Sleepwalking into crisis: What went wrong for professional rugby in England?

13 April 2023

As recently as 2017, Wasps Rugby Football Club sat atop the Aviva Premiership table having won 17 out of 22 regular season games. Next season however, this historic team will compete in the second tier of English rugby – the largely semi-professional Championship.

Such a fate may seem unenviable, but fans of Worcester Warriors would leap at it. Worcester may not have had the European prestige of Wasps, but they had had a fiercely loyal fan base and a roster of international stars such as Duhan Van Der Merwe and Ollie Lawrence.

Unlike Wasps, Worcester will not play in the Championship next year and are due to enter the fourth tier of rugby through a merger with the local club Stourbridge RFC under the new name “Sixways Rugby”. This unorthodox route back to professional rugby (the new owners hope to join the Championship in 2026) is due to an interesting conflict between some unusual classes of creditor and has resulted in an unpleasant (and public) spat between interested parties.

How did we get here?

Both Worcester and Wasps argued that their insolvency was a ‘no fault insolvency’ meaning that they had become insolvent due to disruption caused by the Covid-19 pandemic. Playing matches behind closed doors deprived clubs of revenue usually in the form of ticket sales and concession sales. Clubs were forced to load up on Government backed debt just to keep the lights on. When this debt came due for repayment, it put intolerable stress on the already shaky finances of these two clubs.

Had the Rugby Football Union (RFU) agreed that the clubs were not at fault for their insolvencies, the door would have remained open to a return to the Premiership next season. This argument was firmly rejected by the RFU who cryptically referred to weaknesses in Worcester’s ‘business plan’ and ‘insufficient evidence’ from Wasps. This decision meant that subject to buyers being found for the clubs they would automatically be relegated to the Championship for the 2023-4 season.

Writing on the wall

Despite Worcester and Wasps claiming Covid-19 as the root of their financial difficulties, the financial position of professional rugby in England was perilous prior to the pandemic. According to evidence given by the CEO of the RFU Bill Sweeney, annual losses for Premiership clubs averaged around £4 million per club in 2018-19 prior to Covid-19.

Sweeney and Simon Massie-Taylor (CEO of Premiership Rugby Ltd) argued that revenue growth would bring profitability but despite revenues doubling in the past decade there has been no improvement in profitability.

Special Cases?

Surviving Premiership clubs will take some consolation from the fact that Wasps and Worcester were in particularly dire straits pre-pandemic. An ill-fated move to Coventry in 2014 saddled Wasps £35 million of debt. Questions have arisen over the governance of Worcester within the Digital, Culture, Media, and Sport (DCMS) Select Committee report alleging asset stripping on the part of its ‘unscrupulous’ owners.

Or not?

With clubs’ finances consistently stuck in the red, it is hard to share Sweeney’s optimism that revenue growth will prove to be the silver bullet that can drag clubs into profitability. While £100 million of Government backed Covid loans kept clubs afloat during the pandemic, it has added to an already teetering debt pile.

‘Rugby creditors’

One of the more interesting elements of the crisis is the importance of ‘rugby creditors’. The RFU regulations stipulate that phoenixing clubs must pay all outstanding ‘rugby creditors’ or else be relegated to the bottom of the rugby pyramid. In the case of Worcester, it has been estimated that this totalled between £5 million and £8 million. Controversy arose when it emerged that one of the bidders had offered to pay all rugby creditors but had not been selected as the preferred bidder by the administrators. Had this bid been accepted, the disgruntled bidder contented, Worcester Warriors would have been saved as a team and could have returned to the Championship next season.

Unsurprisingly the decision for the administrators to accept the bid that was most beneficial for creditors, rather than the one that was supposedly best for the club, was immensely unpopular both in print and social media. Coupled with the failure of the new owners Atlas to pass the RFU’s fit and proper person test, the administrators were accused (without evidence) by some of unscrupulous dealings.

Lessons to be learnt

The collapse of two professional teams has forced the sport of Rugby Union to take a hard look at itself. But there are lessons to be learnt for all of us from this fiasco. Auditors should have highlighted concerns earlier, a pre-tax loss of £23 million between 2016 and 2018 at Worcester was never going to be sustainable considering annual revenues were £12 million.

The DCMS Report concluded that “better governance structures, financial monitoring and proactive intervention … could have prevented much of the stress, financial loss, and unemployment of the subsequent relegation.”

Sporting insolvencies are always going to lead to distressed fans, but the Worcester case is an example of just how sour public opinion can turn. While IPs may not routinely draw up crisis management plans, or engage in active PR, explaining decisions to the public and highlighting legal obligations may prevent serious reputational harm when public emotions run high.