After months of discussions over the future financing of the four Welsh regions, there is finally an offer on the table from the WRU.
But we still appear to be some distance away from an agreement being reached, given the nature of the proposal. With just nine days to go to the start of the new season, everything remains up in the air with plenty of tough negotiating to be done. So here’s the latest on the ongoing saga.
How did we get to this point?
Up to now, the financing of the regions - Scarlets, Ospreys, Dragons and Cardiff - has been based on the payment formula laid out in the Professional Rugby Agreement.
Once the ring-fenced £10.5m funding to the community game and staff costs have been covered out of incoming revenue, what’s left goes to the PRB for them to deliver to the regions. That distribution is weighted dependent on varying factors, notably how many players from Wayne Pivac’s elite 38 each region has on its books.
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As it stands, the WRU payment to the regions for the coming season is £23.5m, with the first instalment having gone out from the governing body in July. That’s the figure which was originally announced back in June 2021 after the PRB reached agreement on funding to the regional game through to June 2023.
However, that is some way short of the amount the pro teams maintain they need to cover costs, particularly in the wake of the financial impact Covid had on the pro game. As such, talks have been ongoing about bridging that gap, amid attempts to formulate a longer-term financial package. That has led to the WRU coming up with an offer, which they tabled last Friday.
What’s the offer from the Union?
Well, it’s a six-year deal, with the 2022-23 season being the first year. It involves the annual payment to the regions going up from £23.5m to around £32m for the first five years. The additional money would primarily come from the £51m the Union are receiving as part of CVC’s investment in the Six Nations.
How they have intended to use that money has long been a point of contention. The initial indication from WRU chief executive Steve Phillips was that the bulk of it would be spent on capital projects that would bring in long-term income to compensate for the reduction in future Six Nations revenue due to CVC taking a slice of the commercial pie.
That has provoked prolonged criticism with regional fans questioning why the Union is looking to invest in projects like the Parkgate Hotel or potentially a Principality Stadium rooftop experience rather than directly in their core business - the pro game.
Well, there has been something of a U-turn from the Union. As initially reported here on WalesOnline last month, they are now putting a significant chunk of the CVC money on the table as part of their proposed financing of the regional game. It’s understood around three quarters of the £51m would be utilised in the package, with the remainder being retained for investment elsewhere.
The overall offer from the Union is also based around their projection of a one per cent growth in income for each of the six years, with a series of safeguard clauses in the event of that forecast not being met.
What are the Union asking of the regions?
Now this is where it gets problematic. The down side of the deal as far as the regions are concerned is that it would shackle them with even more debt and put a big burden on their benefactors.
They are already faced with having to pay back a £20m loan which the WRU took out to keep the pro game afloat when income was devastated by the Covid pandemic.
Now, as part of the proposed deal, there would be an additional loan of about £13m from the Union over the next two years to see the regions through immediate financial issues. The repayment of that combined debt would inevitably eat into the annual £32m the pro teams would receive from the WRU. So you would effectively have a cash deficit each year in terms of meeting operating costs, if teams are to be financed to a competitive level
How then would that shortfall be covered? Well, under the WRU plan that’s where the benefactors would come in. The suggestion is the Union are looking for regional backers to put in close on £40m over the six years, underwriting the project. It remains to be seen just how much appetite there will be for that.
Benefactors like Peter Thomas, who has put some £14m into Cardiff over the years, have moved away from centre stage in recent years, amid a Union-driven change in direction over the funding model. It’s unclear just who the WRU foresee stepping up to invest amid their apparent reversal in strategy.
The other issue that’s lurking in the background is the governance of the sport in Wales, amid ever growing calls for a separation of the professional and community games in terms of administration and control. A top London-based consultant has been commissioned to look at the governance and has proposed some pretty major changes, which you can read about here. These include reducing the size of the WRU Board from 12 to eight members and ending the amateur club majority.
It’s understood the suggestion is there should be a couple of representatives from both the professional and community game, sitting alongside independent non-executives with extensive business experience and an independent chair. There’s a meeting at the Union this week to consider the report.
There’s a view that there has to be a significant change of governance tied into any new financial arrangement to enable the pro game to move forward commercially. There will be little enthusiasm on the part of shareholders or benefactors to pump money in without some kind of meaningful control or influence over the way the pro game is administered.
So there will be much focus on what decision is reached over the governance, with the AGM coming up next month. It’s against all this complex background that the WRU have put forward their offer to the regions.
So, any chance of a financial deal being done?
Not anytime soon, by the look of it.
The regional chairmen met on Tuesday to formulate a response to the offer from the Union and to decide what to do next. We wait to see what their stance will be. There will be more meetings with the WRU and more discussions.
I have spoken to a number of informed figures in the game this week to gauge their views on whether a settlement is imminent.
The responses ranged from “Unlikely, some tough negotiating to be done” to “I would be amazed” and “I wouldn’t bet on it”.
One person summed up the situation as follows: “Everything is on a bit of a knife-edge at the moment. There is an offer on the table which is impossible to accept in the way it’s constructed, so there are conversations going on to try and amend that.”
We now must wait to see whether some kind of compromise deal, which would be acceptable to all four regions, can be thrashed out. Watch this space.
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