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In the space of 3 weeks, we have seen the demise of Premiership Rugby stalwarts, Wasps and Worcester Warriors. Worcester’s fate was sealed on 6th October 2022 when they were suspended from the 22/23 season and relegated to the Championship next season as a minimum ending the club’s topflight status after 7 years and more importantly, saw thousands of fans lose their club as the doors shut on Sixways for the foreseeable future. Unfortunately, this is with no guarantee we won’t see Worcester Warriors collapse all together.
Wasps filed a notice to appoint administrators on 21st September 2022 over concerns around the long-term financial stability of the club. Late on Wednesday 12th October, Wasps were suspended from the Premiership and are set to enter full administration within days.
Is it suitable to claim that the Covid-19 pandemic was the sole cause for such financial hardship? Did we think we’d be fine and come out the other side bruised but alive? Or have these financial difficulties been there long before the lockdowns?
Rugby Union’s finances are a topic that has seen relatively little coverage until unfortunate events such as club administrations arise but should issues surrounding the clubs have been raised earlier? In this short analysis, DSM look at the finances of Worcester and Wasps over time and compare against other Premiership clubs to see if any red flags were being waved long ago.
The finances of sport are highly volatile, complicated, and poorly structured so only a few variables shall be investigated in depth.
· Turnover
· Net Profit
· Net Debt
· Wage to turnover %
· Stadium Utilisation Rate
Turnover is how much money was earnt by the club each year. The three main revenue sources are matchday (gate receipts and hospitality), broadcasting, and commercial (sponsorships). Net profit is what turnover remains after all expenses have been paid for and before tax. Net debt is the sum of total liabilities (Short and long term expenses) minus cash in the bank.
Wage to turnover % is how much of a club’s earnings go straight back out the door in the form of wages, mainly players but includes all staff such as catering, administration, and stewarding. Finally, stadium utilisation rate is how well attended a ground is on an average match day.
Whilst Wasps and Worcester will feature heavily, their finances will be benchmarked against three other Premiership clubs who run (either consciously or unconsciously) different financial models. These are Exeter Chiefs, Bath, and Leicester Tigers.
Turnover
A potential cause for financial difficulty that I had heard recently had suggested that revenues in English Rugby Union haven’t grown in line with the growing costs the professional games demands. This is surprisingly true. Leicester Tigers have remained relatively consistent over the last 10 years despite a dip in on field performances prior to their resurgence in 2021/22. No notable increase to Welford Road’s capacity since 2009 has meant an already well supported club couldn’t feasibly get any more money out of their supporters. Exeter was promoted to the Premiership in 2011 and saw a considerable increase in revenues as they rose the division, eventually winning the league and European Cup. Expansions of Sandy Park’s capacity, as well as the construction of a new hotel, will also have aided to the Chiefs financial rise.
Worcester follows a similar path to Leicester with a stable income rise but crucially earning significantly less than the Midlands outfit. Sixways is just under half the size of the Welford Road and has significantly limited the revenue generation potential of Worcester. Throughout professional sport, supporters come with success and given Worcester’s relatively moderate standing in the league over recent years has meant that have been one of the more poorly supported clubs. With the 2020/21 season removed as it was played almost entirely played behind closed doors. Worcester had the 2nd lowest number of people through the turnstiles 3 out of the last 5 seasons. It should be noted Wasps appear strong in this comparison despite only moving to Coventry relatively recently. The more people coming through the turnstiles, the more money a club receives.
However, an additional measure is stadium utilisation rate which is an indicator of how full a stadium is on an average matchday. Worcester looks slightly improved here but still in the bottom half of the division. Wasps come out extremely poorly in this measure largely down to their ground being the largest in the division on the condition we class Harlequins’ home ground to be the Stoop rather than Twickenham. Wasps ranked in the bottom 3 for every year of the analysis for stadium utilisation.
Covid-19
Of course, the Covid-19 pandemic had a huge effect on the finances of Rugby Union. With the limited broadcasting deal Premiership Rugby currently has with BT Sports (reportedly worth £40 million a year split between all clubs), matchday attendances are essential to the viability of clubs. All 12 clubs saw a fall in turnover between the 2019/20 and 2020/21 seasons. Crucially for this analysis, the greatest impact was seen by Wasps. At the end of 2018/19 (the last set of accounts not effected by Covid) Wasps’ turnover was £34.5 million, the highest in the division. By the 2021 accounts, turnover had fallen to £13 million, a staggering decrease of £21.5 million (62.5%). Intriguingly, Worcester saw an increase in revenue between 2019 and 2020 of £1 million suggesting things had been going well for the club prior to the pandemic. Unfortunately, Worcester have not released their accounts for 2021 and will not do so whilst the club remains in administration but a fall in turnover is to be expected.
Net Profit
Like a lot of professional sport, much of Premiership Rugby is loss making. It is relatively easy to explain why all clubs in the sample lost money in 2020 and 2021 but it is interesting to see all made a profit in 2019.
Exeter was the only club to record a net profit in each year preceding the pandemic. More pressingly however, is that Worcester and Wasps recorded the greatest losses in 2017, 2018 and 2020. In the last 5 years, Wasps have made a cumulative loss of £29.2 million. Worcester lost £4.1 million between 2017 and 2020. This is significantly improved by the £13.6 million profit made in 2019. Bath and Leicester also made consistent losses during this period suggesting the current financial model seen in the majority of Premiership clubs is not financially viable.
Wage to Turnover Ratio
Wages are the biggest cost to most professional sports teams. Rugby Union in England has only been professional since 1995 and a salary cap has been impposed since 1999. As a result, the wage to turnover ratio in Premiership Rugby should be relatively stable. Prior to 2021, this was very much the case. Wasps are noteworthy as they had the lowest ratio in the sample due to their high turnover. All clubs saw an increase to the ratio in 2021 because of the reduced revenues but wages stayed stable suggesting the cap was adhered to. Some clubs suffered more than others with this. Exeter in 2021 had a wage to turnover ratio of 118% meaning for every £100 earnt by the club £118 was going out in the form of wages to players and staff before any other costs had been considered.
However, the most concerning ratio in this sample is Worcester. Even prior to the pandemic their ratio was significantly higher than others in the division suggesting the club may have been spending beyond their means to maintain competitiveness. Their total spending on wages is like other club’s wage bills but with a significantly smaller turnover the club could not sustain this. Questions should be asked about whether the salary cap is appropriate in Premiership Rugby. At one end, the richer clubs in the division will claim it limits their ability to attract top talent to the club as players can gain a higher salary in leagues such as France or New Zealand. At the lower end, clubs such as Worcester or Newcastle Falcons with smaller revenues may see the salary cap as more of a target spend rather than a limit so push to spend that in order to be competitive even if their finances suggest they shouldn’t.
Net Debt
It should be stated here that debt isn’t necessarily a bad thing in sport. Many great advances in the future prosperity of a club are down to taking debts on in the short term. The issues with debt appear when they are no longer able to repay them. In my opinion, this is the case of what has happened to Wasps, the money unfortunately has run out.
Wasps have been running up large debts for a long time. In 2020, Wasps’ net debt figure stood at £112 million. What is more concerning is the other 4 club’s net debts total is £105 million. Wasps’ move to Coventry for the 2014/15 season saw them take on huge debts as the owners of the CBS arena (formerly the Ricoh) and has unfortunately left the club in financial difficulty ever since. The debt incurred from the remove is reportedly £35 million (which aligns with the club’s accounts and graph above) and that debt needs repaying or refinancing and therefore why administrators have been brought in. The deciding nail in the coffin has been the sudden fall in revenues due to Covid-19. Wasps earnt more than any other club in the Premiership prior to the pandemic and so were able to keep up with debt repayments. This unfortunately is no longer the case.
In the case of Worcester, it is hard to get a true indication if there were any debt issues as we are missing the most recent set of accounts.
Conclusions
This is a piece I hoped I would never have to write. A piece suggesting where it all went wrong and why thousands of fans are currently not able to go and watch their favourite teams.
For Wasps, the debts have simply become too large to control having steadily increased since their relocation to Coventry. The Covid-19 pandemic pulled the rug from underneath them. Very few companies could traverse a 62.5% reduction income unscathed.
For Worcester, the stadium is locked, and all the contracts have been ripped up. Over 200 people connected with the club have lost their jobs and it appears several mistakes at the top of the company are to blame rather than one financial indicator. The Covid pandemic undoubtedly had an impact but the growing unwillingness from the owners to support the club is disappointing. Creative accountancy surrounding the club’s assets has left the club in turmoil with no plan on how to get out of it. What did the owners have to say for the mess? Only that more people should have shown up to games! For greater understanding into the turmoil that has unfolded at Worcester over the last 12 months I would recommend the Guardians special report which can be found below in the references.
Serious questions must be asked about the state of Premiership Rugby and professional Rugby Union in England overall. Rumours are already emerging suggesting other clubs are in financial difficulty. Whilst we cannot say for certain, the financial health at Bath should be monitored especially if their underperformance on the field continues. Harlequins and Exeter should also be monitored with interest despite their strong performances on the field.
Solutions to this affair requires a whole other article but suggestions of a closed franchise league like that seen in American sports should be considered as well as significant reviews into the level of the salary cap and the value of broadcasting rights over the coming seasons. Rugby Union and football in England are entirely different products but both can and should be seen as viable investment opportunities delivering a world class product on the field that local communities can be proud of supporting without the concern that one day it may disappear through financial and strategic mismanagement.
References
Financial Accounts available through Companies House 2012-2021
· Wasps Holdings Limited
· WRFC Trading Limited
· Bath Rugby Limited
· Leicester Football Club PLC
· Exeter Rugby Group PLC
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