Rugby looks to sidestep the credit crunch
December 18, 2008
Crunch time - Rugby's leading lights will be hoping to avoid a financial impact akin to that of a tackle from Samoa's Brian Lima © Getty Images
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As the credit crunch continues to bite around the world there is growing concern that English rugby is on the brink of a financial crisis.
The pressure is being felt across the economy and Premier Rugby, the umbrella body for England's top flight, is no exception with stakeholders facing their biggest challenge since the dawn of professionalism.
Reports of impending doom surfaced again this week following Premier Rugby's announcement that they are to consider a reduction in the salary cap to help ease the burden on those Premiership clubs struggling in the current climate.
Bearing the brunt of this economic downturn are Bristol who are currently propping up the Premiership table and who issued a plea for £2m-2.5m worth of new investment last month in order to simply "remain competitive". Elsewhere, Newcastle have been fighting a similar battle with majority owner David Thompson revealing that he was losing £1m a season. If any club were to fall into administration they would immediately be hit with a 15-point penalty that would jeopardise their Premiership status.
Profits in the last year are the exception rather than the norm with only Gloucester, Leicester and Northampton having broken into the black in the last year. Much more common are the headline losses like the £2.8m suffered by champions London Wasps and the record £357,000 deficit reported by Bath.
There are fears that total Premiership losses could range between £12m and £20m this year but Premier Rugby chief executive Mark McCafferty is remaining positive in the face of growing pressure. "It's a question of us all running a tight ship," he said earlier this month. "No sport can afford to be indulgent in these times. If we don't reduce the salary cap, then we'll have to consider a range of other cost-cutting measures. We've got to keep the business sustainable. We all feel 2009 is going to be a difficult year."
The clubs are starting to feel the pressure on the turnstiles and in the corporate boxes and are working increasingly hard for their share. Harlequins may well be on course to attract 50,000 to their Premiership clash with Leicester at Twickenham later this month but with fan-friendly ticket pricing they do not anticipate making a profit and hope to instead tap into an untouched market.
There is however some light at the end of the tunnel for the English game. A timely boost came in the form of a new Premiership TV deal recently agreed with Sky Sports and Setanta. The Premiership clubs are set for a £1.5m windfall as part of a £54 million three year deal that represents a 45% increase on the current deal but they will not benefit until the 2010-11 season.
As a result the Premiership's exposure will increase from 33 to 69 live games a year but armchair fans will have to subscribe to two different packages to get a complete picture. "We have 18 months to work hard on short-term financial issues," said McCafferty. "From 2010-11, new television money kicks in and, we hope, a recovering economy."
The Premiership clubs are also set to benefit from the extension to the broadcast partnership between European Rugby Cup and Sky Sports. The organisers of the Heineken Cup and European Challenge Cup and the subscription-based broadcaster have extended their partnership until the end of the 2013-14 season.
Premier Rugby is also in advanced talks with Guinness regarding the renewal of its main title sponsorship with the existing four-year £20m agreement due to expire at the end of the current season. Sadly this story will run well beyond the Premiership finale in May with no immediate end to the crisis in sight.
So how hard has the credit crunch hit other areas of the game in the last year?
The International Rugby Board has cut the cost of hosting the 2015 and 2019 Rugby World Cups
HSBC were named as Principal Partner in 2007 in a deal worth reportedly £4m and subsequent tie-ups have been struck with adidas, Guinness and First Cape with more sure to follow in the New Year.
RBS reportedly agrees a new and improved four-year deal to sponsor the Six Nations until 2013
The sport's richest union revealed a £1.5m profit after tax last year and also announced new deals with Sky Sports, O2 and Nike.
The Grand Slam winners reported a record turnover of more than £50m for the last financial year with a profit of £3m before tax and also struck a record-breaking £10m four-year official kit supplier agreement with Under Armour.
The New Zealand Rugby Union recorded a NZ$1.7 million loss in the last financial year but also agreed new deals with adidas and Ford.
European Rugby Cup (ERC) agreed an improved four-year deal with sponsors Heineken and a new television contract with the major broadcast partners.
Magners title sponsorship of the Celtic League ends this season but fresh impetus may come from the introduction of Italian sides to the competition next season.
The current five-year agreement between Sanzar and News Ltd expires at the end of 2010 with a proposed expansion of the Super 14 competition and the addition of Argentina to the Tri-Nations key to any new deal.
Dan Carter's high-profile six month sabbatical with Perpignan - for a reported £600,000 - will boost attendances at the club and may even lead to success on the field but other clubs are struggling to balance the books.