(Notes on the current financial situation at Twickenham)
It cannot have escaped the notice of even the casually interested observer that all has not been well at Twickenham of late. An anticipated, pressing, financial shortfall was unveiled to Council Members at the June Council meeting by the incoming Chief Finance Officer, Sue Day. Sue replaced Steve Brown after he was appointed to the role of Chief Executive in the wake of Ian Ritchie’s departure. For most Council Members it was the first they had seen of the new CFO and it seemed as though she had inherited the poison chalice, having to deliver a message of imminent shortfall, pressing need to restructure and an ensuing period of austerity.
What were the origins of this shortfall in income?
Let me dispel at the outset the red herring that it has been the overspend on the East stand redevelopment that caused this; it was not. The spending on the redevelopment is the product of capital spend, the shortage which has caused so many repercussions has been a shortfall in anticipated income. It will have a small impact in terms of increased depreciation write-off in future years.
The four main factors highlighted by the Board in their current financial planning are;
- The fact that the RFU’s is a four-year cyclical business and is facing the impact of a ‘normal’ Rugby World Cup Year loss in 2019/20 for the first time in 8 years (the 2015 home World Cup delivered c£30 million profit). Historically, RWC year is loss making as there are no Autumn Internationals at Twickenham. But we have known this for many years and should have seen it coming.
- The one-time major income boosts the RFU has benefited from in recent times, including RWC2015 and the significant TEL/Compass deals, are no longer on the horizon. (Twickenham Experience Limited (TEL) was set up in 2000 as a joint venture between the RFU and Compass Group, the FTSE 100 food services provider a £42m joint venture which netted the RFU £16.75m) We also knew this from the outset.
- The significant income (specifically in TV rights-most of which run out by 2020-and sponsorship deals) and corresponding Rugby investment growth enjoyed in the last 7 years is now highly unlikely to continue and assumptions about future revenue are having to be re-set in light of the growing uncertainty in both the UK sports market and the wider economic environment; which predict a downturn in rights income.
- The RFU’s contracted investment in the Professional Game has increased because of the PRL agreement struck in 2016, for eight years. Success at the elite end of the game drives our business model and provides the funding for community rugby so national success is essential, as is keeping Twickenham Stadium in good repair. This translates into significant committed investment which reduces the amount of discretionary spend at our disposal. We knew what the terms of the PRL agreement were and should have been able to determine in advance what would be its effects on expenditure this season.
What were the immediate consequences?
As a result of those forward predictions of our financial position, they decided to tighten belts now to ensure spending levels are both prudent and sensible in the new world we are facing as well as ensuring the ability to continue to deliver our Rugby priorities at a significant level for many years to come. Some might say though that this was not forward enough in predictive terms.
These were the consequences of the decisions reached by the Executive:
- As the result of the Staff Consultation process, around 60 roles right across the RFU will have been made redundant. Around 35 of these are in the Community. Rugby Development is likely to continue to employ around 225 people and will remain the largest workforce in the Union. All RFU departments have made proportionately similar reductions and the most senior redundancies are at Twickenham HQ, including in Finance, Strategy and Corporate Affairs and Professional Rugby. (N.B. Leicestershire has emerged unscathed by the loss of community field workers that other CB’s have seen)
- Budgets and spending have reduced for this year, though the RFU will still invest over £100 million in the game, including almost £48 million in the Community Game (£34.4m from the P&L, plus £13.4m of capital investment into Artificial Grass Pitches).
- Although the reductions in the community game budget and people numbers are devastating for all concerned, they do follow recent years of record levels of investment. Ten years ago, the RFU spent just £20 million on the community game so even this year’s reduced budgets are still higher than they were 5 years ago. Clearly this doesn’t make the reductions and staff losses any easier for the game, but we should not forget what the achievements in recent times.
- Future income is likely to be flatter than hoped for, so it is important that we do everything we can to protect revenue. The new East Stand, which will open this Autumn, is designed to bring more corporate hospitality in house in order to maximise the income to be spent on rugby. Although the budget for the East Stand has increased significantly (£16m more than the budget of £65m), largely as a result of significant and urgent changes made to fire safety regulations following the Grenfell Tower tragedy, and counter terrorism requirements, it will still have paid for itself fully within seven years.
- We have net assets of over £200m, we own our key asset, Twickenham Stadium, and we have a £100m bank loan facility that will be fully repaid by the end of 23/24 and this is enabling the current capital investment into the East Stand and protecting our future revenue.
What has been the result of the restructure and austerity drive?
The Board decided to enter into a statutory staff consultation with a view to a restructure that would, inevitably, lead to staff redundancies; around 60 were anticipated. The re-structure and redundancy programme is nearly complete, though the Board were until recently still in formal consultation with a very small number of affected individuals and once that is complete we have been promised that a full organisational chart and details on who to contact for what issues will be released.
The Board wrote to all CBs earlier in the Summer to update on their strategy and plans going forward and to address some of the issues that were raised directly to them and via feedback from the Game. They said that they wanted ‘to provide some further facts and context to ensure a good understanding of the actual financial position, as there is some confusion and concern in the game at the moment’. Along with other Midlands based Council Members, I met with Community Rugby Director, Steve Grainger, recently to take the opportunity to make a more in-depth examination of the situation than we had had the opportunity to do at Council. Leicestershire Rugby Union’s Executive has been one of a very few CBs that have continued to express concern at what has happened and why we are where we are and we have taken up the offer of a visit from one of the Executive team to talk to us and answer questions. I have arranged for a Board member (either the Chair or Chief Executive) to visit us shortly and I will report on the outcome of that visit at a later stage.
Nonetheless, the Union’s financial position remains strong – the RFU is not in financial difficulty. The Union has net assets of over £200m according to the last annual report. We own our key asset, Twickenham Stadium, and our £100m bank loan facility is slated to be fully repaid by the end of 2023/24 and this is enabling the current capital investment into the East Stand to protect our future revenue.
The Executive say that, ‘to give us some assurance’, since 2011 they ‘have continuously improved financial governance in the organisation to ensure that it operates at a standard which is appropriate for an organisation the size of the RFU. This has included improved levels of financial controls and delegation, transparency around reporting, extensive internal and external audit activities and an Audit Committee chaired by an Independent Non-Executive Director’. Personally, I am not reassured; the question for me is where was that Governance, those improved processes and what were the Auditors doing in the last few years? Why did this situation come as such a surprise when so many of the factors were already known or entirely predictable?
That having been said, nationally Leicestershire’s is a small voice. Clubs have shown distinct disinterest both nationally and locally. Only two or three have written to the RFU and not one club in Surrey, given the option of pushing the RFU for an SGM was remotely interested. The situation is the same in Gloucestershire. When I pressed them, the CBs whose Council Members and I met with Steve Grainger in the Summer (East Mids., Eastern Counties, Hertfordshire, Oxfordshire and Buckinghamshire) were distinctly uninterested as well. Nor do I know of any Leicestershire clubs showing interest either.
All of the foregoing comments in red type are my personal views only and will form the basis of the questions I hope to put to the Board member who meets with the CB Executive this Autumn.
What has become abundantly clear is that, in future, Council will have to be far more searching and interrogative (and prepared to flex its muscles more) of both the Board and the Executive in terms of future plans and, more especially, on all matters financial.
Peter A Howard
RFU Council Member for Leicestershire & Rutland
30 September 2018
RFU Business Plan 2018/19 – Frequently Asked Questions (and responses) produced by Twickenham
- Is the RFU in financial trouble?
The Union is not in financial trouble – we are on very sound financial footing. We have strong revenue streams – 2018/19 revenue was one of our highest ever years – net assets of over £200m, we own our key asset, Twickenham Stadium, and we have a £100m bank loan facility that will be fully repaid in five years that is enabling the current capital investment into the East Stand, to protect our future revenue. We also have a long waiting list for debentures.
- How much will the RFU invest in rugby this year?
We will invest over £100 million into rugby this year – in the professional game and the community game.
- How does this compare to recent years?
We have invested record amounts into rugby in the last few years. From 12/13 to 15/16 we invested over £300m into rugby, and we are on target to invest over £400m over the current 4-year cycle – another record amount. This compares to the £207m that was invested in the 4-year cycle to 11/12 and the £179m that was invested in the 4-year cycle to 07/08. We have transformed our rugby investment in recent times.
- How much are you investing in the Community Game, and how does this compare to recent years?
Ten years ago, the annual investment in community rugby was £20 million. This year it will be almost £48 million (£34.4m in cash from the P&L plus £13.4m of capital investment into Artificial Grass Pitches). In addition to these numbers, we make significant investments into the operation of the community game, including safeguarding, discipline, technology, marketing and PR.
- How many jobs will be lost in total?
We are coming to the end of the process, and at this point, we anticipate that around 62 roles will be made redundant. We are also recruiting some new roles across the organisation which will minimise the number of people who leave the organisation due to redundancy.
- How many jobs will be lost in the Community Game?
By the end of the process, we will employ around 225 people in Rugby Development to support the community game. We believe around 35 roles will have been made redundant, but the consultation process is not yet concluded for all our employees. This rightly remains the largest workforce in the Union. The adjustments we have made to staffing and budgets this year follow years of record levels of investment.
- Has the Community Game borne the brunt of the cuts and redundancies?
The recent adjustments have been made right across the RFU. The community game has not borne the brunt of it – similar proportionate cuts have been made to the Professional Rugby department, and to our back office and support functions at Twickenham.
- Are people being made redundant due to the East Stand going over budget?
No – these are not connected. The investment in the East Stand enables us to bring more corporate hospitality in house to maximise income which can be invested in rugby, rather than the previous model which meant that not all profits were returned to the game. The revenue raised from the new facility will be invested into the game.
- Why has the East Stand gone over budget?
The increased budget is largely due to matters outside our control, including more stringent fire safety and bomb regulations introduced post the Grenfell Tower fire and counter terrorism requirements. Health and Safety is obviously our number one priority. The stand will pay for itself within 7 years, which is a very good rate of return, and the ongoing profits generated from hospitality will be invested into rugby.
- How does the RFU budget and financial management work?
We have undergone an extensive financial governance overhaul since 2011 to ensure that we operate at a standard which is appropriate for an organisation the size of the RFU. This includes improved levels of financial controls and delegation, transparency around reporting, extensive internal and external audit activities and an Audit Committee chaired by an Independent Non-Executive Director. We report in detail to Council every quarter, and Council see and discuss our annual business plans. If any member of the rugby family has any questions about our finances, all they need to do is ask.