The future direction of the professional game in Wales is at stake
The future of rugby in Wales is at another critical stage as the Welsh Rugby Union attempts to push through a new Professional Rugby Agreement.
As WalesOnline exclusively revealed on Tuesday night, the Dragons, Ospreys and Scarlets have been given a deadline of Thursday night to sign the new PRA or decisive action will be taken by the governing body, which could lead to seismic changes within the game.
This will involve serving the three teams with the required two-year notice period that they intend to end the current PRA and potentially transform the rugby landscape in Wales. Going down this path undoubtedly throws the clubs’ futures into long-term doubt, with the WRU able to revoke licences at the end of the notice period. Cardiff, of course, are now owned by the WRU after the capital club’s financial collapse last month.
So, what does it all mean and what is likely to happen next?
Rugby correspondent Steffan Thomas takes a deep dive into the current situation.
What are the WRU trying to push through?
The WRU are attempting to push through a new PRA which they are confident will bring financial stability to Wales’ four professional clubs – Cardiff, Dragons, Ospreys and Scarlets.
They believe the current PRA is not fit for purpose and need to push the clubs onto the new deal as soon as possible after a protracted stalemate that has gone on long enough.
The new PRA will see increased funding to the clubs with the intention of moving the salary cap from £4.5m to £6.9m by financial year 2029, although two marquee players are permitted above the cap.
But the key element of the new PRA is the WRU’s attempt to refinance the debt at all four clubs, which it will transfer onto its own balance sheet. Sign up to Inside Welsh rugby on Substack to get exclusive news stories and insight from behind the scenes in Welsh rugby.
The WRU is looking to take on around £35m of new debt which would refinance its existing NatWest and Welsh Government facilities of £30m.
There is Welsh Government debt of £12.5m which was passed through to the clubs via the WRU. The idea is to increase funding but crucially improve the balance sheets of the club’s by taking away the debt they acquired during Covid.
This makes them sustainable and attractive to investors.
What is the hold up?
In February the WRU announced all four clubs had agreed to the new PRA in principle, but had not put pen to paper.
But things have changed dramatically since then. Cardiff Rugby entered administration last month after Helford Capital failed to meet its financial obligations.
As a result, Cardiff are now under WRU ownership and this is where negotiations have hit a wall.
The acquisition of Cardiff and its assets cost the WRU £780,000, with the governing body taking £3.1m of what was the club’s £9m debt, with £6m left to its new Cardiff Subsidiary Company.
But under the new PRA the funding directors at all four clubs are required to act as personal guarantors to cover any funding deficit.
As far as Cardiff are concerned the WRU are now its benefactor and are planning to put in £2.1m extra. Join WalesOnline Rugby’s WhatsApp Channel here to get the breaking news sent straight to your phone for free
The private clubs understandably have some concerns and have questions which need answering. They believe the £2.1m of benefactor contribution the WRU are spending on Cardiff should also be spent on the other three under the spirit of fairness.
There are also concerns from the other three that the WRU will attempt to turn Cardiff into a super club, a bit like the Irish Rugby Football Union have done with Leinster, but to a lesser extent.
WalesOnline understands the three clubs have suggested changing the voting rights on the Professional Rugby Board, given Cardiff are now owned by the WRU.
They have also questioned whether Cardiff should be permitted to sign any players from the other three clubs while owned by the WRU.
When approached by WalesOnline, the WRU have refuted the accusation it is attempting to turn Cardiff into a super club which would be funded significantly higher than the other three clubs, as long as they sign the new PRA.
The WRU want to sell Cardiff within two years and have created a pack for investors which will be published next week.
Of course, the Dragons, Ospreys and Scarlets could all sign by the deadline and everything carries on.
Why are the WRU so desperate to get the clubs to sign a new PRA by Thursday?
This is the key part.
Natwest will not agree to refinance the debt under the current PRA. This is because under the old agreement any uplift the WRU gets in terms of profit goes to the four professional clubs.
But, understandably, the banks see this as too much of a risk and won’t refinance the debt if those terms still exist because they want their money back.
The WRU are at a stage where they are desperate for the new PRA to be signed because this is what the banks demand in return for refinancing the debt on very favourable terms.
Clearly Cardiff will sign the new deal because they are owned by the WRU, but the other three are currently playing hardball.
Were the three independent clubs to sign, they’ll be better off in direct cash and debt terms, but it remains to be seen if the threat of action turns the dial on allaying their fears.
If they do not sign by midnight on Thursday, the two-year notice period is set to be served and we enter a very different ball game where things could get messy very quickly
While the WRU maintain they want to make four pro clubs work, there are those within the upper echelons of Welsh rugby who are adamant the best structure going forward should see three teams at most. Serving the notice period triggers a move towards a situation where the WRU would actually have the legal power to revoke the URC and European competition playing licence of any team it wished.
What happens if the WRU call in the two-year notice on the current PRA?
To terminate the current PRA the WRU need to give the clubs a notice period of two years. If the clubs don’t sign there are a number of potential outcomes that could play out.
In the short term, Welsh rugby could feasibly move to a 1+3 model, where WRU-owned Cardiff are funded to the extent they can compete strongly on the field, with the other three left on a £4.5m salary cap burdened with significant debt for the next two years. How long they would survive on those terms is questionable.
Of course, there is also a possibility the three teams refuse to sign by Thursday, but come to agreement further down the line, after the two-year notice has been triggered. The prospect of no deal being signed by the deadline but talks continuing is very feasible.
The most severe consequence of all this would result in Wales reducing to three professional clubs. Get the latest breaking Welsh rugby news stories sent straight to your inbox with our FREE daily newsletter. Sign up here.
WRU CEO Abi Tierney’s aim is to retain four professional teams that are sustainable and funded to a level where they can compete. But if they do not sign the new PRA things could spiral out of the WRU’s control.
The clubs won’t be competitive on a £4.5m budget for the next couple of years, while they will be burdened by debt.
The survival of the remaining three then depends on what their funding directors are prepared to put in to cover the deficits and each of the three clubs have their unique set of challenges.
Even if the clubs did manage to hang on for the full two years, there is then potential for seismic change and the loss of a team, or teams. The WRU holds the licences for the Welsh clubs competing in the URC and European competitions, and these could be withdrawn.
It has been well documented that cutting a team would see the union penalised financially in the short-term for not fulfilling their four-team obligations to the competitions they are part of, although after two years they would arguably be better off.
The WRU is adamant it wants to stick with four teams, but not signing the new PRA clearly could have huge ramifications for the professional game in Wales.
There really is a lot at stake here. In giving notice, the WRU would need to set out very clearly how they see the way forward and some will argue there is a potential conflict of interest with their current ownership of Cardiff.
Going down a path that exposes the other professional clubs to such a huge potential threat is sure to heighten tensions and lead to possible legal disputes, were a team to be cut in two years’ time.
A saga that has now rumbled for countless years feels like it is reaching a decisive moment.
