SCOTLAND’S rugby clubs delivered a strong message to the SRU Board during last night’s virtual AGM [part 2.1], by voting through two motions aimed at addressing a range of concerns about the governance of the organisation, with landslide majorities of 157 votes in favour and 16 against on both occasions.
The subsequent SGM, which was requisitioned by Biggar RFC, seeking support for the promotion of clubs which had already achieved unassailable positions in their respective leagues by the time the 2019-20 season was declared null and void, was unsuccessful [78-90].
Earlier in the AGM, Chief Executive Mark Dodson gave a pre-recorded presentation on the position of the business, hoping to allay escalating anxiety caused by the accounts for the 2019-20 financial year being three months late, whilst also laying the groundwork for a deal with CVC Partners private equity house to purchase a slice of the Six Nations before the end of 2020.
CVC have already bought a 28 percent share in PRO14, in a deal worth around £20m to Scottish Rugby, back in May. They have, for several months, been on the verge of securing a deal for the Six Nations – the jewel in European rugby’s crown – worth a reported £40m to Scottish Rugby, although the Covid crisis has led to some uncertainty on this.
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The Offside Line Season Appeal 2020 - 2021
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“The business is stable and in the process of securing its medium-term future,” insisted Dodson. “We face ongoing challenges which may obstruct our progress and alter our time-frames, but, ultimately, Scottish Rugby was a strong business going into this pandemic and we’ll be a strong business when we come out of this crisis.”
Bold words but Dodson knew he had to address the fact that the accounts for the financial year up to the end of May 2020 have still not been released. They are not required at Companies House until next May, but the Union’s bylaws state they should have been laid in front of the clubs by the end of August. Dodson admitted that auditors PWC have not yet signed off because they want to “test our assumptions and look beyond this current [financial] year, through to the beginning of 2022”.
“This is happening across the UK in all kinds of businesses,” he stressed. “We are in the sport and hospitality sector, and as such are seen as being more affected than other enterprises. The end of the outlook period, and the need to allow for a serious, plausible downside risk, has resulted in us restructuring our finances with the bank, and I’m delighted to say that we are about to conclude an arrangement with them that delivers flexibility for the Union and satisfies these heightened expectations.”
All about the audit
Dodson then explained that CVC’s cash – which was designated as ring-fenced when the deal was signed back in May – is being used to provide comfort to Scottish Rugby’s bankers (Bank of Scotland) for the lending facility the business needs to secure auditor sign-off. He added that he fully expects the accounts to be ready for presentation to the clubs by the end of the year.
Intriguingly, he also expects a deal between CVC and the Six Nations to be concluded in the same timescale.
“The initial proceeds of the PRO14 investment have been retained within the business to provide the financial security which allows us to trade through the worst effects of the pandemic,” he said.
“Crystalising the value of the tournament has transformed Celtic Union’ revenues and formed the foundation for a credit solution from the bank, and we hope to be able to announce further reassurance before January through the signing of a Six Nations deal, again with CVC.
“And we hope that this will future-proof the Union for years to come, providing a sustainable, long-term provision for our community game and stakeholders.”
The golden goose
As hopeful as Dodson is about the CVC golden goose laying an egg sooner rather than later, it was necessary for him to deal with the cold reality or Covid survival using what is on the table right now.
The chief executive explained (as he did back in August) that if things progress as anticipated – meaning socially distanced crowds during the Six Nations – then the business is looking at an £18m shortfall in the present financial year.
Dodson then explained that the auditors have asked for “a plausible severe downside” forecast which would involve no crowds during the remainder of the 2020-21 season, and only 25 percent capacity during the 2021 Autumn Test. This would result in a further drop of £12m in income (total £30m in the next 18 months), he said.
“This more extreme scenario would need to be covered by a reframed bank facility,” said Dodson, before making his pitch for state intervention. “We have made public statements about our inability to continue in our current form if losses of this size did not result in some form of direct government support.
“All the Home Unions and other sports find themselves in very similar territory. We have been in lockstep with the Scottish Government and have been in regular dialogue with the UK Government as this crisis has unfolded. Our belief in government support has been evidenced by the emergency support delivered in recent days through DCMS [Department for Digital, Culture, Media and Sport].
“Rugby in England received a significant support package, acknowledging the impact that Covid-19 has had one the game at all levels, we in Scotland are waiting to hear the details of the Scottish Government support plan. Wales are also unclear about the support they we will receive.
“But we expect that a combination of our revised banking arrangements and a material support package from the government should go some way to repairing our finances and allowing the game in Scotland to return to health.”
It is not clear how a game-changing private equity investment and a government bail-out – both brokered by a guy who has been paid just short of £1.4m in the last two years – will piece together.
Money where his mouth is
Dodson provided an unaudited overview of the accounts to the end of May – incorporating two months of Covid – revealing that turnover had dropped from £61m to £55.47m, while costs rose from £59.2m to £60.74m, meaning that there was an operating loss of £5.27m. However, the £8.38m received from CVC as the first tranche of around £20m in total for their share of the PRO14 league created a £3.11m surplus (before interest and tax).
“Since the year end, we’ve also received a second payment of PRO14 proceeds which will positively impact the result from this current financial year, helping to offset a serious and sustained drop in income,” said Dodson. “Despite this welcome injection of cash, we still expect the 2020-21 financial year will show a significant financial loss.”