The Rugby World Cup is underway and after a lengthy spell of underperforming the England team is starting to see some success on the field. Whilst fans hope this is a sign of things to come for the national team, the outlook for England’s club game looks decidedly more bleak. With MPs recently describing the financial position of the Gallagher Premiership as ‘clearly unsustainable’ and three teams recently being declared insolvent and ejected from the league. The remaining teams all carry a significant amount of debt and are struggling to generate the revenue needed to stay solvent; leaving a question mark over whether the league can survive for much longer.
In this article, we will look at these insolvencies, the state of English rugby and what the future may hold.
The structure of English rugby union
There are two organisations of significance in English rugby union, the first being Rugby Football Union (RFU) and Premiership Rugby Ltd. The RFU manages the national team and in theory should provide oversight over the domestic club level and Premiership Rugby Ltd is in effect the Gallagher Premiership, the top league of English rugby union.
In England, national rugby is significantly more popular than club rugby and enjoys much higher attendances at games, viewership on television, media interest and interest from sponsors. This translates to RFU being in a strong financial position whilst the Premiership is faltering; in the 22/23 financial year RFU’s revenue was £189 million to the Premiership’s £65 million.
Another key issue that English rugby’s structure causes is that club and national fixtures often clash, with playing for England almost being a full time role. This means that clubs are frequently without their best players which further hampers the quality of the rugby they play and interest from the public.
Rugby union itself only became a professional sport, in England, in 1995 and has struggled to attract the fans and establish the business models needed to be financially stable and grow the sport in a sustainable way.
As the club game has not been able to generate the interest to attract large sponsorship deals or draw in sizable TV audiences, clubs generate the majority of their income via ticket and concession sales. This made them especially vulnerable to the ill effects of COVID lockdowns and clubs were forced to take sizable COVID relief loans, further adding to their financial pressures.
Despite RFU’s mandate to be a governing body to the Premiership and provide oversight to help it grow in a sustainable way, the often fractious relationship and conflicting goals of the two organisations have meant that this, largely, has not taken place. Amidst the current crisis facing English club rugby union Simon Massie-Taylor, CEO of Premiership Rugby Ltd, has said they are trying to ‘remove as much conflict’ as possible.
Whether they manage to do this or not, it will be too late for the three premiership teams that have recently gone insolvent and were ejected from the league.
Established in 1871, the Warriors were the winners of the 2022 Premiership Cup in May but just a few months later in September of the same year were the subject of a winding up petition issued by HMRC for an unpaid tax bill of over £2 million.
It emerged that the club had debts in excess of £30 million and had been mismanaged by its owners who were accused of asset stripping. A government tribunal into the collapse was scathing of both RFU’s and Premiership Ruby Ltd’s lack of oversight, due diligence and failure to intercede into the actions of its owners; saying ‘one of the most striking facets of the problems at Worcester Warriors was the lack of due diligence undertaken regarding its owners, especially Colin Goldring’.
Mr Goldring had been subject to a Solicitors Disciplinary Tribunal in summer 2022, regarding business dealings, that found he had ‘failed to act with moral soundness, rectitude, and steady adherence to a moral code’ and had been barred form working for any legal firm without the express permission of the Solicitors Regulation Authority. MPs further criticised the lack of action taken by RFU and Premiership Ruby Ltd after this ruling.
Even with the actions of its owners, the club had been operating unsustainably for years, with a £23 million pre-tax loss against £12 million in revenue between 2016-18, and this was the ultimate cause for its collapse.
Established in 1866, Wasps were originally a London based club but relocated to Coventry in 2014; they entered into administration in October 2022. Wasps reportedly had amassed £95 million in debt at the time of their collapse, significantly more than the reported debts of any other club in the league.
Up to £35 million of this was generated by an ill-advised move from London to Coventry. Existing fans of the club, and the wider sporting public, generally viewed this as a betrayal and Coventrians did not warm to their city’s newest sports team.
A large part of this was the Wasps taking over Coventry City FC’s stadium whilst the football team relocated to ground share with Birmingham. Despite the football club having already agreed this deal, fans felt that their local team had been forced out of their town to play at the ground of a bitter local rival. Despite a huge, and costly, marketing blitz, Wasps were unable to attract anything close to the crowds necessary for profitability and administration was inevitable.
Established in 1898, London Irish were a popular team that had managed to finish just 3 points from a play-off spot in their final season competing in the Premiership. In June 2023, in the face of multiple winding up petitions from HMRC over unpaid tax, London Irish were unable to secure a bail out deal and became the third club to collapse in 9 months.
The club had around £30 million of debt at the time of its entry into administration, £1 million of which was reportedly owed to HMRC. The club is still in administration and has not been officially dissolved but is currently barred from competing in the Gallagher Premiership.
What has caused the financially difficulty for club rugby?
This is not a new problem, in fact, financial difficulty has been the default state of English professional club rugby since its inception in 1995. In the 30 subsequent years, no team has been able to become consistently profitable and have largely relied on optimistic investors and loans to be able to operate. It is only recently that financial difficulty has reached a critical stage.
The cause of this is the effects of COVID. Lockdowns meant that fans were not able to attend games and clubs lost their main revenue sources, in tickets and gameday concessions, and at the same time had to take COVID support loans to survive. These loans totalled £100 million across the entire league and added to what was generally regarded to be already unsustainable debt ladened business models. Whilst the burden of having to repay these loans undeniably may have been the last straw for these clubs, ultimately it came after years of mismanagement, lack of oversight and conflict within the structure of rugby itself.
As previously mentioned, club rugby and the national team have always been at odds and working to conflicting ends. The lack of star players in the club game and their presence in the England side has meant that fans and therefore money have gravitated towards the national team but not club level. Despite this being a well known problem, the two organisations have not focussed on aligning with each other, to the benefit of both, and have had a fractious relationship that has harmed both. The result has been the national side operating at the detriment of the club game, which has harmed clubs ability to invest in grass roots and develop young player, which has harmed the national side as there is less talent to choose from.
This contentious relationship has also meant that RFU has not established itself as an effective governing body or steward of English rugby union, nor been accepted as one. Whilst Premiership Rugby Ltd has proven itself unable to create a financially viable league.
This has caused one of the major issues in the club rugby debt crisis and root cause of the problem; an almost complete lack of financial oversight or regulations aimed at forcing clubs to operate in a financially sustainable that still allows for a competitive league. Clubs have largely been able to operate financially unrestricted and in the face of competition with each other and inability to build the necessary fanbase have created an environment where to compete spending is completely disproportionate to revenue streams.
This seeming lack of business sense on behalf of clubs can also be attributed senior management at RFU and their Premiership counterparts. At a recent inquest the CEO’s of both organisations were criticised by MPs for holding ‘a very complacent belief’ that increased revenue will lead to increased profits, despite their knowledge that even with revenues doubling in the proceeding decade the average loss across the league was £4 million in the 2018/19 financial year. They also described the situation of the Gallagher Premiership as ‘clearly unsustainable’.
This lack of oversight can be seen in the league’s salary cap, intended to insure that clubs did not spend more than they can afford on player salaries. The salary cap is set at £5 million per year for each club but does not take into account if this amount is in itself more than a club can afford; in 2014 Wasps player salaries totalled 103% of their revenue.
Ultimately, since its inception English professional club rugby union has suffered from a lack of interest and revenue, and those in charge of establishing, growing and safeguarding it have failed to approach it as a commercial venture that needed to be profitable to survive.
What does the future hold?
The future for the Premiership is by no means certain. Where top flight sports teams are concerned, it has been generally assumed that there will always we a rich investor ready with a bailout, who will happy to continuously invest money for the prestige of owning their own team; but no such buyer could be found for the Wasps, Warriors or Irish.
The RFU Chair, Tom Ilube, has called rugby to ‘professionalise its management off the pitch’ and recognises the ‘failing business models’.
It is certainly true that various sports leagues around the world have faced similar situations in recent history and have managed to successfully increase their popularity and profitability to become sustainable; and with swift, decisive and effect action at a governing level club rugby union could experience the same success. Should this not happen, the question is can the league continue to limp along, as it has the last three decades or have we seen the tip of the insolvency iceberg?
See the full report of Wasps Holdings Limited
How Red Flag Alert can help avoid bad debt
The collapse of the three clubs leaves nearly £200 million of bad debt owing to creditors, the majority of which will not be recoverable. These companies will now face a struggle to stay solvent themselves as they lose out on the expected revenue; indeed companies that experience a bad debt are three times more likely to go insolvent themselves.
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