Cardiff Rugby chief executive Richard Holland has revealed the club do not currently have sufficient money to contract enough players and coaching staff to form a squad for next season.
In a letter to fans, he confirmed bosses explained the stark situation facing them to players last week.
WalesOnline this week revealed 12 Cardiff players currently earning between £50,000 and £250,000 a year have been told they can't be offered more than £30,000 for next season amid financial cuts in the game. The situation has been exacerbated because the four professional sides have to honour the existing contracts of National Squad 38 players under a new deal, with the WRU no longer effectively paying 80% of their wages.
Cardiff have the likes of Taulupe Faletau, Liam Williams and Josh Adams all under contract and earning significant salaries next season, which will see club appearances disrupted by the World Cup. Players who are out of contract this summer can now earn no more than a basic salary of £278,000, but that it not the case for those whose deals have another year to run on salaries of up to £400,000.
WalesOnline revealed earlier on Wednesday that Cardiff fly-half Jarrod Evans is set to join Harlequins because the Welsh side are unable to offer him a competitive deal.
Holland wrote: "Alun Jones (Cardiff chairman) and I addressed our entire squad and rugby department on Monday, February 20, where we gave a very honest presentation of the new financial model and the impact it will have on our business. The current reality is we have a limited amount of funding available after our existing liabilities to be able to contract players and coaches.
"Simply, there is not enough money to do that currently but we are trying to unlock transition funding through PRB and are exploring other means individually to raise capital - I will be sending communications to our shareholders on this matter in the coming weeks.
"If we can achieve an uplift in capital investment then it will allow us the capability to contract the required amount of players to construct a squad for next season."
He predicted Cardiff would sign Welsh rugby's new six-year funding deal by the end of this week, admitting the details were far from ideal but revealing it would keep the club afloat for now and offer a chance to rebuild.
Cardiff's budget is set to drop from £7.8million to £5.2m next season, then down to £4.5m the following year as the Welsh game strives to make itself more sustainable.
He added: "The delay in getting a deal done has put a lot of strain on the company and we remain enormously grateful to our Life President Peter Thomas for his continued support.
"We have said in the past that we would not be here today if it were not for Peter’s generosity and that unwavering support continues."
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