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.