Northampton Saints are one of four clubs in talks with Saudi Arabia's Public Investment Fund. Photo: Mark Atkins/Getty Images
Since the global pandemic crippled Premiership Rugby financially, it was only a matter of time before the doors opened to new investors. The surprise is not that it happened, but that it took so long.
Government loans bought time for most, but not enough to save Worcester, Wasps and the London Irish, who were themselves seeking investment from the United States. consortium at the end of last season, which unfortunately had no hope of delivering on what was promised.
Other clubs had to look inward to sell more money. Last February, Leicester Tigers, arguably the most trusted brand in the English game and by far the biggest fan base, received a £10 million injection from Tigers majority shareholder Tom Scott and Peter. Tom, long-time chairman of the club.
Another English rugby club success story, Exeter Chiefs, also required a cash injection through the sale of a stake in Sandy Park Hotel Limited to club chairman Tony Rowe to provide a «capital injection to support cash flow» and to «help pay off significant debts accumulated Exeter Rugby Club due to the impact of the Covid pandemic.»
Gloucester, one of four clubs negotiating with Saudi Arabia's sovereign wealth fund partners for a 10 percent stake, warned in September 2020 that the club would go bankrupt within six months without government help.
The problem is that this £150 million has yet to be paid out. The Department of Culture, Media and Sport rightly wants to ensure that taxpayers receive good value for money and that rugby union is not seen as receiving preferential treatment. In the meantime, clubs would like to defer loan repayments, at least for a while, but without increasing the debt with high interest rates.
However, the pandemic itself was not the only reason. The loss of crowds and declining television revenues have led to exaggeration of already existing fault lines. Spending decisions made back in 2014 on the back of a lucrative TV rights deal with BT Sport were compounded two years later when the Rugby Football Union bet on an ever-increasing revenue stream by offering clubs a £220m deal for a professional agreement. game, including the release of England players.
Those who got the sums wrong were long out of the game and left others to pick up the pieces, but player wage inflation quickly proved unsustainable.
A £220 million deal in 2018 with CVC, which bought 27 per cent of Premier League clubs' revenues, again provided a short-term solution, but the lump sums received by the clubs were not invested for a rainy day. With no restrictions on how clubs could spend it, it was largely used to pay off debt.
Hopes are that the private equity firm will increase the size of the pie to offset the loss of almost a third of clubs' commercial income. were never justified.
Professional rugby has been flirting with other broadcasters such as Amazon, but without Sky Sports' interest in competing with TNT Sports, which took over the Premiership rights from BT, there are no longer any TV deals to give clubs a chance to cash in and get out of trouble.
Some leading figures argue that player wage costs remain artificially high and, given their share of operating expenses, the game's financial problems could ultimately be solved by a 20 percent cut. But next year the salary cap is due to rise from £5m to £6.4m. Supporters of the increase argue that, given the financial difficulties of the Japanese league and France's top 14, it is no longer easy to retain the best talent playing in England.
The worry is that this latest injection of money, if it happens, will again ease short-term problems, but this time with the political, moral and ethical baggage of accepting Saudi money.
The fine details of the deal are not yet are known, but the sale of 10 percent of the shares would mean that the clubs would lose 37 percent of their commercial income. What may seem like a good day today may happen again in a few years.
Attendance this season has been encouraging, the 10-team league has received a positive response, and the concentration of resources has increased. have improved quality and made clubs more competitive in Europe.
But securing the future of professional club rugby remains a matter of the next big broadcast deal. The numbers are being crunched to see if the value would increase with the creation of an Anglo-Welsh or British-Irish league, but even if it did it would be a one-off boost.
The sad truth is that while the latest investment may be small change for the Saudis, it is unlikely to solve the financial problems of professional rugby clubs.
Q&A: The potential future of rugby in Saudi Arabia class='tmg-particle embed wrp-8c00d420-76ed-406a-8a9e-5bfe040f40f4' name='Copy of Charles Richardson's Welford Road' data-business-type='editorial' loading='eager' scroll='no'frameborder='0' style='width: 100%; min-width: 100%; border: none; position: static; display: block; padding: 0px; margin: 0 px;'>What does this mean for the Premier League?
The fact that such a group is interested in investing large sums of money into the league in a season after three clubs have gone bankrupt should be seen as a positive from a financial perspective, especially given the salary cap. will rise from £5m to £6.4m and clubs are desperate for an injection of funds.
Even if the venture brought in £15 million for each club, it could be a game changer for a team like Newcastle Falcons, who have slashed their budget this season in a bid to become more financially sustainable.
There are some, but there are serious ethical concerns about the arrival of Saudis, especially due to the country's human rights record.
Why is Saudi Arabia interested?
This will be the first foray into the world of rugby union, following other major players such as CVC and Silverlake in the world of private equity. Investment in rugby would be a drop in the bucket compared to the £300 million PIF has invested in Newcastle United and the billion-plus spent on LIV Golf.
Of course, there is an element of sportswashing: Saudi Arabia is trying to divert attention from its human rights record. If the deal is successful, the Premier League could even follow boxing, tennis and golf in bringing some matches to the kingdom.
What's at stake?
If the investment were made in all four clubs, the group could not claim a stake of more than 10 percent in each. If even one club received Saudi investment, only a change of ownership of 11 percent or more would require the consent of the governing body. So if the club valued itself at £50m, it could expect to receive £5m for a 10% stake. There is also the possibility that Saudi state-backed businesses could obtain additional capital through sponsorship agreements.
Can the Saudis invest in more than one club?
Yes, but they are prohibited from acquiring more than 10 percent of the shares in each, according to rules of the RFU and the Premier League. At European level it's 20 per cent, so a takeover bid for Gloucester by Montpellier owner Mohed Altrad has been blocked.
Can the RFU do anything about it?
Only if potential deals will take place. more than 10 percent ownership of any club. If there are fewer of them, the governing body will be powerless – from a rules perspective – to stop any deal. Even if the investment was more than 10 percent of just one club, the RFU could intervene, but at this stage it is unclear whether it will allow or block the deal.
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