Time to privatise the provinces? [Opinion / Article Post]

[COYBIB]

I'm sure most of you have read Philip Brown's statements following the IRFU annual report, but this year has been stark in its warnings more than most years, despite the continuous and concerning disintegration across the three traditional major provinces, he has used words such as "IRFU no longer has the capacity to absorb increasing costs of the professional game", "no longer be the ‘lender of last resort’".

The current Irish model was a masterstroke in bridging the gap from amatuer to professional rugby. Provinces, traditionally not known for big following or even regular match play (despite what they might try and tell you in Limerick, interpros of old attracted a few hundred people, the only time big crowds attended was when there was an opportunity to see an international team, particularly outside of Dublin), so the financial clout of an international union was more than enough to sustain the provinces by contracting the international team directly to the union and then funding the provinces to continue to produce international quality players and the greater the provinces, the greater the national team and round and round we went on the merry-go-round, and it worked. It's was brilliant, it was a well balanced, mutually beneficial system, but the "transition" from amateur to professional rugby is well and truly over and the administration and funding of clubs across Europe has changed dramatically as the full benefits of professional sport kick in, such as larger fan base, larger prize money, larger TV monet etc.

There is something fundamentally wrong in the Celtic model now. The over emphasis on the national team, visible in Ireland but also in countries like Wales, has seen the club game deteriorate rapidly over the last number of seasons, as the equilibrium of being able to retain your own best players and sign marquee players has gone over a tipping point and even the former has now become a major issue.

So where to begin on what has gone wrong. Well, the first problem and the longest problem we've had is we don't have a commercially viable league. This has always been an issue, and we can point the finger of blame at the Welsh for not in any way supporting the league, no interest in attracting crowds and taking every opportunity to sabotage the league at the whim of the English, whenever they may click the fingers for the lapdog to jump, the Scotts for generally just mismanaging their affairs, a similar sized country to Ireland, similar international revenues, it has taken an age for them to get their act together, or the Italians, who show absolute no sign of progress and have even regressed somewhat perhaps, there just doesn't seem to be the right people in place to revolutionise the sport over there and it seems to have become very stagnant and stale, no progress is being made...but for whatever the reason, the league is poorly attended, poorly viewed, has no prospect of attracting a game changing TV deal and if anything, looks like it will be dropped by SKY at the end of the current contract (I heard some ridiculous statistic about the viewing numbers of the Pro12 final, out of the millions of SKY subscriptions, something like 15,000 people watched it or something crazy like that.)

Or we could blame the English, for bullying Europe into a three tiered system of England, France and Ireland/Wales/Scotland/Italy and convincing everyone that a three way split of the money was a good idea - i.e. 33% of the money to English rugby, 33% of the money to French rugby, 8% of the money to Irish rugby, 8% of the money to Welsh rugby, 8% of the money to Scottish rugby and 8% of the money to Italian rugby.

But the bottom line is, there are only certain things you can control, and it's about making the most of what you can control and forming a strategy to negate whatever competitive advantage other organisations have, to the best of your ability.

I would go so far as to say the current provincial game is in crisis and is nearing the brink of the point of no return, if we haven't already gone past that, so far are we behind the financial clout and the revenue generating structures in place for the English and French.

Some more quotes from Phil:

"The increase of almost €6m in player and management costs, arise, in large part, from the necessity to provide against operational amounts due from the Munster Branch, in light of their current financial difficulties…"

"The risks to the Irish professional game are potentially profound"

Now, part of the problem is, why should one infected limb kill the entire body? This isn't about Munster, or that they are the ones struggling at present, but it is completely counter intuitive to have a situation where all three major provinces must be doing well in order for the system to work. You can't run a business dependant on two other business' you have no control over not failing, and then when they are failing, to absorb their losses into your own business with no other benefit than keeping them alive because well that business is oirish, so our business should fail in order to slow down their failure.

If we go back to the most basic IRFU standpoint, it can effectively be summed up as this:

In order for the game to survive here, it needs to have a successful national team, as the national team provides the lions share of the income and all of Irish rugby is dependent on that income for survival.

I suppose the first obvious observation is; Why are we creating this situation where everything is dependent on one basket of eggs and why aren't we focusing on the problem rather than creating new ones by strangling the life out of the supply chain that provides for the main factory. If we aren't producing enough goods, then we should cut costs on raw materials to absorb the losses. That doesn't make any sense, and eventually, if you follow this logic, you will cut raw material costs to zero in order to compensate the lack of income from not producing enough goods.. I hope these analogies are landing.

So the dilemma here is this, if Philip Brown was to privatise the provinces (and there are any number of forms this could take, which I'll try to get to later), the first problem he's resolved is that the national team no longer needs to fund the national game. The second problem he solves is freeing up vast amounts of resources to focus on retaining only the centrally contracted players (if this was part of the agreement with provinces), and to invest in grassroots rugby and infrastructure. Such as the RFU, they have nowhere to put all the cash they have, so instead they invest in assets, infrastructure, massive, massive investment in schools and junior clubs and then when that's all said and done, they give big lumps of payments out to professional clubs for everything from competing in the national league, to contracting English players, to producing English internationals etc. England have adapted so well under this model that they now have a club that are European champions for the first time in a decade, they just won their first grand slam in god knows how long, they just white washed a southern hemisphere team on tour for the first time in however long, they have reached 4 of the last 5 (if I'm not mistaken) U20 rugby world cup finals, including 3 in a row and 3 championships during that time (I need to double check all that, but it's something along those lines - they've been crazy successful at U20 level is what I'm saying).

So, the only main downside for Philip Browne is losing control over the provinces and thus this is not as advantageous for the national team, but bearing in mind that we are no longer entirely reliant on that national team, it isn't as major an issue now as it would be if we stayed in the current model. Also, investment in the provinces from the IRFU could focus solely on schools, academy, 7's and AIL to develop more talent through increased exposure to top class opposition and investment in facilities and resources, such as coaching. Imagine a world where the IRFU could be as footloose and fancy free as the GAA. They could have a rugby club in every village in the country, they could set up coaching academies for schools coaches, AIL coaches, ex players, anybody interested in coaching .. and increasing the quality of coaching dramatically nationwide. They could set a national academy, identifying players from a much younger age and exposing them to a much higher level of technical coaching much sooner in their development ... essentially, if the provinces weren't taking the lions share of funding, there are endless possibilities to what the IRFU could do to develop the game in other ways, whilst still benefitting from 90% of the policies they had in place whilst running the provinces.

What would change? Well, the IRFU could stipulate under privatisation certain conditions that have to be followed, such as every match day 23 in all competitions can contain no more than 5 NIQ players (although you can sign more), IRFU get first refusal on contracting internationally capped players, international team windows under which the national team has access to players (even if outside the overall international window) etc. .. all that could be accounted for.

The only major, major change would be a cash injection into the provinces and make them more competitive, which comes back full circle to where we wanted to be in the first place. Irish players playing in the best competitions along side and against the best players in the world.

Maybe I'm over simplifying everything, especially when you consider it seems Connacht have never contributed a cent to Irish rugby and are heavily subsidized both in playing resources but crucially, entirely in financial resources, Leinster break even, If not union controlled, Munster would have folded and been declared bankrupt, or they would have downsized the quality of their squad so dramatically to control costs that in any other country they would slip down the relegation ladders not to be seen or heard of again, at least for a couple of decades...

But what might seem like a hard sell may well be more a testament to the mismanagement and low business I.Q. at Lansdowne Road, as private investors have taken the reigns of many failing clubs and sleeping giants and have taken them right to the pinnacle to European rugby and have turned a profit whilst doing so (Toulon being the prime example).

Imagine a €10m investment for EACH province, to relinquish control and transfer all commercial rights over to a private investor. Straight away you've got a cash injection of €40m plus a cash saving of about €30m per year ... I contacted David Drumm for those figures, which he retrieved from his derriere, but as a ballpark, it seems like something very much worth seriously considering.

It has appeared for some time to me that this is the most obvious and strategically correct thing to do, but it would require turkeys voting for Christmas and the power holders to fall on their sword for the greater good of Irish rugby. I don't see it happening, but wish it would.

[Oldschool]

The IRFU blew a huge financial opportunity to move to the IGB site, have a new stadium built for them and a barrel of money to boot.
They would have been financially secure for eternity.
Didn't know why they didn't move, at the time, and still don't.

[Dave Cahill]

The IRFU blew a huge financial opportunity to move to the IGB site, have a new stadium built for them and a barrel of money to boot.
They would have been financially secure for eternity.
Didn't know why they didn't move, at the time, and still don't.

Firstly, the entire deal was dependent on the land where the Aviva now stands being rezoned residential and that was never going to happen. Secondly, the cost of decontaminating the IGB site before development could even start would have absorbed that barrel and every other cent they had to boot. The IGB thing was never anything more than fantasy.

[matt]

Brown's comments about Munster not likely to be able to afford E500k pa repayments to IRFU anytime soon worrying not just for Munster but all the Irish Provinces even Ulster who seem to have repaid all their loans.

[simonokeeffe]

Brown's comments about Munster not likely to be able to afford E500k pa repayments to IRFU anytime soon worrying not just for Munster but all the Irish Provinces even Ulster who seem to have repaid all their loans.

Maybe weve found out why Ulster get special treatment in terms of foreign players

[jezzer]

Absolutely brilliant post. A great read.

It's a compelling argument. The question is, who's going to invest in this league (or any similar one) with this paltry stream from Euro Cup revenue and these partner nations (Wales, Scotland, It)? Making money from Leinster as a private business is a more daunting task than it would be from buying a Pro D2 club or a Championship side.

[Oldschool]

The IRFU blew a huge financial opportunity to move to the IGB site, have a new stadium built for them and a barrel of money to boot.
They would have been financially secure for eternity.
Didn't know why they didn't move, at the time, and still don't.

Firstly, the entire deal was dependent on the land where the Aviva now stands being rezoned residential and that was never going to happen. Secondly, the cost of decontaminating the IGB site before development could even start would have absorbed that barrel and every other cent they had to boot. The IGB thing was never anything more than fantasy.

Do the IRFU still have their Stadium sized land bank near Newlands Cross?

[Oldschool]

Absolutely brilliant post. A great read.

It's a compelling argument. The question is, who's going to invest in this league (or any similar one) with this paltry stream from Euro Cup revenue and these partner nations (Wales, Scotland, It)? Making money from Leinster as a private business is a more daunting task than it would be from buying a Pro D2 club or a Championship side.

I agree, the numbers gane means we are always going to be the poor relations.
The only long term solution I can see is a doubling of the population.
Have fun boys and girls

[Ruckedtobits]

Great article COYBIB. Am working on a contribution trying to pick up most of the comments you have made. However, my underlying comment is that professional rugby has not been commercially successful in any market to date. Approx. 3 English Clubs generated a surplus over the past three years (cumulative) and none of these paid a dividend to Shareholders - Leicester, Saints and Exeter.

In France, various high-profile Clubs have been censured or fined for breaches of Salary Cap or Financial irregularities. Some have been relegated and fined (e.g. Biarittz) with the relegation suspended pending further investigation. At least two Club owners are making parallel property investments which may yield a bonanza (Racing and Stade Francais) but these are not rugby-based profits, rather Location, Location, Location. Even Clubs like Stade Toulousain, Clermont, Bordeaux & Toulon will not yield a surplus to their owners in 2015-16. Au contraire, each must find more money from sponsors to afford to sign the players they want to field in Top 14.

Despite the huge increase in TV deal with Canal +, the only winners have been players and their agents who have seen base incomes increase ON AVERAGE by 28% over past 3 years (L'Equipe newspaper as source). Couple this with the disaster that is French National team and you can see how the appetite for even normal-season Top 14 games is reducing.

Rugby owners, from Unions, Provinces and Clubs need to convene in one room for a weekend and examine the reality that is NFL and how owners have built the value of Franchises. As rugby, as a national and international game, has a "brand value" it is possible to develop better models of competition and a season-structure which would attract TV money and crowds.

NFL franchise owners don't pick up annual dividends but look at the figures that are available re sale of franchises and look at the growth in values. That is where the value is to owners.

Enough for the moment. But no pot of gold evident at bottom of the rainbow, wherever that is. English Union with multi-use Twickenham Stadium is only entity in rugby worldwide which accumulates annual surplus, just about every year.

[Peg Leg]

Great article COYBIB. Am working on a contribution trying to pick up most of the comments you have made. However, my underlying comment is that professional rugby has not been commercially successful in any market to date. Approx. 3 English Clubs generated a surplus over the past three years (cumulative) and none of these paid a dividend to Shareholders - Leicester, Saints and Exeter.

In France, various high-profile Clubs have been censured or fined for breaches of Salary Cap or Financial irregularities. Some have been relegated and fined (e.g. Biarittz) with the relegation suspended pending further investigation. At least two Club owners are making parallel property investments which may yield a bonanza (Racing and Stade Francais) but these are not rugby-based profits, rather Location, Location, Location. Even Clubs like Stade Toulousain, Clermont, Bordeaux & Toulon will not yield a surplus to their owners in 2015-16. Au contraire, each must find more money from sponsors to afford to sign the players they want to field in Top 14.

Great thread in general.
And I'd ask Paddyor to step in here to explain (which he tried to explain to me about 4 times in the ho-show), but is the value in owning these clubs not in fact, being able to write off huge sums of tax from their other enterprises by some accounting mastery?

ergo, club profitability doesn't really matter if the balance of their portfolio is in the black.

[simonokeeffe]

Great article COYBIB. Am working on a contribution trying to pick up most of the comments you have made. However, my underlying comment is that professional rugby has not been commercially successful in any market to date. Approx. 3 English Clubs generated a surplus over the past three years (cumulative) and none of these paid a dividend to Shareholders - Leicester, Saints and Exeter.

In France, various high-profile Clubs have been censured or fined for breaches of Salary Cap or Financial irregularities. Some have been relegated and fined (e.g. Biarittz) with the relegation suspended pending further investigation. At least two Club owners are making parallel property investments which may yield a bonanza (Racing and Stade Francais) but these are not rugby-based profits, rather Location, Location, Location. Even Clubs like Stade Toulousain, Clermont, Bordeaux & Toulon will not yield a surplus to their owners in 2015-16. Au contraire, each must find more money from sponsors to afford to sign the players they want to field in Top 14.

Great thread in general.
And I'd ask Paddyor to step in here to explain (which he tried to explain to me about 4 times in the ho-show), but is the value in owning these clubs not in fact, being able to write off huge sums of tax from their other enterprises by some accounting mastery?

ergo, club profitability doesn't really matter if the balance of their portfolio is in the black.

if the IRFU "lose" money on the provinces they own that money isnt taxable, they dont own the provinces but give them money then it would be very hard to claim that as a business expense

[Peg Leg]

Great article COYBIB. Am working on a contribution trying to pick up most of the comments you have made. However, my underlying comment is that professional rugby has not been commercially successful in any market to date. Approx. 3 English Clubs generated a surplus over the past three years (cumulative) and none of these paid a dividend to Shareholders - Leicester, Saints and Exeter.

In France, various high-profile Clubs have been censured or fined for breaches of Salary Cap or Financial irregularities. Some have been relegated and fined (e.g. Biarittz) with the relegation suspended pending further investigation. At least two Club owners are making parallel property investments which may yield a bonanza (Racing and Stade Francais) but these are not rugby-based profits, rather Location, Location, Location. Even Clubs like Stade Toulousain, Clermont, Bordeaux & Toulon will not yield a surplus to their owners in 2015-16. Au contraire, each must find more money from sponsors to afford to sign the players they want to field in Top 14.

Great thread in general.
And I'd ask Paddyor to step in here to explain (which he tried to explain to me about 4 times in the ho-show), but is the value in owning these clubs not in fact, being able to write off huge sums of tax from their other enterprises by some accounting mastery?

ergo, club profitability doesn't really matter if the balance of their portfolio is in the black.

if the IRFU "lose" money on the provinces they own that money isnt taxable, they dont own the provinces but give them money then it would be very hard to claim that as a business expense

Comment was apropos the English club owners.

[simonokeeffe]

ahhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh

the sneaky way to make money off them is to use club assets as secure collateral to get cheap loans elsewhere for other things like the Glazers did

kind of want to hear PaddyOr on this now too, all I have is the obvious stuff on differences in tax codes/rates

[Ruckedtobits]

sok, you raise one of the most central questions of IRFU structure i.e. who does "own" provinces?

Coupled with this comment, consider why is PB, CEO of IRFU and normally a very recalcitrant man making statements about every aspect of the professional game, at a time when the only critical decision being taken by IRFU is the creation of a Company to hold all IRFU property.

An option to introduce this structure has existed within Union Bye Laws for at least a decade and was introduced originally because of prospect of a ban on Planning Permission for commercial housing on all "institutionally-owned" property by Local Authorities. What is the key driver for this decision now and is the raft of PB statements intended to deflect attention from the significance of this decision.

Finally, will this decision clearly indicate who owns Thomond Park, Ravenhill and Donnybrook. At present, L'downe Road -Aviva Stadium, is within a company owned by FAI, IRFU and Irish Gov'ment. Thomond Park was also in a Joint Venture company with Munster and IRFU. Where is it now held?

Needed: fully-fledged conspiracy theorist to investigate whether IRFU ever do anything without an ulterior, undeclared, motive.

[Dave Cahill]

Did somebody call me?

[paddyor]

Great article COYBIB. Am working on a contribution trying to pick up most of the comments you have made. However, my underlying comment is that professional rugby has not been commercially successful in any market to date. Approx. 3 English Clubs generated a surplus over the past three years (cumulative) and none of these paid a dividend to Shareholders - Leicester, Saints and Exeter.

In France, various high-profile Clubs have been censured or fined for breaches of Salary Cap or Financial irregularities. Some have been relegated and fined (e.g. Biarittz) with the relegation suspended pending further investigation. At least two Club owners are making parallel property investments which may yield a bonanza (Racing and Stade Francais) but these are not rugby-based profits, rather Location, Location, Location. Even Clubs like Stade Toulousain, Clermont, Bordeaux & Toulon will not yield a surplus to their owners in 2015-16. Au contraire, each must find more money from sponsors to afford to sign the players they want to field in Top 14.

Great thread in general.
And I'd ask Paddyor to step in here to explain (which he tried to explain to me about 4 times in the ho-show), but is the value in owning these clubs not in fact, being able to write off huge sums of tax from their other enterprises by some accounting mastery?

ergo, club profitability doesn't really matter if the balance of their portfolio is in the black.

it's my opinion and it's based loosely of how things work heren wrt trading losses.
https://www.charteredaccountants.ie/tax ... -1-tb.html

Section 381 TCA 1997: current year loss relief for losses sustained in a trade or profession or employment - available against all profits/gains
Section 382 TCA 1997: any loss not utilised under Section 381 can be carried forward against future profits/gains of the same trade or profession

It's made a bit easier if there's one holding company for the club and other income. Technically you're not supposed to carry on a trad with the intention of making a loss but it's incredibly difficult to prove.

It's not free but the cost is considerably less than the headline figure. In Ireland a high net worth individual would pay tax at a rate of 55% on income a little over €100k. So if there's a loss of say 500k they can offset against other other income and the effective cost to them is 45%. If the asset is appreciating in value then better again.

[Donny B.]

https://www.youtube.com/watch?v=uV8a0-cXzNs

It's been fun though....

[ronk]

The fact that the IRFU were able to support Connacht for years and protect Munster through current temporary financial issues is a slam dunk argument against privatisation. Losing Munster at a time like this could threaten other provinces and even the pro12.




Sent from my iPad using Tapatalk

[Dubmon]

I'm all in favour of this, but I think in the short term, the only rationale for pumping 10m into a province is as a vanity / pr project. You could see the likes of JP, Denis O'B doing it in Leinster or Munster. I'm sure there are equivalents in Ulster (if they haven't been scared off by the Rory Mc treatment) and Connacht.

[Dave Cahill]

You wanna know how to have a personal fortune of €10 million?
Start with €20 million and invest in a rugby team!

Thanks folks, I'm here all week, try the chicken.