How’s The WRU’s “Project” Going? And Just What Needs To Be “Reset”

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Having recently looked at the Principality Premiership, Geraint Powell turns his attention to the survivors of the great 2003 Welsh rugby shake-up, the regions. These like to consider themselves as independent business operations. On the eve of the new season, how’s trade?

“Project Reset”.

Two words that send a shudder down the spines of those who want to forever remain with the non-aligned April 2003 fudge without the requisite never ending evolution/modernisation.

This is compounded by ill-advised fixed term “cliff edge” agreements between the WRU and the regions, an excuse to stand still for periods of five to six years.

Regional rugby is professional sport, where any entity is soon obsolescent unless it is continuously evolving and modernising.

You don’t ever need a ‘project’ for any status quo that is working satisfactorily, and ‘reset’ tells the real tale.

Rugby fans across North Wales may look away now.

There are simply too many problems facing the existing four South Walian professional regions for the WRU to worry in the foreseeable future about the excluded half of the country.

It has felt over the last 18 months that matters have gradually been coming to a head in Welsh regional rugby.

The Welsh Rugby Union taking over the collapsing (Newport Gwent) Dragons to preserve professional regional rugby in Gwent.

The “doomed to fail” Premiership Selects failing, to the surprise of few (if any).

To be replaced by de facto Region ‘A’ teams; developmentally desirable but with the associated politics and pyramidal consumer demand at the same time unedifying.

The modernisation of WRU governance itself, for people living in glass houses shouldn’t initiate stone fights.

The old Irish Rugby Football Union general committee proving singularly unhelpful to Welsh governance reformers, choosing last season of all seasons to deliver a Grand Slam, an Autumn Internationals clean sweep, a Test series win in Australia and a domestic/European double by the Leinster province.

But the real focus has been turning towards resetting the long-troubled regional game, the key a credible successor to the current unfit for purpose designated regions/‘armistice’ agreement absurdly mis-named the Rugby Services Agreement (RSA).

As we head towards a new Professional Rugby Agreement (PRA), accurately named, what are the issues to look out for in terms of assessing how successfully the WRU are re-setting the tier?

These are six key indicators:

(1) Business

As the current WRU CEO (Martyn Phillips) arrived from ‘big retail’ (Kingfisher’s B&Q), it is perhaps no surprise that – finally – we have commenced a consumer focussed shift towards the Test and non-Test tiers of the professional game as an aligned and integrated business.

One would have expected this to have happened sooner, given that the fundamental underlying regional rugby problems are financial; insufficient revenue and inefficient expenditure.

But it was not done sooner, not least because there was no sensible regional rugby model created.

Just four disparate professional, plus later the RGC semi-pro development, regional rugby businesses with only the regional designation in common.

Then you just have to add the long history of distrust and conflict between various WRU directors/executives and some regional funding directors.

The reality, under World Rugby’s Regulation 9, is that the Test tier of the professional game makes money and the non-Test tier loses money.

The player inflation driven by a number of player importing commercial revenue rich club systems currently virtually guarantees it, for no national rugby pyramid is an island.

The key for smaller countries is the union organising an integration as one business, so that enough of the Test team income surplus healthily cross-subsidises the regions/provinces.

We all know the big ‘macro’ level business issues and problems in Welsh regional rugby, for they are constantly debated. The number, identity, location and structure of the regions.

Duplication in South West Wales, alienation in South East Wales and the disenfranchisement of the North, all without universal central player contracting to efficiently control the wage market.

But the focus of the PRA undoubtedly, in the absence of any appetite for further conflict and a new willingness from many in the regional game to change, will be on remedying the past failings at the ‘micro’ level.

What further progress will be made in relation to joint back office functions, marketing, sponsor gathering and procurement?

Will inefficient idiosyncrasies such as unnecessary and wasteful inter-region player wage price competition finally be addressed?

The regional funding directors can legitimately point to the past history of conflict with the WRU, but any scrutiny of their failure to pursue business synergies between them as a regional initiative will have been uncomfortable for them.

The trap; were the regions initially run poorly as businesses or were they not run as businesses at all? The latter a difficult admission, with so much central income always also at stake.

(2) Shares/Assets

An obvious indicator of the direction of travel is whether the WRU, as both the key funder and the funder of last resort, will show any inclination to sell their shares in the Dragons – and the semi-pro RGC development region – or to purchase any shares in the Cardiff Blues, Ospreys and Scarlets?

For a governing body, a minority share in each of four regions is easier than a majority share in one region and no ownership of the other three.

An emotive subject, given the conflict over the last 15 years, the initial plans for regional rugby including plans for shareholdings at the decentralised WRU member club level.

That would have been both to financially incentivise the clubs to support their region, and to financially dis-incentivise the WRU centre from prioritising other matters – e.g. expedited stadium debt repayment – through unacceptable club financial exposure.

It’s a difficult moral hazard/club game finances balancing act, especially without decentralised regional sub-boards.

It is unlikely that this WRU board will wish to acquire further shareholdings at this stage.

They can achieve their current aims through other means, and will not wish to damage a repaired balance sheet now far removed from the WRU high debt trauma of the early 2000s.

The increased WRU subsidy in the 2014 RSA came through an asset purchase; a limited pool of money to dual central contract marquee players. Will the WRU continue with this player contracting approach, given its obvious inability to control the overall regional player wage market?

Will they renew their efforts to purchase Cardiff Arms Park, important to both completing their own stadium and increasing their own major event hospitality offering, as well as for long-term planning for the Blues, should the Athletic Club landlord and region tenant continue to fail to redevelop?

(3) Debt

If you look at the regions as businesses, then even a cursory look at their balance sheets and profit & loss accounts has long highlighted the critical need to repair negative value businesses through eliminating the historic internal debt mountains.

Some of the accumulated debt, due to the failure to universally create new regional companies, include financial losses pre-dating 2003!

The Dragons debt was cleared last summer, as part of the WRU takeover, and the focus will be on the Blues and the Scarlets to see whether all such debt is written-off or – more likely – converted from debt to equity/shares.

As none of the regions own their own stadium, all being tenants of another landlord, the repaired accounts should facilitate a greater subsidy from the WRU and a greater ability to attract badly needed fresh private investors – not “benefactors” – to buy-in and commercially drive the regions.

What will happen to the loan repayments still outstanding to the WRU under the 2014 RSA and already extended well into the 2020s?

(4) Competition

The question of competition between the regions will be interesting.

The most successful regional/provincial models such as New Zealand and Ireland have eradicated most competition, replaced by optimal resource allocation as a national strategic project.

To help recover the situation, competition has counter-intuitively increasingly been used in Wales.

Both payments based on Test squad contribution and the 2014 ‘internal market’ to secure lucrative dual central contracts.

In which direction will the Welsh model turn at this regional renewal?

The Dragons present a particular challenge, for they are inevitably currently financially some way behind.

New Zealand have built a model based on all regions being reasonably competitive against each other and able to help feed the All Blacks and they would never tolerate this situation.

But, if this problem did arise, the NZRU would take drastic Kiwi action to bring the weakest region up close to the standard of the next weakest before stepping back towards impartiality.

Will the WRU adopt this approach, or will concerns over governance impartiality complicate/delay matters?

(5) Engagement

The direction of travel in relation to representation is becoming clear.

The Dragons are now unambiguously a Gwent representative region.

The Ospreys, never in with any remote chance whatsoever of coalescing around a Swansea RFC or a Neath RFC identity, are showing signs of remembering why “the One True Region” served them so well in their glory years.

The Scarlets, always the astute “stand alone” region, continue in the direction of making their identity synonymous regionally with all things west of the Loughor.

The latest manifestation; their alternate kit celebrating Ceredigion, Pembrokeshire and Carmarthenshire over the next three seasons.

The Blues remain the non-aligned problem, modernisation in Gwent hardly lessening the need for identity change to also bring the valleys of eastern Glamorgan into the fold.

How much further down the line can the WRU kick the regional problem that will never go away?

Will there be anything substantive at this stage beyond illusory ‘tick box’ community work?

(6) Governance

Subject to member club ratification, the WRU are heading towards a streamlined strategic main board based on rugby/business skills.

Unfortunately without aligned regional sub-boards, but with the further development of professional and community game sub-boards.

If the regions have a director on the main WRU board, will this drive the further integration of the regions into the WRU itself to aid alignment?

If the WRU governance requires updating, some of the regional governance was antiquated at the time the regions were created in 2003.

What will the modernisation evolve into as some of the remaining regional old guard ‘benefactors’ – not all of whom ever emotionally bought into regional rugby in 2003 or subsequently – retire or are sidelined from executive power?

And finally, if you feel this is a long read, a reminder that these are just some of the key issues to look out for in what is undoubtedly a pivotal moment in re-setting the professional game after a troubled two decades where Welsh rugby has singularly failed to properly align and resource concentrate just below ‘the financial engine’ of the Welsh Test team.

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