All posts by David Moffett

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Lifting the lid on the WRU Financials

Let me say from the outset that the information I have gleaned from the WRU numbers is a matter of public record. I have compared the financials between 2007 and 2013 from the Annual accounts. Both of these years only had two 6 Nations matches and 2007 represented the first year of the incumbent CEO’s tenure.

The following financial explanation is interesting in the context of the attitude the WRU shows its owners, the clubs. All WRU revenues belong to the Welsh Rugby Clubs. They entrust the WRU to manage those funds in the best interests of all Welsh rugby and especially the clubs. There is ample evidence in their own numbers that the clubs and regions have been short changed by the current administration. It should be a matter of grave concern to the clubs that their representatives have not shown enough interest or knowledge to question inadequate funding policies. THE GAME IS BEING KEPT POOR AS A RESULT.

Here are some of the more significant issues that have been uncovered:

Income

  • Match Income up by 33%
  • Competition Income up by 94%
  • Commercial and other event Income up by 31%
  • Other income up by 41%
  • This represents an increase of 39% in revenue

Costs

  • Operational costs up by 41% which is faster than revenue increase.
  • Allocations up by 48% (though there are more clubs in 2012/13 compared to 2006/07 – this resulted in a reduced allocation per club to existing clubs)

Surplus

  • Operating Surplus up by 11%
  • Interest down by 46%
  • Cash Surplus up by 59%

Other Considerations

  • Interest cover FY 2013 = 6.9x; FY 2007 = 2.2x
  • Match Attendances down by 15%
  • Match Income per attendee up 56% -
  • Directors Emoluments up by 67%

It would be easy to conclude that the finances of the WRU and its obligations to use those finances for the betterment of Welsh Rugby, is being met.

Not so, in my opinion. The reality lies in a simple review of the WRU’s own numbers.

  • Match income has increased by 33% despite a fall in spectator numbers by 15%.
  • Match Income (gates and TV) per attendee has increased by 56% due mainly to an increase in ticket prices and TV revenue. Increased ticket prices are having a detrimental effect on clubs and spectator attendances.
  • Commercial and other event income has increased, but is exactly the same % of match revenue as FY 2007. This shows an inability to raise other forms of income as a % of match income and is a matter of concern.
  • Operational costs have risen by 41% – faster than income – staff and wage increases.
  • Director’s emoluments have increased by a massive 67% in that time, almost twice the increase in income and six times the increase in operating surplus.
  • Stadium naming rights have still not been sold. (MS events dramatically down from era prior to 2007)
  • The CEO inherited an operating surplus of £6.2 million.

The often quoted increase in allocations by 48% also needs some clarification.

  • Allocations to Regions have increased by 45% but of that 94% is ‘Pass Through’ competition income. Only 8% of 45% is attributable to the WRU, despite Regions making players available for an extra Autumn International.
  • Despite increases in revenue, WRU clubs have only received 20% extra and Community 10%. The actual £’s increase is less than modest.
  •  Conditional allocations include £1 million to Regions which were not paid and Community (facilities grants)

This last point was based on Regions achieving targets which were not met and is an amount that could be distributed elsewhere. Adjusting the WRU’s treatment of conditional allocations and ‘pass through’ competition income the actual increase in allocations is approx. 10% and compares unfavourably with a growth in income of 39%.

I have consistently stated that it is my view that the WRU has unnecessarily renegotiated their loans to be repaid at a faster rate than originally negotiated with the Bank. This is, of course, largely irrelevant as that decision cannot be undone. The WRU claims that they cannot breach their covenants by increasing allocations to all levels of the game.

A measure of an organisations liquidity is the multiple by which operating profit exceeds interest. Their current operating profit cover of interest is 6.9x compared to 2.2x in 2007. Adjusted for conditional allocations it rises to 8.7x coverage. If applicable this is more than enough to fall inside normal bank covenants.

What is more worrying is that the WRU claimed recently in a letter to clubs that any attempt to renegotiate its bank loans would result in an increase in interest rates. They also claimed that their interest cost had fallen from 6.5% to 4.1% a reduction of 58%. The reduction is actually 37%. Unfortunately for the WRU their claims do not stack up, as the Bank of England base rate covering the same period has dropped from 5% to an all-time low of 0.5%. By any measure the WRU’s so called achievements should concern the clubs greatly.

Taking into account the WRU’s interest repayment of £2.8 million and their £10 million revolving credit the WRU has much more flexibility to increase investment in the game at all levels.

Also taking into account the operating surplus for FY13, adding back non-recurring allocations and deducting Capital Expenditure, Bank debt and potentially taxation, the WRU should be able to invest close to an extra £3 million of the club’s own money back into the game today. This should be able to occur annually. This should increase WRU funds available for investment from £11.2 million to £14.2 million (after adjustments for ‘pass through’ and non-recurring conditional allocations). This represents an increase of 26.7%.

In addition the WRU made a windfall gain of £3.7 million following agreement with HMRC for tax liabilities it had made provision for in prior years. This money is available now for distribution to all levels of the game. The total available now is over £6 million and can be funded from the £11.25 million reserves account

To say that the WRU has kept the game poor with its policies is an understatement in my view. They are denying much needed funding to the owners of the game who should be rightly incensed at their treatment.

At the very least the clubs should be holding the WRU Board and Executive to account. The best way to do that is through an EGM.

Flock of sheep

Central Contracts: the differences and similarities between NZ and Welsh Rugby

There is currently a lot of interest in the differences between the NZ and Welsh Rugby structures. Having been CEO of both organisations and delivering Pro Rugby in NZ and Regional Rugby in Wales I might have some knowledge to impart of how each country works. In the table below I set out the current structure in both countries. There are obvious differences; however I do propose a structure for Wales at the end.

New Zealand

Wales

The 600 clubs (Wikipedia/IRB) are the owners of the game in NZ. The 330 clubs (WRU) are the owners of the game in Wales.
The clubs are distributed around NZ and are formally part of one of 26 Provinces. The clubs are distributed around Wales and are formally part of 9 Districts.
The clubs elect a board to their Provincial Governing body. The clubs elect a board to their District body.
The PGB’s elect members to a 9 man NZ Board, which does not include the CEO. The Districts elect 13 members to a 17 man WRU Board which includes the CEO.
The NZRU owns the 5 Super Rugby Franchises, although they have recently decided to sell shares to PGB’s and individuals. The Union still Centrally Contract all pro players and control most sources of revenue. TV, commercial etc. The SRF’s keep all gate receipts and some commercial revenue. The 4 Professional teams in Wales – referred to as Regions are privately owned. They are funded by TV Revenue which is negotiated by the Union, some additional WRU funding and additional income from gate receipts and commercial activities. They are responsible for contracting their elite squad. They provide the players for Wales at a level higher than IRB requirements.
The Union sets policy and maintains control of Inter provincial competitions at all age groups. They also provide high level support for the development of the game. They provide direct funding to PGB’s who in turn are responsible for the Provincial Teams, clubs, schools, juniors, girls and women and Maori teams. This support involves some funding and grass roots development The Union controls all aspects of the game in Wales, including development of players and all income. The Regions are barred from having any involvement in the development of the game. The Union controls all levels of club competition in Wales. They have recently introduced Central Contracts and have succeeded in signing 1 player on a contract that makes it impossible for their own Regions to compete with them.

 

There are 3 glaring difference between the 2 systems:

  1. The NZRU owns the Professional Franchises and centrally contracts all professional players.
  2. The NZRU has a much more mature and evolving approach to the ownership of the franchises.
  3. The NZRU (clubs) trust their PGB’s work in their best interests and be a fundamental part of the development of the game. This includes opportunities to raise funds.

So, what is the solution for Wales?

Once an agreement has been reached on the way forward for the pro game in Wales, it is my view that the critical next step is to address the issue of governance. This does not need a long drawn out study at huge cost. It needs to be discussed by the owners (clubs), agreed then acted upon.

This is an option that I favour, would be easy to introduce and would be easy to implement. It would approximate the NZ model whilst still recognising the history of Welsh Rugby.

The key to any governance change to ease the tension between the Pro and Community game is to give fans a reason to buy in. New history and tradition has to start somewhere. It is a matter of record that the WRU, in particular and the Regions have not evolved the Regional structure. This shows a genuine lack of leadership.

  1. Maintain ownership and control with the clubs.
  2. Disband 9 Districts and replace with 4 Rugby Provinces and 1 Development Province.
  3. Clubs in each Province would elect a Provincial Rugby Board.
  4. Each PRB would elect 2 Board members to the WRU. There would be 3 Independent board members elected at the AGM by all clubs. The CEO would not be a board member = 11 member board.
  5. Provinces given meaningful and historical names that are easy to say and remember i.e. Gwent
  6. The Pro Team represents the Province and is called say Gwent Dragons. There is no mention of any existing team in the names i.e. Newport. There should be a rep from the PRB on the pro team.
  7. The Provinces are given devolved rights such as the development of the game in their Province according to protocols set down by the Board of WRU. There would be other devolved powers operating under WRU protocols.
  8. The marketing and branding of the province is a joint initiative with WRU. Every team in the province would be encouraged to have a provincial badge on their kit.
  9. Not only would this encourage a sense of belonging but loyalty as well. The threat of football needs to be taken seriously in all this debate as more and more kids follow Swansea and Cardiff.

Many people will say they favour splitting the Pro and Community game. NZ does not do that and they are the most cohesive, well run Rugby Union in the history of the game.

These are my thoughts and I will be seeking to raise them at the forthcoming Rugby Debates on the future of Welsh Rugby.

schoolgirlfight

David Moffett: My reasons for seeking a WRU Board position

In a Gwladrugby exclusive, former Welsh Rugby Union Chief Executive David Moffett reveals the reasons behind his decision to return to Welsh Rugby.

I guess there will be a lot of readers wondering why I have chosen this time to seek a return to the hurly burly of Welsh Rugby.

The catalyst has been the latest imbroglio between the WRU and the regions. It is my firm opinion that there is no respect or trust between both parties. This situation has existed for many years now. Indeed there is scarcely a year goes by without a stoush of some kind and the inevitable threat of litigation.

This has simply got to stop and stop now. There is no one in the world who thinks that the actions of the WRU or the regions is acting in the best interests of Welsh Rugby.

YOU CANNOT BE SERIOUS!

YOU CANNOT BE SERIOUS!

Putting aside the real facts for one minute and considering the whole picture, this type of behaviour reflects very badly on Welsh Rugby and indeed affects the wider Welsh community. After all rugby is the National sport.

The current behaviour of both parties is less than professional and must make the players, both professional and amateur squirm with embarrassment. Remember the WRU exists to encourage and foster participation in the game at all levels. How can anyone say that this latest shambles is contributing to that purpose?

Because of the strategies that I implemented as CEO with the assistance of the Board, Wales has had its most successful decade in its history. This has happened both on and off the field. The introduction of regions and the restructuring of the debt whilst I was CEO have had a profoundly positive effect on the fortunes of Welsh Rugby. That these gains are now in jeopardy says a lot about the current administration.

Instead of all this fighting and bickering the WRU should be basking in the glory of being current 6 Nations champions and providing the bulk of Lions who defeated Australia. But No! Here we go again and it must stop.

How can we best achieve the stability Welsh rugby deserves?

That answer lies with the member clubs, the owners of Welsh Rugby. I believe the clubs have been treated quite shabbily in recent years. They have never been consulted on major issues and they have struggled financially. That is not how shareholders should be treated.

The clubs elect a board who elect a Chairman. This should be enough to protect their interests. The board then selects a CEO. This system largely renders the executive irrelevant in the politics of the game. The Board sets policy and the executive executes it or that is what should happen.

My firm belief is that the clubs should call an EGM to ask the WRU and Regions a series of questions aimed at getting a better understanding as to how Welsh rugby has engineered such a mind numbing dispute. Only then can they make up their mind as to what should happen next. They and only they have the power to set the pathway for the future of Welsh rugby. I think the time for them to exercise that power has arrived.

So, what can I add? Here are a few attributes but by no means exhaustive.

  • A track record of unprecedented success with Welsh Rugby.
  • An unshakeable view that the clubs own the WRU.
  • An understanding and adherence to good governance
  • An inclusive, inspiring and motivating personality.
  • An absolute gutsful of the continued fighting and bickering

I will be back in Wales next week to start my campaign for election to the board and will provide regular updates on the Gwladrugby blog.