How can the Welsh Rugby Union (WRU) put more money into the game from the four professional regions down to the community game?

Well, for a start there are ever increasing demands on a revenue stream that isn’t huge at just over £74m – the amount generated in its last audited end of year accounts to the end of June, 2017.

Although for the year to the end of June this year, the yet audited figure is understood to have risen to more than £90m, thanks to the British and Irish Lions tour to New Zealand.

The WRU is after all the executive body for the wider game and is ultimately accountable to its member clubs, of which there are more than 300.

And as a membership body it has to reinvest back into the game at all levels.

In the financial year to the end of June, 2017, the amount reinvested back into the game was up 11% to £36.6m. Of this £21m went to the four regions in the Dragons, Blues, Ospreys and Scarlets.

But there is a current focus on the WRU’s Project Reset, which is aiming to put greater financial fire power into the four regions in return for new governance arrangements, greater control over players, and creating a more sustainable business model with the regions no longer reliant on benefactor support.

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If an agreement is reached with the regions there will also be a degree of meritocracy too, so the better they perform in the Guinness Pro14 and European competitions, the more will flow into their playing budgets.

Next season the four regions will see their funding from the union up £2.4m, on last season’s total of £20m plus.

The aim is for the regions being debt free through the current benefactors agreeing to convert loans into equity.

So, the WRU wants to move away from what it sees as the current unsustainable model of regions relying on benefactor support – although the contrarian in me says if it is financially sustainable for a benefactor [s] to continue to invest money in, or underwrite new bank borrowing, then ‘unsustainable is sustainable’.

But this process has already started with chairman of the Cardiff Blues, Peter Thomas, agreeing – in return for more WRU backing into the region – to stand down as chair and writing off loans of more than £10m, which includes one though his property firm Atlantic Properties.

Other board members in Paul Bailey and Martyn Ryan, who is being tipped to replace Mr Thomas as the next chairman of the Blues, will also be converting debt into equity.

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The Dragons are already majority owned by the WRU. But the numerous backers of the Scarlets, including Nigel Short and the Ospreys, including Mike James, will also be converting loans into equity, if agreement is reached.

However, just removing what has been non interesting bearing debt in recent years – while of course making balance sheets looking far healthier- will not improve cash flows, And while the regions are looking to drive their own commercial revenues, they will also be looking for additional funding from the union far beyond just next season.

But where else could the WRU generate income?

Well, many of the big ticket items, like the naming rights for the Principality Stadium (with Principality Building Society), the rugby kit and equipment deal with UnderArmour and the Wales rugby jersey shirt sponsorship deal with Isuzu, all have years to run, having been negotiated at the end of the rein of former chief executive Roger Lewis.

And while negotiated with the other home regions, the next TV deal for the Six Nations, split between the BBC and ITV, doesn’t expire until 2021.

But there are always new (commercial opportunities for the WRU, under its impressive group sales and marketing director Craig Maxwell and his team, to go after.

The biggest deal struck by the regions and its representative body Professional Rugby Wales, was back in 2014 with BT Sport, for jersey sponsorship, and in the case of the Cardiff Blues naming rights for the Cardiff Arms Park.

However, while it was celebrated at the time as the start of a new era of collaboration between the regions, it only ran for three years and wasn’t renewned.

So, the regions also need to raise the bar in terms of working together, and individually, to increase their own commercial revenues and when contracts expire are in a position to have either convinced existing commercial partners to renew, or have lined up new ones to take their place.

And the WRU, working with the other home nations, need to ensure they quickly secure a new long-term sponsor for the Six Nations. There is currently only a one year agreement in place for next season with NatWest.

Procurement and shared services

WRU chief executive Martyn Phillips

There is certainly scope for the regions and the clubs more generally to procure as one to make meaningful savings. And to be fair this is something that current WRU chief executive, Martyn Phillips, has been keen to drive forward since taking up his role in 2015.

The first deal was struck a number of years ago now with one of the world’s largest insurance brokers and risk advisors, Aon, providing insurance cover for all registered players, coaches and referees for the regions, 320 member clubs, district and affiliates.

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But this process needs to be accelerated in other areas from travel to energy suppliers, in a move solely designed to provide savings that are reinvested back into the game.

And for the four geographically close regions, there could be shared services in areas from catering to marketing.

But, like with any business ‘mergers’, although the regions would continue as separate trading entities, this could result in an overall reduction in headcount.

Property development opportunities

A packed house watch Dragons take on Cardiff Blues
Rodney Parade
(Image: Huw Evans Agency)

Having acquired Rodney Parade, the home of the Dragons, the WRU – although the club is run independently of the union – is looking at commercial development opportunities at the ground, including on the training pitch area known as the cabbage patch.

But to bring plans forward, even with a preferred property development partner, will cost.

But the city of Newport, from a commercial investment perspective, is certainly moving in the right direct and the ground’s close proximity to the city centre is another positive in terms of its development profit potential.

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So, whatever deal is struck, whether a joint venture with a developer, or even the WRU and the Dragons developing the ground itself, there are future revenues streams that will be generated for reinvestment back into the game.

And in a new era of detente it would make sense for the WRU, the Blues, Cardiff Athletic Club (which owns the Arms Park site), Cardiff Council and any other stakeholders, to come together with the aim of bringing forward plans for a much more ambitious redevelopment of the Cardiff Arms site.

Cardiff Blues, even if they could secure a new long-term lease with development rights for the ground with landlord Cardiff Athletic Club, have got nowhere with what were once ambitious plans, although I was never entirely convinced by the financial case, for a new indoor arena at the current site, which could also host the playing of rugby.

That boat has now sailed, with Cardiff Council looking to realise a 15,000-seater indoor in Cardiff Bay.

With a new rugby stadium, or partial redevelopment of the existing ground, a development master plan could be extended to include land in front of the Principality Stadium on Westgate Street, owned by the WRU, which it has already identified as a potential mixed-used development scheme known as Westgate Plaza.

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And to widen the scope of any scheme, it could also be extended across Westgate Street to include the site of the current eyesore car park owned by Global Mutual.

While there would be a number of interested parties, such a scheme – which could provide much needed new office space and private residential apartments in the city centre – would eclipse in scale and revenue generation any plans brought forward for Rodney Parade.

The WRU also owns the former and now vacant County Court building on Westgate Street, which could be turned into residential apartments.

The Principality Stadium

While this is not being currently considered with the focus on agreeing Project Reset, could the WRU longer term look to utilise what is its key asset in the Principality Stadium?

Providing it was cheaper than conventional bank debt, this huge tangible asset could be leveraged to raise new finance for investment into the game.

Barclays in 2015 wrote off £10m of debt, which it said at the time would only be reinstated if a number of unlikely scenarios materialised, including a sale of the stadium or the WRU moving to another financial lender.

But it is understood that the bank it now relaxed even on these points and would be supportive of any new financial deal the WRU decided to bring forward for the stadium, which would be unlikely to involve the bank itself.

In its last audited financial year the WRU had a net bank debt position of just under £10m.

Barclays has initially provided finance of around £50m to part finance the construction of the then Millennium Stadium.

So could a deal be struck whereby the WRU say maintains ticketing income from rugby internationals, but other commercial revenues from food, pouring rights, hospitality boxes and concerts etc at the stadium, is packaged up for a number of years and sold to an investor?

This would see the WRU being able to draw down a single upfront payment running into millions of pounds, against future stadium incomes.

However, the union would be required to pay interest on top of capital repayments to a financial institution potentially over a 20 year or potentially longer term.

But would this be seen as short-termism and mortgaging the future of the game in a move that would also see the WRU losing control of its key asset?

And rather than a quick way of getting more money into the game, isn’t the real battleground improving executive capacity in the regions, as well as the marketing and commercial reach of the regional game?

But there are numerous ways of drawing down revenues secured against the stadium, including a sale and lease back deal, with the WRU getting finance in return for agreeing a long-term rent with a new landlord.

And ownership could revert back to the WRU at the end of the sale and lease back period.

Or could the WRU go for the option of selling the stadium to a financial institution or operator, as the FA are now looking to do with Wembley Stadium with an current offer of £800m from billionaire Shahid Khan?

However, politically, it could be a difficult one if the home of Welsh rugby was say owned by a pension fund or an institutional investor based outside of Wales.

But if it was deemed to be in the best interest of the game in Wales, then anything is negotiable.

But what would the Principality Stadium be worth? Well let’s face it, despite ongoing investment, it is no longer a spring chicken at nearly 20 years of age.

When the Romans built the Coliseum it was no doubt described by proud senators as the world’s greatest stadium.

And it is the case that the Principality Stadium is in need of much ‘ love and care.’ In the last accounts it shows stadium costs of £4.7m, but it has been higher in recent years with capital investments like upgrading corporate hospitality boxes.

Just replacing all the seats in the stadium would cost an estimated £5m and could even lead to a reduction in overall seating capacity, as we have seen waistlines expand somewhat since the stadium first opened back in 1999.

And less seats would mean less income, or ticket prices having to rise which might not prove popular with fans.

And even if the stadium was sold it wouldn’t get anywhere near the £800m being talked about with Wembley. Ultimately, though what it would be worth would be a matter of what someone would be prepared to pay and what the union would be prepared to accept.

But when you strip out running costs it is not a hugely profitable venture, with the biggest income for the WRU coming from TV revenues.

Debenture debt

The WRU also has to think about future debenture payments.

That’s because while the debt incurred to construct the stadium has been declining, it has future liabilities to repay debenture holders. According to its latest audited accounts it stands at £37m.

Debentures were issued to help fund the construction of the original National Stadium and the now Principality Stadium. In effect debenture holders pay a fee for the right to receive and pay for international tickets at face value.

But at the end of the debenture period, the WRU has to repay the original amount paid by the debenture holders.

The largest current repayment level of £17.6m is due in 2050.

However, the union has continued to get agreement with some debenture holders to extend their repayment time frames.

But whatever commercial deals the WRU might strike in the future, it will have to keep money at some stage aside to repay debenture holders, even if inflation proves to be a friend.



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