THE Welsh Rugby Union published its 2019-20 Annual Report earlier this week with the accounts for the year up to 30th June 2020 included, revealing that turnover has dropped from £90m to £79.9m, leading to a £5.3m loss across the business (compared to a £4.3m loss the year before).
Interim Chief Executive (and former Finance Director) Steve Phillips acknowledged that the pandemic’s full impact is not yet known, and the report raised the prospect of a £35m income loss in 2021 if both this Autumn’s Test series and next Spring’s Six Nations matches are played behind closed doors. It was a pretty sobering read but Welsh rugby clubs and supporters will be glad to have some clarity on where things stand.
Meanwhile, we still haven’t had sight of the Scottish Rugby Union’s accounts for the year up to the 31st May 2020, despite the fact that the governing body’s bye-laws require the financial statements to be laid before an Annual General Meeting “within four calendar months after the Scottish Rugby Union plc’s financial year end but in any event by no later than 31 August in the calendar year, as the Scottish Rugby Board may determine”.
So, when will we see the SRU Annual Report and accounts for 2019-20?
It was decided back in July that the AGM should be split in two so that the core business of electing/ratifying key office holders for the coming year could be achieved in a timely manner, while all other business would be pushed back to a yet to be specified date when Covid restrictions allow all delegates to meet in the same room. It subsequently emerged that the accounts would not be made available until part two of the AGM.
“The accounts have been so severely affected by Covid-19 that the reporting and auditing of those accounts is going to take much more time than normal,” explained Scottish Rugby’s Chief Executive Mark Dodson at the time. “So, to give the most complete picture possible, we couldn’t hit the deadline before August 6th. Consequently, what we’re going to do is put those [accounts] out well before the second part of the AGM to give people time to understand.
“There’s payment issues, in terms of when you get paid what you are due, but also things like the PRO14 payments – that money was received in one financial year but not actually activated until the second financial year – so there are things that are extraordinary this year which we wouldn’t normally be dealing with,” he added.
This was hard to fathom. It might not have been possible at that time to have it all fully audited and presented in a glossy brochure surrounded by inspirational photos and encouraging passages of text, but the membership would have accepted the management accounts which have presumably been key to planning Scottish Rugby’s response to the current financial crisis.
The WRU have had the same obstacles and less time but still managed to produce their Annual Report and Accounts – what is the financial management problem at the SRU?
With Covid restrictions tightening once again across Scotland, and the restart of club rugby shunted back to the end of January at the earliest, it is time for the SRU to acknowledge formally that part two of the AGM is not going to be hosted in the conventional manner any time soon, meaning that a make-do alternative of another video conference has to happen as a matter of urgency given the seriousness of the issues needing addressed.
At the very least, the accounts should be released immediately. It is worth repeating that the WRU’s financial year finished a full month after the SRU’s and they have been able to produce their accounts in timely order, so there really is no excuse now.
This is important because the reluctance to share reinforces suspicion that the Scottish Rugby Board isn’t really interested in properly engaging with the stakeholders it is supposed to represent.
Bear in mind that the two motions which are due to be discussed in the second part of the AGM have been proposed by clubs in order to compel the Board and Council to be more transparent and accountable to their ultimate stakeholders. This is a culmination of several years of struggle between two factions who should really be working together for the betterment of the game at all levels in Scotland.
It feels a bit like the can is being kicked down the road in terms of both the accounts and the motions, in the hope that external events will supersede their relevance.
Scroll down to continue reading –
The Offside Line Season Appeal 2020 - 2021
Since our launch in 2016, The Offside Line has established itself as the leading independent, dedicated media outlet for Scottish rugby, averaging just over 250,000 page views per calendar month during 2020 – which is not bad going given that the game was in lockdown for five of those months!
We are passionate about rugby at all levels across the whole of Scotland (and beyond) and are committed to continue shining a light on our sport in order to maintain its profile during these uncertain times.
We also believe that it is more important than ever that we report on and analyse how the game is being run locally, nationally and globally, at a time when some major decisions on issues such as season-structure and finance will have a profound impact on rugby’s future.
If you value what we do and feel able to support us in our quest to continually grow the breadth and depth of Scottish rugby coverage, you can do this by making a one-off donation, or by supporting us with a monthly contribution.
Thank you for reading The Offside Line.
What do we know?
We have no idea how the SRU financials looked in the reporting year 2019-20. No idea of underlying losses, loans undertaken, investments accepted, made or devalued.
Not having sight of the accounts creates an information vacuum into which doubt and suspicion will inevitably flow. Scottish Rugby is facing an existential threat from Covid and the shareholders are entitled to some understanding of how well equipped the business is to deal with the challenges ahead. The accounts would not provide all the answers but would at least give a snapshot of the true situation near the starting point of this crisis.
What we do know is that Scottish Rugby’s financial model is predicated on the assumption that future ticket income, broadcast revenue, sponsorship and advertising sales will meet present operating demands, with no significant capital (cash) reserves having been built up in the time of plenty.
How can stakeholders judge the financial impact of the pandemic without knowledge of the SRU financial case as at the 31st May 2020?
Operating costs have grown 38.7% in the five years since 2014 and 84.1% since 2011, while the headcount has jumped from 283 in 2011 and to 401 in 2019, at an average cost for each employee of £78,524. We do not know the figures through to end of May 2020 owing to the absence of the Annual Report and accounts.
Yet whilst the other Home Unions have addressed the impact of Covid pro-actively and with much more openness – 139 redundancies at the RFU, a £20m bank loan at the WRU – Scottish Rugby has drip-fed information which has prompted more questions than it has provided answers.
Dodson stated on 7th August that Scottish Rugby was facing an £18m hit which he believed could be off-set by the business achieving £14m in savings through belt-tightening in every department, with the rest covered by a borrowing facility secured from The Bank of Scotland. He added – unprompted – that he was determined that there would be no redundancies.
It sounded like an encouraging start, even if the cynics were compelled to question where Dodson’s concern for protecting jobs was lurking not so long ago when he was papering the walls of Murrayfield with non-disclosure agreements.
Given that just under 52 percent of costs is on staff, no redundancies meant that an extensive programme of wage cuts was inevitable, and this was successfully negotiated for the playing staff by the end of August.
Since then, Dodson has broken cover once more, to add his voice to the push for government support for stricken sporting institutions. “If the restrictions continue until the end of the season the impact increases to £30m,” he told the BBC. “The need for government help is clear.”
He wasn’t challenged on this being an audaciously bold position from a man who took just shy of £1m out of a £61m business during the last financial year for which the accounts have been reported, and he wasn’t asked if he has any strategy up his sleeve – apart from a government bail-out – for dealing with the doomsday scenario he had just articulated.
Based on the information available, you don’t have to drill too deep before you start hitting landmines.
A 25 to 30 percent cut in executive salaries and the forfeit of their bonus entitlement for the financial year 2019-20 as agreed in mid-April would save around £1m per annum – though there has, as yet, been no confirmation that these salary cuts have been extended beyond 31st August.
Pay negotiations with the players should, we understand, cut their collective wage bill by some £100k per month – or £1.2m per annum.
We understood that three-quarters of the SRU’s 401 strong workforce went into the government’s furlough scheme, which pays 80 percent of an individual’s wage up to £2,500 per month, equating to a saving of around £850k per month for the six months from April to September – almost £4m in total – which is being picked up by the public purse.
“There are going to be cuts across every single department in the business,” said Dodson back at the start of August. “Some of those budget reductions will take place largely through a lack of activity – if you are not playing games then you are losing revenue but you are saving on expenditure as well in terms of travel, preparation and so on.”
We believe that wage cuts for non-playing staff in the organisation earning over £50k per year have been continued beyond the initial end of September timeframe, but no information on this has been released. We also know that some fixed term contracts for non-playing staff – such as Scotland Women coach Philip Doyle, and scouts Alan Tait and Ian Smith – have not been renewed, but it isn’t clear how many employees this relates to. There doesn’t seem to be any academy players seconded to Stade Niçois this season, and there has been no information about the SRU investment in Old Glory DC. But it is difficult to see any such savings exceeding another £1m.
So, based on the information we have, and what we can reasonably surmise, the SRU has managed savings of £7.2m in total – £6.8m short of Dodson’s projected target – and £22.8m short of his current worst-case scenario.
Operating Costs for 2019 were £61.1m, of which employee costs were £31.5m, leaving £25.6m of non-employment costs to cover that £22.8m shortage from the worst-case scenario. That would mean running the Union and honouring Murrayfield’s financial obligations to the club game from a residual £2.8m. This is before factoring in any as yet unreported (pre-Covid) operating losses from the 2019-20 accounts, a World Cup year.
Where are we heading?
Dodson said in August that: “The Bank of Scotland have been tremendously supportive around helping us through this pandemic”. They have provided that borrowing facility, but how far does that support extend? They will presumably expect any loans to be repaid, which opens up a whole load of questions about terms and security and the squeeze this will put on the business for years to come.
Or is this just a waiting game before the CVC cavalry come charging over the hill? The private equity firm have been nibbling around the edges of rugby for some time with their investments in the English Premiership and the PRO14, although recent press reports have suggested that the prospect of a government bail-out for the Unions could change the dynamic and cool the burners for a game-changer Six Nations deal.
The SRU Annual Report and accounts are beyond late, and, without them, how can stakeholders judge the executive response to the pandemic? How can proposed lenders, investors and government agencies judge the viability of this organisation before commitment?
If CVC are still at the table, being desperate for cash is a weak bargaining position for Scottish Rugby to be starting from. A fire sale to a private equity concern or a last-minute tax-payer bail-out might help save face and protect executive bonuses, but the focus needs to be on protecting the long-term health of Scottish Rugby.