Large companies continue to fail as the UK sees two large failures just days apart
by Rory Traynor
In September 2023 we published an article about the ongoing financial woes of the Gallagher Premiership and English professional rugby union clubs. With the collapse London Irish, the league had just suffered its third insolvent club in the space of nine months, each with over one hundred years of history and tradition.
At the time there was serious concern over the ongoing viability of English professional club rugby union. So what were the problems and over half a year on has anything changed?
What were the problems?
There are two major problems facing club rugby union in England. The first being the counterintuitive set up of club and international rugby union, the fractious and at times contentious relationship between Premiership Rugby Ltd (the Gallagher Premiership) and the Rugby Football Union (RFU), and the perpetual lack of revenue for the clubs vs their spending.
Premiership Rugby Ltd vs RFU
These are the two major organisations in top level English Rugby Union. Premiership Rugby Ltd is in effect the Gallagher Premiership and RFU manage the national side and in theory should oversee and work to the interests of English rugby union, including the Premiership.
However, the two are frequently at odds with each other and work towards conflicting ends. For RFU, the national side is the priority over club rugby as it is their main source of revenue and their mandate to oversee the sustainability and growth of the domestic league has not been met.
The chief source of tension between the two is access to the best players. As they have conflicting seasons, with being an England player essentially equating to a full time role, the best players are rarely available at club level which has had a detrimental effect on the quality of club rugby and fan interest.
The two organisations have shown little appetite for working together constructively but with the potential collapse of professional rugby union ultimately threatening player development and having a knock on effect to the national side their relationship is showing signs of thawing, with Simon Massie-Taylor, CEO of Premiership Rugby Ltd, has said they are trying to ‘remove as much conflict’ as possible.
Little revenues, big dreams
Despite many clubs having long histories, rugby union has only been a professional sport in England since 1995. In that time it has never consistently delivered financially and has struggled to attract a significant fanbase. This in turn means that sponsorships and TV rights relating to the sport at a club level have remained low, whereas they should be the monetary lifeblood of the sport.
On the other hand, international rugby attracts large audiences, both at games and on TV, along with the lucrative sponsorship and TV deals this brings. For context, in the 22/23 season RFU turned over £189 million whilst Premier Rugby Ltd managed just £65 million.
A major cause of this lack of interest in the Premiership is in club and international rugby being in competition with each other, with the best and most popular players rarely being able to play at club level due to conflicting schedules.
Given the higher quality of international rugby and frequency of fixtures most rugby fans choose to support the national side only.
But nearly three decades of low public interest and low revenues has not stopped ambitious owners and hopeful investors pumping money into teams and operating without seemingly clear plans to become profitable.
The general approach of clubs, RFU and Premiership Rugby Ltd seems to have been you need to spend money to make money; especially in the last decade. Whilst this has seen revenues rise it has also seen increased losses. Despite this there has been no change in overall approach to growth strategies from clubs or introduction of governance to force sustainability.
Indeed, a parliamentary committee into the state of English club rugby union described the situation as ‘clearly unsustainable’ and directly questioned the business sense of the clubs whilst also criticising the CEO’s of RFU and Premiership Rugby Ltd for their ‘very complacent belief’ that increased revenue will lead to increased profits.
Where are we now?
The obvious question is, have things improved for the Gallagher Premiership and English club rugby?
Not really.
All ten of the solvent professional rugby union teams entered the current season having posted losses for the 22/23 season; with an average loss of £3.25 million. Gloucester Rugby had the smallest loss at £500,000 whilst Saracens topped the list with a loss of £5.3 million.
Concerns were recently raised when Exeter failed to pay their players on time, a delay the club attributed to a problem with an automated system as opposed to bfinancial instability. Whether this is true or not Exeter saw a £1.7 million rise in losses year on year against an increase in wages from £1.76 million to £14.1 million.
This is concerning for the team that was among the financially strongest in the league before COVID. Though this was largely not due to revenue generated by rugby activities but rather their hotel and events businesses.
Before the season, their Chief Executive, Tony Rowe, was forced to buy a stake in a hotel owed by the club to raise funds which were required to help pay off the club’s COVID loan debt.
It is not just Exeter struggling under the weight of bounce back loan repayments. As all the league teams relied heavily on match day revenue, lockdowns presented a real challenge during the COVID years. To help them through this time a combined total of £150 million in COVID loans was taken out.
Given that most clubs were struggling to pay their debts before the pandemic it is unsurprising that the repayment of these COVID loans is continuing to be a major, and perhaps existential, challenge.
As there have been no improvements to any club’s finances coming into the new season, most continue to operate in a technically insolvent state and for those who do not have owners willing to inject cash when creditors are at their doors, the future is by no means certain.
A fresh challenge for the current season is the reduction in the number of teams in the league. The three insolvent clubs have not been replaced and there are now just 10 teams. This means that each team has six fewer games a season to generate revenue from. Which is especially challenging considering that matches are the primary revenue stream for most clubs.
The effect that this will have remains to be seen, but less money coming into a heavily leveraged, struggling business is rarely a good thing.
There is some fresh hope amongst rugby professionals and fans of a wave of investment from the Gulf states into the league. It has been reported that Saudi Arabia’s Public Investment Fund have been in contact with Gloucester, Leicester Tigers, Northampton Saints and Newcastle Falcons regarding investing.
Whether this will come to pass and even then if it will represent a significant paradigm shift towards profitability for the league as a whole remains to be seen. But it represents a small glimmer of hope in an otherwise gloomy future.
If you are concerned about bed debt affecting your business, get a free trial and see how Red Flag Alert will upgrade your credit risk process. or see company reports on Wasps Rugby, London Irish and Worcester Warriors.
