Exclusive: Premiership clubs ‘heading for disaster’ having amassed £300m in net debt
A joint investigation between Telegraph Sport and a rugby finance expert can reveal a number of clubs are financially under threat
By Ben Coles, Rugby Reporter 21 December 2022 • 7:00pm
Gallagher Premiership clubs are at risk of “heading for disaster”, having collectively amassed £300 million in net debt over the past six years, Telegraph Sport can disclose.
The figure, which excludes investment in the competition from CVC Capital Partners in 2018, highlights the fact that after Worcester Warriors and Wasps were placed into administration, other clubs are under threat.
An investigation shared by Mike Ryan, a private equities director who has produced reports on the finances of Rugby Australia and New Zealand Rugby, shows that:
CVC, which bought a minority shareholding of 27 per cent of the Premiership for £200 million four years ago, took out a £27.5 million dividend across the previous two financial years from the league’s holding company, Premier Rugby Limited, with PRL’s net debt now £29 million, having been nil before the takeover
London Irish are considered “high risk” due to low turnover of, at best, £10 million, while Harlequins are “concerning” due to their high borrowing of £48 million in the 2021 financial year
Wasps borrowed £62 million before the end of the 2021 financial year, months before the club were placed into administration
Worcester Warriors wrote off £30 million of borrowings prior to going into administration
Sharing detailed analysis of both the clubs’ and PRL’s financial figures dating back to the start of the financial year in 2016, Ryan believes that the structure of finances and player payments must be addressed as a priority for the league’s long-term financial health.
“The club structure has historically been on an unsustainable footing. It has never made a profit. The combined losses for the clubs over the last six years, excluding the payment from CVC, has been £300 million,” Ryan explained.
“At the moment, this is heading for disaster. I would like to see the fiscal-year 2022 numbers to be more comfortable with the call, but I would be surprised if they were any better than FY19 [financial year 2019]. The overall competition is still losing money.
“It is professional on the field and semi-professional at best off the field. That is the biggest problem that rugby is facing globally, in my view.”
Addressing how to fix the Premiership’s loss-making model, with clubs in the red for earnings before interest, taxes, depreciation and amortisation, Ryan believes the Premiership must hire an independent commissioner and follow the kind of centralised model used in other sports, including American football’s NFL. That would lead to centralised contracts in the league that would ensure stricter player payments as well as “consistent accounting so at any point in time you can look at the health of the entire PRL”.
The impact of CVC’s investment has also been raised as a concern, given that PRL now holds net debt where previously there was none and has incurred £72 million of net losses since CVC’s investment, having previously broken even.
Why Premiership rugby clubs are in a financial mess
While it has been obvious to anyone this season with the demise of Wasps and Worcester Warriors that rugby's finances are under immense strain, the scale of the challenge which all Gallagher Premiership clubs are facing has not always been clear.
The nine-figure amount of net debt across the Premiership without CVC's investment, £300 million, can be accounted for partly down to government loans, with £100 million of the debt owed to the Government as part of the Winter Survival package which helped Premiership clubs emerge the other side of the pandemic.
A substantial majority of the remaining debt is made up of investor debt at individual clubs, money owed to a majority shareholder which has amassed over a number of years. Debt which, in reality, it is hard to see ever being repaid. The question with those clubs therefore becomes what happens if a major investor decides they no longer want to pump millions into keeping a club afloat.
Mike Ryan, a private equities director who has previously produces reports on the finances of Rugby Australia and New Zealand Rugby, believes that the time has come to reassess the entire financial model of the league, adding that a structure similar to the NFL where the league negotiates national merchandise, licensing, and TV contracts before dividing shares equally among its teams, would be more successful with teams united and drawing from a central pot.
“The club structure has historically been on an unsustainable footing. It has never made a profit,” Ryan notes. “If you look at the successful codes, whether it’s the NFL or otherwise, they almost take a dictatorial approach. Not everyone is comfortable with it, but it makes the clubs and code successful to have a centralised approach to it, because it cannot work otherwise.
“I would be very strict on player payments, but also on the rigour and integrity of how the clubs are run. I’d have centralised contracts for all players. I’d move to centralised funding for broadcasting and sponsorship, and consistent accounting so at any point in time you can look at the health of the entire PRL.”
Certain clubs, it should be stressed, continue to perform well financially in trying circumstances. Exeter are one, even with the recent construction of a new stand. Gloucester have posted a small profit over the past two years and hope to do so again. Northampton in the last financial year recorded their highest-ever revenue.
But while CVC's investment was essential four years ago, the rub is that teams now still have to pay 100 per cent of their cost base while collectively missing out on 27 per cent of revenue which goes to CVC, at a time when every pound is desperately needed. Withdrawing a £27 million dividend is CVC's right given their substantial £200 million input, and they have been described as a very supportive and engaged partner. But how the clubs would love to now hold on to that revenue. “All of them fell into a false sense of security when they received the CVC payment,” believes Ryan.
Wasps and Worcester can be regarded as unique cases given their respective previous ownerships, but their collapses are still harrowing. Wasps borrowed a staggering £62 million in the last financial year.
Ryan adds: “It’s an unsustainable model. You cannot run a business which is turning over £20 million, £30 million and running up debts of twice that amount. A bank shouldn’t allow them to borrow against that.
“It was a hotel, events coordinator, entertainment business and stadium which tacked on a rugby club. Multiple businesses being operated by people who were essentially rugby players, when you look at the boards, highly inexperienced and with a single individual with Derek Richardson providing funding. Not the sort of board you need to be running multiple businesses, you need the right skill-sets.
“It’s got nothing to do with the players, it is mismanagement of the businesses. Auditors should have highlighted concerns earlier than they did. There was a negative profit pre-tax of £23 million between 2016 and 2018.”
Worcester's issue feels more common outside of clubs with consistent supporter bases – the amount of money borrowed could never be matched by the club's turnover.
“Worcester never made a dime,” notes Ryan. “The club only turned over £12 million. They have property, but look at the borrowings. They wrote off £30 million of borrowings and converted a portion of it to equity. The business was never going to survive with that debt. It doesn’t matter how much debt you forgive, at an operational level you’re not able to break even before paying your interest.”
Is rugby in England prepared for a radical rethink about its finances at the top of the game? Or will Worcester and Wasps be followed by others? London Irish's low turnover is a concern but the overall net debt figure for the entire Premiership deserves to be recognised and mulled over by supporters as well as those at board level.
All of the figures listed in this article have been compiled from the financial results made publicly available on Companies House. Premiership Rugby and all of the 11 Gallagher Premiership clubs have been contacted for comment. Premiership Rugby, Bath, Bristol, Harlequins, Leicester, London Irish, Newcastle, Sale and Saracens declined to comment.
The net losses of £72 million in Premier Rugby Limited are related to accounting for CVC's purchase over the years, Telegraph Sport understands, with the league's revenue for the financial year ending in June 2021 being £62 million. The net debt of £29 million in PRL is also understood to be a loan facility used by Premiership Rugby to support club distributions in a normal course of business.
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