The WRU's big announcement: What it actually means and what happens next

When the Welsh Rugby Union's CEO Abi Tierney and its chair Richard Collier-Keywood held court with the press today to explain its headline strategy for the game in Wales, there were two key points of discussion.

One was the concerning financial situation the WRU finds itself in and the second centred on whether they would cut a professional side as a result. The WRU maintain their goal is to retain four professional sides but confirm they would seriously consider cutting to three if they could not find ways of bridging the astronomical £35m funding gap over the next five years.

Rugby correspondent Steffan Thomas takes a look at the headline strategy, what it means and how the WRU ended up in this position.

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WRU outlines aspirations but it's October that counts

So, the first thing which needs to be made crystal clear is today's announcement is only a headline strategy for the next five years, with the real deal expected to be announced in October. Radical decisions like cutting the number of regions or an aggressive tiered funding model will be made by the autumn.

The five key targets mentioned in the headline strategy, which is similar to a political party's manifesto, were; the men's and women's national side consistently ranked in the top five in the world, the regions challenging in play-offs, growing the number of active participants, financial sustainability at all levels and to increase the percentage of the Welsh public feeling positive about Welsh rugby.

The WRU and the Professional Rugby Board (PRB) will spend the next three months putting together a plan which focused on how to achieve those aims. But by far its biggest challenge will be bridging the £35m funding gap to the professional game over the next five years.

"The first action was to identify what it would take for a club to be successful," said Tierney. "We have built an archetype of what that club looks like and we have identified a funding gap that underpins that.

"The second action is we now need to work through how we are going to close that funding gap and we have a timeline to do that by September. If I sit here by September and we say here is what we are going to do to achieve that goal then the regional clubs will absolutely be here as part of that.

"They will be here as part of that solution. A strategy is a moment in time.

"You aren't going to have all of the operational plans and decisions done the same day you launch that strategy." Many journalists have heard similar promises made before but what is different this time is the acceptance that you cannot have a successful national side without competitive professional clubs underpinning it.

Tierney will not take the top-heavy approach many of her predecessors did.

The stark financial reality of the WRU

Put simply the WRU is not in a good place, financially. There is a £35m funding gap to the four regions while they have £24m in debt and there is £15m of annual deficit.

"We were spending £15m more than we actually had," said Collier-Keywood. "How was that funded? It was funded by selling assets that we had to CVC but the sale of those assets basically mean that in the future our income streams will be reduced because we've sold some of our media rights."

Of course Covid played a huge factor in the position the WRU currently finds itself in. "It's difficult to estimate the cost of Covid to Welsh rugby as a whole but we will put it in excess of £30m," he said.

"A lot of that still remains with us as a part of debt we took on as a part of that process together with the regional clubs to help Welsh rugby survive over what was an unprecedented period. Welsh Government provided £13m worth of grants but we still have an overhang of debt of £20m. That is relevant to looking forward in terms of our strategy."

However, while the WRU's financial position is not pretty, Collier-Keywood believes it is stable for now as they look to utilise its core assets.

"We have an amazing set of assets in the WRU," he said. "We want to make sure we maximise the use of our assets moving forward so we deliver more assets into Welsh rugby. That's really what we are focused on to work out reasonably how much that could be going forward.

"I'd say it's absolutely stable and we are doing our best to support both professional and community rugby in Wales while also making the whole eco-system stable." One criticism which is regularly thrown at the former WRU CEO Steve Phillips is over his decision to build the Parkgate Hotel but his successor believes that decision is paying off.

"The hotel is overdelivering against plan," said Tierney. "The way it works is basically the money that is made goes to paying off the mortgage on the hotel. What we are doing is building up an asset and it's not an albatross around our necks.

Collier-Keywood was also hopeful the WRU's audited accounts will be published in the near future.

"We've published some abbreviated accounts back a few months ago and those abbreviated accounts have still not been completed and finalised in terms of audited accounts," he said.

"But I am hopeful that within the next month we will have published our audited accounts to June 30th 2023 and the reason why it's taken some time is we are a group of directors want to make sure we understand the starting point for the financial platform we have to build Welsh rugby going forwards."

What happens next?

Both Tierney and Collier-Keywood are keen to stress their preference is to retain four professional sides and the work being done this summer is intended to keep them alive.

"If we are going to have regional clubs competing at the top level we have benchmarked other tier-one nations on what it takes to have a successful regional club," said Tierney.

"That looks at everything as to how much money needs to be spent on salaries, what are the facilities required, gym, what nutrition, coaching, physios and S&C. We've gone through all it takes to have a successful region and now we are working with them this summer through to September to say how we are going to build that.

"There's a rugby operating manual which says regions will get this amount of investment and in return we'll expect these level of standards to be delivered. We think that will really help lift the performance of the regions."

Having said that if they fail to come up with a plan to close that gap by the autumn then the WRU would consider activating the two-year notice period on the Professional Rugby Agreement which would cut a side or even a tiered funding model.

"Having done the work (in forming the strategy) the level of investment, when you've heard the financial position, is significant," said WRU CEO Abi Tierney. "If we are going to be successful we have a significant gap to close.

"There's two ways to address that. One is we identify ways to grow our income, ways regions can grow their income, look at debt restructuring and we can look at how we can utilise our balance sheet. If we can't close that gap then the way we will be able to achieve that goal is by having a different structure for the regions.

"You could cut the number of regions so that you've got less to invest in or to have two regions who get more money and two who are at a lower level.

"It could be 2+2, or even the Irish model of 3+1, but the first priority is trying to close the gap. That is what we are working towards doing so we can invest in the regions to the level we need to. There's also an understanding that if we can't close that gap we can't continue doing what we are doing.

"This is all about trying to prevent all our regions going bust. When you look at the pathway for players it's very much based on having four regions.

"We have given them all KPIs and minimum standards to reach. We will be discussing the way forward collectively in September. We can't survive if we keep on going in the way we are and spending too much money against the money we are bringing in.

"The way the PRA works is we would have to give two years notice so there's then a period of time you can manage it as a smooth transition. This is all about making sure one of our regions doesn't go bust. This whole strategy is about preventing that."

Collier-Keywood was also insistent the WRU would do all it can to fund four sides properly. "Our financial plan is set at looking at the next five years on a realistic basis," he said.

"If we think we can close that gap by taking action now that delivers revenue in year one, year two, year three we are planning to refinance our balance sheet to make sure we can refinance our balance sheet to buy us some breathing space to enable us to be able to deliver the right level of finances we think we need in the future.

"We are never going to change the organisation enough to have a view in September that we are suddenly making a lot more money to do this but realistically if we can see the path of that and we can see the opportunities coming through then we also have a balance sheet we are prepared to use to bridge that gap going forward.

WRU's CVC regrets

Professional rugby is operating in the era of private equity with the WRU selling 28% of its United Rugby Championship rights to CVC along with a significant sum of their Six Nations share. In essence their equity is locked in regardless of financial performance.

Collier-Keywood admitted that if the WRU were offered the CVC deal now they would turn it down.

"If you asked us whether they offered us the same deal now would we do it? The answer is we wouldn't do it because all it does is brings forward cash but it sells out the sort of future asset you have in value," he said.

"We had a series of payments, some of which had been paid for us already by CVC and some of which are still due to be paid for us by CVC over the next two accounting periods.

"The money we've broadly received so far has gone towards partly funding the funding gap we've had in the past and a lot of that, particularly in the 2019/20 years, that covered Covid costs.

"The original idea was to invest that into new assets which would generate income for the URC. In fact it went towards helping the WRU and the regional clubs survive Covid.

"Moving forward we have a funding gap because you can't just cut off expenditure. CVC income that's coming in on July 1st 2024 will be used to manage some of that funding gap and then we have one more payment due."