The WRU Annual Report Digested In Six Easy Bites

Not enough time at night to sit down and read the WRU’s latest accounts and annual report from cover to cover? No, we thought not. But don’t worry because Geraint Powell has and here are his half dozen headlines.

 

 

Having reviewed the latest annual report from the Welsh Rugby Union (http://www.wru.co.uk/downloads/WRU_ARA_2017_1o.pdf), these six main themes can be appreciated from the underlying 2016-17 financial and other information.

For those who have not yet read it, particularly Chairmen, Secretaries and Treasurers at the constituent member clubs of the WRU, I would, as with every other year, always recommend starting with the Strategic Report prepared by Finance Director Steve Phillips (pages 14-21) before reading the statements by Chief Executive Martyn Phillips, Chairman Gareth Davies, Head of Rugby Performance Geraint John and Head of Rugby Participation Ryan Jones.

 

  • Team Wales – financial engine

As with all rugby countries, and even more so for smaller rugby countries such as Wales, the income earned from Test rugby critically funds everything else.

Total turnover increased from £73.3m to £74.9m, with reinvestment in the game increasing from £33.1m to £36.6m.

Of that £74.9m, which includes £9.2m of non-Test central competition platform income passed through to the four professional regions, 47% was generated from hosting international rugby matches at the Principality Stadium.

This dwarfs every other individual revenue stream comprising of commercial income, hospitality & catering income, the non-Test regions’ central competition platform income, non-rugby event income and miscellaneous grants and funding.

 

  • Regions – increasing burden and investment

The regions are becoming, and will increasingly become in the future, more of a financial burden upon the WRU.  This is unavoidable.

The WRU spent £5.5m on purchasing the Dragons region and the Rodney Parade stadium.

The £2.7m of loans taken out by the Ospreys, Scarlets and Cardiff Blues in three tranches across 2014-16, due for repayment in three tranches across 2017-20, have had their repayment schedule extended by the WRU over a period not finally ending until 2025.

WRU chairman Gareth Davies. Pic: WRU.

Whereas the central competition platform income earned by the regions themselves fell from £9.7m to £9.2m, the investment by the WRU increased from £7.5m to £9.4m.  This included a new targeted £1m investment in the four regional academies, to increase young Welsh player development, and a £0.2m investment in a strategy to increase attendances at the regions.

In addition to this £9.4m, and the regional loan refinancing and the purchase of the Dragons region, the WRU additionally increased their investment in the limited non-overall wage structure controlling marquee dual central contracts called “National Dual Contracts” from £2.1m to £2.4m.

 

  • Regions – re-setting the model

With this increasing reliance by the regions upon the WRU, and with the Dragons now being taken in-house and with the Blues and the Scarlets each posting annual losses around £1.5m in 2015-16, the question of the unsustainability of the unsatisfactory 2003 model is becoming more focussed.

The Chief Executive talks about having “to reset the model for the professional game in Wales”, “to deliver a successful and sustainable model for Welsh professional rugby”, and continuing “to seek to improve the model for Welsh professional rugby”, with the priority in 2017-18 being “to work even closer with the Regions to identify and execute a long-term strategy for the professional game”.

The Chairman talks about the WRU’s “improving funding at the professional end of…game” and “involvement with the Dragons is perhaps the most visible example of…commitment to the Regional game and the structures which underpin it”.

These are hardly ringing endorsements of the status quo that was inherited by them.

The strategy going forward will be founded upon unity and alignment, as the events of 2003-04 and the failure to subsequently evolve even that flawed model in some regions has left Wales a deeply divided rugby nation.

Revenue up and cost down, with increased regional catchment engagement to drive increased revenues from increased regional attendance.

The WRU will no doubt start with a focus on the player and coaching pathways, and identifying young exile talent, but will no doubt end-up with greater WRU interventions and a mixed ownership model.  That is realistically unavoidable, as greater investment always brings greater control.

 

  • Risk – player inflation

Given that the haphazard Welsh player contracting model has little resilience to external pressures, reinforced by the increasing WRU investment in the regional game, the report demonstrates that the WRU is acutely aware in risk management terms of the threat posed by English and French clubs.

These financial pressures are driven both by subscription broadcasters in those wealthy large primary markets and also by English club owners currently (if increasingly ever more reluctantly) prepared to withstand and cover heavy annual financial operating losses as a result of their losing control of their cost base.

As the WRU investment in the professional regional game increases, the WRU will become more susceptible to such stresses.

Caution is clearly going to be exercised, as the current model starts from a position of sub-optimality in terms of both income generation and expenditure efficiency.

 

  • Clubs – cautious investment

Contrary to public perception, reinforced by a number of urban myths, the WRU is increasing investment in the club game.

What it is clearly not prepared to do is simply write out cheques, and the member clubs can have few complaints over this stance given past reckless behaviour by some clubs.  Clubs obviously have separate income streams related to Test match ticket allocations.

So whilst the allocations to the Premiership clubs only increased from £1.6m to £1.7m and the rest of the club pyramid from £4.3m to £4.4m, the operational costs increased from £3.6m to £4.3m and the emphasis is clearly upon player, coaching and refereeing development and also upon alternative formats of the game (including the female game).

Wales Women form part of the development pathway strategy. Pic: Getty Images.

Where the WRU can perhaps best assist clubs remains in terms of helping them unlock available public funding sources to upgrade facilities.

 

  • Governance – needs modernisation

Alignment begins at home.

The WRU governance belongs to a different era, with the requisite rugby skill sets and experience of some directors not always matched by equally required business skill sets and experience, and the topic of improving governance dominates in the statement of the Chairman.

The WRU has now begun improving governance, with sub-boards covering the community game, the performance game, commercial matters and finance matters – until the main board can be slimmed down in a manner that meets current best governance (and avoids the risk of losing public funding).

With five professional or development representative region teams, mostly aligned with school districts/local government, the nine historic WRU districts are now clearly an anomaly and a rather obvious non-alignment.

The rather obvious required next alignment step is currently unstated, but devolved elected regional rugby sub-boards will be required instead of elected districts, to align governance with the professional teams and the player pathway/local authorities, to reinforce regional rugby identities, and to devolve some expenditure, expertise and decision making closer to member clubs.

Some of the sub-boards are rather “fat”, with the community game sub-board arguably better served and slimmed down by splitting its personnel between it and a new dedicated semi-professional game sub-board.

It is surprising that neither the Chief Executive nor the Chairman are members of the community game sub-board, whatever their full attendance issues and its already bloated size.  This could easily open them up to allegations of detachment, real or imagined, and a headache Welsh rugby could really do without.

Currently, Geraint John does not sit on the community game sub-board and Ryan Jones does not sit on the performance game sub-board, an unsatisfactory situation that does not align the executive board with the main board situation (with each sub-board Chairman sitting on the other).

Much work remains on the subject of governance, that’s for sure, but work has begun.

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