephen McCarthy/Sportsfile
Neil Francis

Neil Francis

Whatever you might think of rugby union, there has been one constant since the game went professional - it never stays still.

It is constantly evolving and the greater entertainment quotient is normally found off the field in the political and financial channels.

While we wait for real quality to start, there is more than enough to enthuse over in the boardroom.

We read in hushed silence that Premiership Rugby rejected a bid for 51pc of the parent body company PRL Ltd which owns the Aviva Premiership - sorry, they were the sponsors was last year, it's Gallagher this year and I am goosed if I know who will be the sponsor next year.

The offer of £275m (€310m) is a huge amount of money but what is it that CVC Capital Partners were looking to buy? The question that is more pertinent though, is why?

PRL Ltd has a combined balance sheet accumulated deficit of close to £200m and a combined £29m loss for their year end 2017.

How do you work out a multiplier here? Who came up with a valuation of £550m?

When these type of headlines hit the newspapers they normally have Mark McCafferty's sticky fingerprints all over them.

McCafferty, the Premiership Rugby CEO whose persona of self-effacing modesty comes a close second only to Simon Cowell, took a back seat when this non-news story broke, 'we were talking to some guys, they made us an offer, we said no and that's it, nothing to see here'.

The first rule in business is never accept the first offer, but PRL are in a financial cesspool of such biblical proportions that you reckon they would have bitten their hand off for the dough.

You have to admire their chutzpah/balls/stupidity (delete as appropriate) for rejecting the offer.

Nobody will really know what negotiations took place. The only thing we do know is that Bath's owner Bruce Craig stated that he thought the company was worth £800m. He apparently said this with a straight face.

The Dallas Cowboys are currently worth $4.8bn (€4.1bn). They have a new 90,000-capacity stadium, incredible merchandising, naming-rights deals and they consistently post $100m annual profits. They are the wealthiest sports organisation in the world.

In contrast, Saracens RFC - the champions of England - have a £65m-plus hole in their balance sheet and rely on their 70-year-old benefactor Nigel Wray for financial subsistence.

Saracens's ground, Allianz Park, is owned by Barnet London Borough Council. In the event of a meltdown you can't even throw them out of their ground and go for planning for 500 apartments.

Maro Itoje is their most valuable asset. Who is doing the due diligence for CVC Capital Partners?

If Bruce Craig thinks PRL is worth £800m that would mean all 12 members of PRL are worth £67m each.

A £65m-plus hole in the balance sheet, Maro Itoje, a couple of trophies and the club crest. You wouldn't even buy it for a pound.

Worcester Warriors lost £14.3m for tax year 2017. Turnover for the club was £10.9m yet they had to pay £11m in wages - 101pc of their turnover. Good man, Ben Te'o.

The hope is that somewhere down the line that somebody like Amazon, YouTube or Facebook come to them with a mega, mega, mega television deal. That is the only play.

I think revenues at all of the Premiership clubs are maxed out.

Wages, however, will undoubtedly only go one way. The losses will continue - huge losses.

Now that a figure has been mentioned, it more than likely rules out the RFU coming in and taking the 'sugar daddies' out. It should have been done five years ago when they could afford it.

The PRL now have notions about themselves and what they are worth.

There, of course, will be collateral damage but Celtic countries are getting used to that now.

CVC went first to the PRO14 last year, well before the Premiership were broached.

The problem for the corporate raiders here is that you are dealing with properly-funded, financially-astute and profit-making unions - a totally different dynamic - and when these two opposite ends of the spectrum get into bed together it usually doesn't work.

Take our friends in New Zealand - who usually do everything right from a rugby perspective - but have had to disentangle themselves from a troublesome corporate investor.

In May 2013 an investor named Murray Bolton bought 40pc of the under-performing Auckland Blues franchise. The whole episode has been a disaster.

In-fighting, incoherent governance, lack of structure, and a farce where a divided board with no rugby experience ended up having a drawn-out public spat about whether to retain former All Black great John Kirwan as head coach.

A few weeks ago the NZRU bought out Bolton for NZ$5m (€2.83m) and have now closed the chapter on getting new equity or new corporate partners in any of their Super Rugby franchises.

While all this madness goes on, wither the PRO14?

It looks like CEO Martin Anayi is trying to exploit the PRO14's commercial rights - outside investment without conceding control. I'm not sure how that is going to work given what's happened in New Zealand.

I thought the best I read on the matter was a quote from an anonymous PRO14 source, "Test rugby has pretty much reached its maximum in terms of the number of games played and the question is what purpose friendly tests in the autumn and summer serve beyond raising money."

I reckon if Joe Schmidt found out who that source was he would be lucky to be selling penny toffees in a service station many miles from civilisation.

Money and funding comes directly from the international game, that will never change.

Attempting to change that brings you into the same lunatic territory that the English clubs find themselves.

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