Welsh rugby has been told it must develop a sustainable funding model immediately to avoid running into a financial crisis in 2025.
Earlier this year, the Professional Game Board – which is responsible for the running of the pro game in Wales – commissioned a report from Oakwell. Documents seen by WalesOnline show that the sports advisory agency identified a number of failings within the current structure of pro rugby and issued perilous warnings over what the future holds unless action is taken.
The team of advisors, led by Andrew Umbers, also made a number of suggestions over how the impending financial challenges can be mitigated, including the now-dismissed suggestion of reducing the number of pro teams from four to three.
Here, we outline the key details to have emerged.
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The issues that have been identified in Oakwell assessments are not breaking news to anyone who follows Welsh rugby closely. Chief among them are that funding uncertainty ‘creates budgeting difficulties’ for the four regions and that, according to Oakwell’s market analysis, they are overpaying players. They also conclude that the current structures incentivise regions to sign players in the ‘National 38’ – outlined by Wales boss Wayne Pivac – ‘which may not be in their best interests’. Oakwell also identify the issue of the WRU negotiating the contracts of the country’s best players without input from the regions.
The document also calls for the cessation of financial repercussions over the selection of non-Welsh qualified players: “Focus should be on recruitment of world class internationals and discourage sub-par local recruitment.”
THE SOLUTIONS YOU DIDN’T HEAR ABOUT
One of the proposals in the report is to axe one of the regions, which has been well-documented in recent weeks but has quickly been shot down as a viable option by regional rugby figures.
WRU Performance Director Nigel Walker was at pains to point out that it was just one of a number of proposals put forward by Oakwell, but details on those other options have been thin on the ground.
The first one revolves around new models for player funding and includes the suggestion of centrally contracting Welsh-qualified players to a Special Purpose Vehicle (SPV), which would likely be an independent company set up to handle player contracts, leaving the regions to fund non -Welsh qualified players via their own revenue streams. This would essentially put the SPV in control of the player market and the usual funding payments from the WRU to the regions would be retained to finance it. Oakwell caveats the suggestion with an insistence that there is ‘transparency of process’.
But the specific details and the benefits of such a system are a little thin.
A second proposal focuses on centralizing the commercial activity of the four regions into one body. A shared approach to commercial activities, it is believed, will make things more efficient when it comes to things like sponsorship negotiations, kit deals, ticketing, travel and hospitality suppliers. There are similar examples in New Zealand, where sports giant Adidas have a contract to supply the All Blacks with kit, as well as the Super Rugby franchises. It is believed this aligned approach could save money and be an attractive proposition for potential sponsors.
There is a lot to like about this but regions would likely want to retain control over their own sponsorship deals as it is a significant vehicle for generating their own revenue.
The final point Oakwell makes is around the need to implement ‘appropriate governance structures’. At present, any decision made by the PRB has to be passed by the WRU Board, on which sit district representatives from the community game. However, Oakwell says that things need to be arranged so that the PRB has ‘real powers of authority’.
They say that future structures should carry financial implications for regions that do not meet the terms or obligations set out in any improved model of funding and they call for regional representation on the URC and EPCR boards. The WRU currently represents the regions on those boards.
A ‘FINANCIAL HIATUS’
Oakwell’s report states that Welsh rugby was breakeven before the Covid-19 pandemic struck but is now forecasting a funding gap of £7 million next year. That gap is predicted to double by 2025, with Oakwell surmising that Welsh rugby is facing a ‘financial hiatus’ and warning that action must be taken now to avoid it.
“It becomes imperative that significant cost, revenue and governance initiatives are put in place now,” they say.
Interestingly, the WRU’s forecasted turnover is expected to increase from £90.6million for 2022 to £93.4 million for 2023. The Union’s forecasted turnover does not go beyond that but funding allocated to the regions is forecast to drop from £23.5 million for 2023 to £ 15.1 million for 2025. This could be due to a combination of increased investment in the women’s game, the CVC investment in the URC running out and non-rugby interests. But it is difficult to be precise due to a lack of clarity.
To mitigate the impending difficulties, Oakwell believes the Welsh regions are falling around £6 million short on their local revenue potentials compared to other clubs and can save £7 million by reducing the size of their squads, reducing player salaries and central procurement strategies.
It does not, however, discuss where the WRU themselves might look to make a reduction in cost.
Summarising, the report adds that Welsh rugby: “Must now develop a sustainable and commercial funding model for the next 10 years. If it can succeed, these changes would put Welsh rugby ahead of every other major rugby ecosystem and allows it to develop a best-in-class professional pathway alongside its community obligations.”
However, Oakwell warned that the PRB – which has representatives from all four regions and the WRU – has not always worked effectively: “Many of the correct structures and processes have been collectively proposed and in principle agreed. However, in practice, individual interests, lack of consensus and trust have resulted in the failure to deliver on opportunities.”
Even if they were able to reach a consensus, they would still have to get any moves ratified by the WRU Board.
SO WHAT HAPPENS NOW?
Well, the PRB has been considering the recommendations set out by Oakwell for some time but things are not moving at any great pace and, as the report itself suggests, reaching a consensus is difficult.
As such, it feels unlikely that drastic – but perhaps necessary – steps will be taken by the PRB and, instead, we will end with a compromised version of the courses of action laid out for them.
Whatever the case, everyone who sits in those meetings knows that a way forward must be found soon because it is already long overdue.