Donal Lenihan: Rugby’s biggest challenge won’t be on the pitch — but in the boardroom

If a week is a long time in politics, a month has proved an eternity for professional rugby, writes Donal Lenihan.
Donal Lenihan: Rugby’s biggest challenge won’t be on the pitch — but in the boardroom
The old Landsdowne Road Stadium

If a week is a long time in politics, a month has proved an eternity for professional rugby, writes Donal Lenihan.

Only a few short weeks ago, among the issues for debate around the table of the IRFU’s management committee included how best to utilise the vast amounts of money potentially coming the union’s way from a variety of sources in the not too distant future.

The first tranche of a sizeable injection of cash came to fruition with the sale of a prized asset, acquired by the IRFU in the mid-1990s and sold at the latter end of 2018.

The most recent revenue stream surrounds the proposed investment from a British private equity firm with a history of similar involvement in Formula One and, more recently, in the Gallagher Premiership in England.

It has been flagged for some time that CVC Capital Partners are focusing on expanding their interests in professional rugby with the Guinness-sponsored PRO14 and the flagship of international rugby in the northern hemisphere, the Six Nations championship, both on their horizon.

The first cash windfall for Irish rugby coffers has already taken place and was entirely of their own making.

This can be traced back to the foresight and wisdom of key IRFU figures, such as Tom Kiernan and Syd Miller, when purchasing 92 acres of land at Newlands Cross, south-west Dublin, between 1994 and 1996 with an eye towards developing a new national rugby stadium to replace Lansdowne Road.

With the Bertie Bowl never getting off the ground and the coming together of the IRFU, FAI, and the Government to redevelop at the existing site, the Aviva Stadium rose from the rubble of the increasingly dilapidated home of Irish rugby.

The old Lansdowne Road, when packed to the rafters with 55,000 fanatical Irish supporters crammed within touching distance of the touchlines, was a special place.

However, its day had come and gone. With their national stadium needs sorted, the IRFU had no practical need for the site all those years ago.

But it proved a valuable investment however, yielding a net €25m when Newlands Cross was sold over a year ago.

It was somewhat of a coup for the domestic game in Ireland when chief executive Philip Browne confirmed that the money would be used to help the game flourish at grassroots level.

“The IRFU regards the delivery of a sustainable, long-term additional income stream for investment in the domestic game, for the benefit of clubs and schools, as one of its key priorities,” he said at the time.

While the IRFU still retain their traditional offices at 62 Lansdowne Road, the expansion in staff that accompanied the growth of the professional game decreed that much larger premises was needed, necessitating a lease on new offices at 10/12 Lansdowne Road some years ago.

When that building became available to purchase around the same time as the Newlands Cross sale, the decision was made to utilise a large portion of the sale proceeds to acquire the premises.

That resulted in annual savings in rent of around €650,000, a figure now earmarked for investment in the domestic side of the house.

It remains to be seen if, as a consequence of the challenging cashflow situation the union finds itself in, those funds will be directed elsewhere, at least in the short term.

With an immediate embargo placed on all capital expenditure projects at present, the proposed development of rugby hubs around the country to aid the domestic game has, understandably, been put on hold.

While those funds were entirely of the IRFU’s making, the expression of interest by CVC in the Guinness PRO14 must have come as a welcome development for the IRFU and their partners in Scotland, Wales, and Italy.

Having already acquired a 27% stake in the commercial business of the Gallagher Premiership for £200m, the PRO14 stakeholders already have an insight into the mechanics of this operation.

Things moved quickly to the point where a few months ago the Competition and Consumer Protection Committee cleared the way for CVC to buy a 27% stake in the PRO14 competition on a phased basis over five years for a reported €140m with an estimated €34m heading for the IRFU.

CVC have also set their sights on an even bigger prize and, prior to the outbreak of the coronavirus, were negotiating to acquire a 15% stake in the Six Nations for €414.5m.

That would provide the IRFU with an additional cash injection of €69m over an agreed timeframe.

Given that the Six Nations committee made a complete mess of the sponsorship negotiations for the tournament over the last three years, the various partners will be keen to recoup their reduced dividends.

Royal Bank of Scotland paid £100m for a six-year deal to sponsor the Six Nations Championship up to 2017.

An average of £16.5m per annum appeared pretty decent, but, when the sponsorship came up for renewal in 2017 at a slightly increased level, the Scottish and Welsh unions felt the tournament was worth even more and scuppered the new deal.

Negotiations stalled to the point where RBS stepped back in for a one-year period in 2018, at a reduced cost of £9m, to buy the committee time.

Last year Guinness negotiated a six-year deal but only paid £6m in the first year, meaning the commercial value of the tournament fell by over 50% over a two-year period.

Keen to make up for those losses, the expression of interest from CVC could not have been better timed from the participating union’s perspective. Prior to the start of this year’s truncated Six Nations tournament, the €414.5m deal was at a very advanced stage.

With the broadcast rights to the Six Nations also being negotiated at the same time and much speculation as to whether the crown jewels of rugby in the Northern Hemisphere would go behind a paywall, with Sky and BT Sports both expressing interest, there is a lot to play for at present.

A significant aspect of CVC’s bid is that the potential 15% shareholding will only buy them an equal place at the negotiating table for commercial decisions.

In effect they become a seventh nation.

Therefore, four of the existing unions, voting together, can block any potential for the television coverage of the tournament, or any aspect of it, disappearing from terrestrial television.

Given the cost to the various unions of the game going into lockdown — the RFU in England are already forecasting a loss of £45-£50m over the next 18 months — who knows what’s going to happen over the next period.

Already the Covid-19 crisis has hit players financially, with the IRFU announcing pay deferrals of between 10% 50%. At least it’s a deferral of salary with a reasonable chance to recuperate their lost earnings if the IRFU manages to weather the financial storm.

Given the prudent management of their financial resources since the very outset of the professional game, if I was a professional player, I would feel far more comfortable with an IRFU contract than one from a club in England.

Players in the Gallagher Premiership have also been hit with a 25% cut in salary but find themselves in a far more precarious position given that the Premiership has been accumulating annual losses of approximately £35m and is heavily dependent on benefactors and the RFU to bridge that gap.

A home game for a Premiership club generates about £350,000 — and without that cashflow to pay the bills, some clubs are in serious danger of collapsing.

The IRFU has always been acutely aware that the business model for professional rugby is dangerously reliant on the international game.

The challenge facing the Six Nations unions now is discovering ways to cope with the very sudden fall from promised riches to potential rags.

One suspects things will be even worse for the already cash-starved SANZAR unions down south.

With the coronavirus creating havoc with the financial stability of a fledgling professional sport about to celebrate its first 25 years in existence, the temptation must be avoided to sell off too much control to the likes of CVC when they come back to the negotiating table once this dreadful pandemic is eventually conquered.

Rugby faces its biggest challenge since turning professional on that famous day in Paris back in August 1995.

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