crayons

It only takes a minute

Throughout the recent debacle in Welsh rugby, I’ve been very impressed with the work of the regions’ respective supporters’ clubs. They’ve been to meetings with the WRU and RRW, and have published an honest account of proceedings.

Recently, I was part of a group of supporters’ club representatives who wrote a letter of complaint to the BBC about the farcical ScrumV “Special” programme which was recorded in January. A programme all of us who were there know was heavily edited to favour the position of Roger Lewis. The response we received from the BBC could be best described as inadequate, and we are now going to raise this with the BBC Trust.

On Monday 17th February, representatives from the supporters’ clubs met RRW to discuss the ongoing crisis once again. The minutes of this meeting have now been published, with the approval of RRW. You can read them here.

The minutes of this latest meeting are disappointing for many reasons.

Firstly, it’s not clear who was in attendance.

Secondly, the minutes have no structure and the discussion points are not organised in a way which makes it simple to understand the various issues which were discussed.

Thirdly, there are basic grammatical errors which make the document difficult to read. In addition to this, the minutes are not written in an objective way. In fact at several points the writer adds emotive punctuation, such as exclamation marks, which makes it seem like a rant rather than a serious account of a meeting.

I’m all in favour of people venting their spleen about something which they clearly feel very passionate about, but these minutes have been approved by RRW’s public relations representative, and are now in the public domain. Is this really the standard of document RRW should be putting their name to?

We all know that the WRU are never shy in putting their position forward in the media, while RRW have preferred to keep their own counsel, as Roger Lewis might put it.

If this is the best RRW can do, maybe it’s better they keep quiet. These minutes are a mess.

Let me try and summarise the key points, because some of them are worth noting:

1. The WRU’s proposal for a new PA

It appears the terms of this are even more in favour of the WRU than the original PA. Central contracts are the order of the day, and the regions will have to release players for internationals outside the IRB window at their own expense, with no compensation from the WRU.

2.  The new European Cup

The WRU have finally agreed to a new competition, not run by the ERC. But we already knew that.

Stuart Gallacher (RRW CEO) resigned from ERC once RRW had stated they supported the new Rugby Champions Cup, to avoid any conflict of interest. If Roger Lewis is involved in negotiations on a new European Cup, surely he should follow suit and resign from ERC to avoid a similar conflict of interest?

3. The outstanding ERC payments

The WRU Finance department assured RRW in an email back in January that the payments would be made as expected. The ERC board were supposed to meet before January to decide on whether the payment would be made, but that meeting never took place.

4. The TV position

Sky and BT have met, but there is no agreement

5.  WRU accounts

A thorough review of  WRU financial position is needed, in light of the surplus highlighted by David Moffett.

6. WRU governance

Are the WRU board holding CEO Roger Lewis to account? An independent inquiry is needed.

7. WRU Director of Rugby

Josh Lewsey was appointed by a one-man interview panel. What qualities make him suitable for this role?

8. Central contracts

Why is the WRU pursuing this unilateral policy when it is obvious they are not the solution?

9. Celtic League

There has been no progress in planning for the future, for example sponsorship, TV contracts and composition. What are the Irish and the Scots doing to help keep this league going? The Italians have already said they are ready to leave.

10.  WRU “loans” to the regions

These have to be paid back by 31st March, even though it is not clear whether the money will ever be paid by ERC.

11. The Anglo Welsh League

This is still an option. The English clubs are also anxious to have a competition to help them sell season tickets.

In summary:

None of this information is a surprise to those of us who have been following the issues. What is of most concern is that RRW don’t seem to be able to speak for themselves, and instead seem happy to rely on well-meaning but incoherent information from meetings with supporters.

If RRW want to achieve their goals, they need to adopt a far more professional approach to communication. The WRU are already miles ahead of them in the PR race. RRW are falling further and further behind by the day. This is too important a matter to ignore.

 

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The sun always shines on WRU TV

The Welsh Rugby Union have launched a set of pan-Wales touch rugby leagues which will start this summer. Touch rugby is great fun, a good way of keeping fit and a safe introduction to the full game. It also helps to develop some of the key skills needed to play the game.

So what’s the problem?

Rugby clubs. Or the lack of them.  The WRU announcement makes no mention of rugby clubs whatsoever. Call me old-fashioned, but I thought the WRU was a Union of Welsh rugby clubs (hence the name).

It would seem to make sense to someone who isn’t living in the crazy parallel universe inhabited by the people who run our national game, that rugby clubs should be involved in a development initiative like this.

But instead, the WRU have set up their own project, diverting more funds away from the grass roots and into another pet project run from the Vale of Glamorgan “Centre of Excellence.”

This is happening against the backdrop of a crisis in our club game. Local clubs are being starved of funds, threatening their very existence.

Rugby clubs are already there, with volunteers and facilities to support these new initiatives. Get kids and grown-ups down to your local club in the summer to play touch, and they may return in the Autumn to play the full game. At the same time supporting the grass roots game which is the life blood of our national game and our communities.

Yet again the WRU has sacrificed the greater good of all Welsh rugby just to gain a few minutes of headlines.

It would be interesting to hear the views of other rugby clubs’ members, coaches and volunteers.

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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.

Irish President Snubs Wales

Irish Head of State Michael Higgins has announced he will not take part in the excruciatingly drawn-out 25 minutes of official pre-match bollocks planned for the forthcoming Ireland vs. Wales rugby international, having given his ticket to diminutive white-haired lookalike Bernie Ecclestone in exchange for 3lbs of gout ointment and a minor percentage of Ireland’s national debt.

President Higgins is among a minority of Dublin intellectuals who oppose the overindulgent traditions associated with every home Ireland game, as well as the rain: “An umbrella is never enough, and I find neither is three glasses of Bushmills,” quipped the political powerhouse and part-time Mr Magoo impersonator.  “I’d rather be watching the fecking game than wandering about making small talk with a bunch of overweight coal miners, country bumpkins and sheep shaggers.  And I don’t care very much for those Welsh players either!”

The Higgins snub comes at the optimum time to stoke up pre-match tensions already reaching fever pitch on the back of “Dropping O’Driscoll-gate” and today: “Ireland’s Call-gate”.

Anyone not paying attention to international news events may have overlooked the shocking revelation that the acclaimed Calon Lan will not be played on Saturday as Wales’s ‘second anthem’, though the IRFU-commissioned ‘Ireland’s Call’ – and its charmingly sophisticated harmonic refrain – will.  Indeed, extra consignments of bright-green Guinness-sponsored vuvuzelas are being shipped in to Dublin to hammer home the point.

In other news, the Welsh training camp has been boosted by rumours that ace Irish second-row Devin Toner is running low.  Unwieldy, single-purpose and presenting a minor health risk when broken, Ireland’s Toner is extra large.  “We’d fookin love to see to him run out on Saturday,” quipped enamel-coated Welsh coach Shaun Edwards.

Public domain image, royalty free stock photo from www.public-domain-image.com

Whose Income Is It Anyway?

Today the Welsh Rugby Union (WRU) magnanimously offered to help the four regions in Wales out, with a temporary loan to tide them over whilst they wait for the delayed payments from European Rugby Cup Limited (ERC). An amount was due at the end of January of £800,000 but was withheld due to uncertainty over the future of that entity. Whether that is a reasonable course of action is open to significant question, but that is not the purpose of this piece.

The purpose of this piece is to examine how it is that the WRU treat the income that is received by the Welsh game from the competitions that the regions play in, as their own income. And whether common wisdom on the reasonableness of this policy is affected by today’s offer, and the clear message underlying that offer that if ERC don’t pay, then the credit risk falls on the Regions, not the WRU.

In background, until the holding back of money by ERC, it was assumed that competition monies was received by the WRU and the distributed by them to the four regions. However, it now appears that these monies are received directly by the regions from ERC. Given this, people say, how on earth is it this the income of the WRU?

In deciding whether this money is the income of the WRU, one has to look at the rules governing the way that accounts are put together in the UK. These rules taken together are known as Generally Accepted Accounting Principles (GAAP). The key rule in this instance is contained with Financial Report Standard 5.

The issue is whether the WRU is acting as principal (it is their transaction, and therefore, their money), or whether they are acting as agent on behalf of the 4 regions (when it wouldn’t be their money).

If we look at the relevant rules we are told that if the WRU were to be regarded as acting as principal they either need to have the risks and reward relating to selling price of the service or holding the stock. Well there is no stock, and the WRU have no control over the price as they are paid what ERC agree on. With, of course, RRW having the right to appoint a director to ERC. So they probably fail on that front.

There are then three more tests. Firstly, if the WRU modify the service or perform part of the service. Well they don’t. Next do the WRU have discretion in the choice of supplier? Well this may be less clear cut, but there is long contract for the 4 regions. Six years left to run at the last WRU accounts! Finally, there is the question of who bears the credit risk. Well, if the WRU are offering a loan, it is plainly obvious they suffer no credit risk, as they are not affected at all by the non-payment by ERC. The only people in Wales affected, are the regions.

Therefore it would appear, that the WRU are NOT acting as principal here, and should NOT be accounting for this money from ERC as their income.

The standard then goes on to talk about circumstances where the ‘seller’ (WRU here) are acting as agent, and the money isn’t theirs to account for as income. The non-assumption of credit risk, as the WRU are saying today happens in this case, is given as a key indicator that they are acting as agent, not principal.

So what? Well the WRU turnover in their last accounts was stated as £61m. Of that, approximately £5m is the income in question from ERC. There is a total of £9.1m which is ‘competition income’, but that includes reveunes from other competitions where the principal/agent relationship may be different (though one would think they would be similar if not identical). Excluding ERC income would reduce the WRU’s turnover by £5m to £56m. Profit would remain the same at £5.6m, as that money is paid out to the regions. So, why are the WRU so keen to count the ERC money as their income?

Might it relate to on the covenants (conditions) in the Barclays loan?  A key indicator of financial performance is “EBITDA”. The WRU labels this figure clearly in their profit and loss account. It includes the ERC income, but doesn’t include the payment of the same sum to the Regions. This comes after this figure as an ‘allocation to affiliated organisations’. So maybe, there is a covenant that relates to this EBITDA figure? Without ERC income this drops from £29m to £24m. If all competition income was taken out, this drops to £20m. Would this cause a problem with Barclays?

On the face of it, today’s offer to the regions from the WRU looks generous. That is what it is designed to do. In doing so though the WRU have clarified where the credit risk lies on ERC income, and have therefore, at the very least, questioned, whether they are correct in counting ERC income as their own. Bluntly, in my opinion, they have clarified that it is not their income at all. I do accept that there may be information not in the public domain that may alter my opinion, but given the credit risk issue, it would need to be very convincing information.

All should be clear soon, I am writing to the Financial Reporting Review Panel to ask them to investigate the WRU accounts on this very matter.

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Robert Davies lets rip at Roger

Ospreys shareholder Robert Davies was interviewed by Ian Hunt on Radio Wales last night. Here’s what he had to say.

IH:
“… before that’s we’re going to look at rugby. We touched on the Six Nations right at the top of the program, of course, and the top Wales players are nicely cocooned away from all the politics swirling around Welsh rugby right now. But the Six Nations continues against a backdrop of more discussions and debate over the future of the domestic game with meetings taking place in London today and Dublin tomorrow partly aimed at thrashing out which competitions the Welsh regions will be playing in next season. A row brewing also over the missing £800,000 the Regions’ claim they haven’t been paid for this season’s Heineken Cup. It’s emerged that they could take legal action if the European Rugby Cup decide to withhold this money. Well, last night the WRU Chief Executive Roger Lewis gave us his thoughts on this and the various issues. Earlier though I got a regional perspective from Robert Davies, speaking in a personal capacity as the major shareholder at the Ospreys. Here’s what he had to say”.

RD:
“I was quite shocked to read your report, the BBC that is, report about what Mr Lewis had said and he was saying that:
- firstly the regions are open to the idea of expanding national contracts – that’s untrue;
- both sides plan to make more deals – that’s untrue;
- we have a plan on the table that we are discussing – that’s untrue;
- the regions have engaged with that plan – that’s untrue;
- WRU has been working on the plan for several months – that’s untrue;
and
- (the) regions originally contacted the Union to keep six players in Wales – well that’s untrue

In fact, there is no relationship with the Regions and the Regions have been consistent in the view there is no system to support central contracts in Wales”

IH:
“Yes, well Regional Rugby Wales have reiterated today they stand by what they said last week about central contracts, namely that no agreement is in place to play players who are centrally contracted”

RD:
“That’s correct”

IH:
“Can you outline, you know, the issues around this and what the objections are to central contracts”

RD:
“Well, it’s not being debated. It’s just something that has been put on the table by Mr Lewis and has not been debated as to whether or not it’s good for Wales, whether it’s bad for Wales, it’s not part of a strategy, it’s not part of a plan. The PwC report which the Union commissioned actually stressed the need to increase revenues. Now, those revenues can only come from the club game in reality because the international game is saturated with fixtures. And therefore what we try to do is to increase revenues for our own benefit and for the benefit of the retention of those players in Wales and there has just been no debate about central contracts whatsoever”

IH:
“Do you not think it is a good plan, though? I mean, if we’re struggling to keep players here in Wales… we’re losing players to France and to England left, right and centre. Isn’t it a good thing if it will…”

RD:
“Well, there’s no proof that the players will stay in Wales. It’s got to be part of an overall plan. We employ 400-500 professional people. To employ one or two is not going to build the base for a professional sport in Wales, that’s not going to do it. You have to have a whole plan not just a plan that grabs headlines and says that certain marquee players are staying in Wales. We’ve got one player so far, fine, good luck to him. But the issue needs hundreds of players”.

IH:
“Can they contract anyone down at the Ospreys? I mean Alun Wyn Jones has signed with the Ospreys”.

RD:
“Well, anybody who’s out of contract with the Ospreys, yes of course they can sign, there’s no way they can’t”.

IH:
“Would you see that that happening?”

RD:
“No”.

IH:
“You don’t think any Ospreys players will end up being centrally contracted?”

RD:
“Highly unlikely…because, the players are already contracted other than one and we’re in discussions with that one. As I say, you have one or two or three players centrally contracted, it just doesn’t work. The Union tried it once before with, I think the first player to be contracted centrally strangely enough was Derwyn Jones who was Warburton’s agent, and that proved not to be successful because there was no plan to go with it. If there was a plan to increase the strength of rugby in Wales, right throughout, all the way down to the grass-roots, fine, let’s debate it. But there is no plan, or at least not one that we’re aware of”.

IH:
“Can I ask you Robert about the other issues swirling around at the moment? There are two big meetings this week to try and resolve the future of all the various competitions. There’s one today in London. Do you know what happened at that meeting?”

RD:
“I haven’t heard as yet, I’m not sure if it’s finished, but it would to be very difficult if there’s anything to come out of it as the English have stated, they stated a long time ago, eighteen months ago, that they will not participate in the European competition. And that will not change. So therefore I cannot see how anything can come out of that meeting today. But I haven’t heard”

IH:
“There’s a big meeting in Dublin tomorrow, ERC meeting, which the Regions have been invited to attend. Do you know whether they’ll be sending someone to that?”

RD:
“We won’t be.”

IH:
“Why not?”

RD:
“Because there’s no point. Look, this is the ERC, this goes to the root of the differences between us. The ERC is run by the Unions and they, this week, have decided not to pay the Regions in Wales £800,000 which is due to them. Nobody had the decency to tell anybody. This was to enable the Regions to pay the players wages. The WRU’s FD Steve Phillips attended the meeting when they decided not to make the payment. He did not inform the Regions and the Regions had to make arrangements to pay the wages themselves. We’re not going to turn out there as one vote out of many and just be like nodding donkey. There’s just no point. There’s nothing we can contribute and nothing they want us to contribute.”

IH:
“But surely its in your interests to attend to fight your corner, isn’t it?”

RD:
“We have written to them today voicing our concerns, but one vote out of many, there’s just no point in being there because we know this is just a kangaroo court”

IH:
“That sounds like a defeatist attitude though doesn’t it? I mean, if you’ve got a seat on the board…”

RD:
“No, no, we’ve written to them today and we expect them to honour the agreements they’ve committed to”.

IH:
“How tough has it been, Robert, for the Regions to, you know, to bridge the gap with this money missing? How tough has that been? As you’ve alluded to already you have had to scrabble around to pay the wages, haven’t you?”

RD:
“Well it’s no different to any other business if, suddenly, you’re confronted with somebody who’s promised to pay you – and they don’t – a large sum of money and you have to make alternative arrangements to cover the shortfall. And that’s what we did last Friday and we covered it to enable the wages to be paid. But it’s no way to run a business. We’ve got no relationship, any meaningful or trustworthy relationship, with the Union. It’s no way to conduct any business let alone one like the WRU which is really a public body. It’s disgraceful”.

IH:
“If this money isn’t paid, what’s the worst case scenario? Could this send one of the regions out of business?”

RD:
“Well, at the end the day, we are owed a lot of lot of money, and maybe it’s a way of the Union threatening us again. There is a history of threatening and using the big stick. That’s one of the reasons why we no longer wish to be party to an organisation that’s run by the Unions. We would rather be dealing with proper business people who act in good faith. And the outcome? Who knows? If they continue not to pay us we will have to make alternative arrangements, and that could be legal or financial”

IH:
“Better in terms of alternative cup competitions for next season? Are you as Regions determined to pursue an alternative European competition that isn’t run by the ERC?”

RD:
“Well, at the moment there is no alternative competition. The ERC has had notice for over 18 months that this is going to happen. We’ve warned them. We’ve repeatedly asked them ‘what are you going to do?’. Our own agreement has come to an end. We’re left just wondering where we’re going to play? There is no Rabo for next year, there’s no European for next year. We’re expected to commit to a payroll and pay players costing us £4-5 million per year and it’s very unfair. We don’t know what income we’re going to have. So, to answer your question, unless the Union comes up and tells us well there is a Europe we can participate in meaningfully, and by that I mean financially meaningful, then I can’t see us agreeing anything other than an Anglo-Welsh”.

IH:
“I was going to say, if the Union sort of meet you halfway, if you find some middle ground on the European Cup issue, would you drop plans to join an Anglo-Welsh league?

RD:
“Look, we’ve been trying to negotiate with the Union for a long, long time. It’s very, very difficult for us to have any sensible discussion with the Union. They’ve reneged on so many agreements with us, there’s no trust left”.

SG:
“These are difficult times, aren’t they Robert? I just wonder if…”

RD:
“Very difficult and it’s very sad. I’m looking forward to going to Ireland this weekend, one of 10,000 or more Welshmen. We’ve all bought our tickets paid for our hotels, paid for our beer, our own food and we enjoy ourselves, and it’s very sad that we should be going there in this atmosphere where we don’t know, next year, what the game is going to look like. And this is a game we’ve all supported for many, many years. It’s very, very sad, and the Union board itself should be looking at itself. I don’t think that anybody comes out very well out of this, but the Union Board itself should have shown more leadership, more decisiveness, more honesty, more integrity. Everybody’s complicit in this and we need really to have a look at the way we run the game in Wales”.

IH:
“Strong words there from the Robert Davies said who’s speaking as a major shareholder at the Ospreys. Regional Rugby Wales, the umbrella organisation acting on behalf of the Regions, declined to respond to what Roger Lewis told this programme last night, apart from reiterating the stance they made last week on central contracts, namely that there is no agreement in place to play centrally contracted players at the Regions.