A Level Playing Field?

On 9 May 2017 the WRU was given the go ahead by Newport RFC shareholders - with somewhat of a gun to their heads - to take full control of the Dragons. That vote signalled a new and potentially dangerous role for the governing body in the professional game.

Background

To be fair, Newport’s shareholders (turkeys) had little choice but to vote for the WRU takeover (Christmas). It was pitched as a rescue deal. They were told in no uncertain terms, by men in a far better position than them to assess the finances of the club, that they either had to take the WRU deal (with the carrot of continued - but not guaranteed - pro-rugby in Gwent), or the administrators would immediately descend, closely followed by the bulldozers.

Either way, on 10 May the fans were certain, as a result of mismanagement and through no fault of their own, to lose their professional team to the WRU, their Newport Gwent idenitity and Rodney Parade - the club’s only real valuable asset.

Now, the Dragons have clearly struggled in the regional era. Over the years, it has taken more and more resources to run a successful Pro12 club. It is no coincidence that those with the largest budgets consistently perform best.

The Dragons, however, neither had the financial backing nor the gate receipts to build a playing budget sizeable enough to compete. This left the club in a very vulnerable position.

Rodney Parade, a true rugby ground with a proud heritage, has become the forlorn symbol of the decline of a once-vibrant hotbed of Welsh rugby. The ground bears witness to years of under-investment. The pitch is at times unplayable, and is one of the first things the WRU will address.

Sound familiar?

Our Eastern rivals’ fate is not so far removed from our own. We know that the finances at Cardiff Blues Limited are in a mess. Our benefactors are rapidly tiring of losing money hand over fist, whilst on the field there are few signs that the team can consistently compete with the best.

The Board is desperate to close the long term lease deal with the Cardiff Athletic Club, allowing them to pivot Cardiff Blues Limited into a property development company to attract external investment. Out of that project, the thinking goes, will come a state-of-the-art ‘multi-purpose arena’ on the prime city centre estate currently occupied by our own modest, under-invested rugby ground.

We also know that part of the Board’s strategy - farcically announced without apparently finalising anything with the governing body - was for the WRU to take a ‘babysitting’ role at the club. Nobody knows what that meant in practice. But for now the Board has signalled a change of tune in the face of a furious Cardiff Athletic Club.

But although we may have avoided a WRU takeover-by-stealth in the short term, we are clearly only one or two Board meetings away from it being back on the agenda. Make no mistake, these are still perilous times.

What’s the big deal in a WRU takeover?

There are many reasons why Cardiff Blues fans reacted with incredulity and dismay at the announcement of a WRU takeover. For a start, the loss of independence, control and identity caused by being reduced to a mere ‘franchise’. These are emotions that cannot be disentangled from the management of a professional sports team. They are also fundamental to protecting a club and its heritage. A heritage in which some fans have invested entire lifetimes. Once lost, it is difficult to see how it could be brought back.

But there is another reason why WRU takeovers are a mistake, and this is relevant to the wider sporting community.

Quite simply, governing bodies have no business owning and running the clubs which they govern. It is a huge conflict of interests.

In the business and political worlds, conflicts are rightly regarded as a Very Bad Thing. If you act in a conflicted situation, it destroys your ability to be impartial - or at least be seen to be impartial. There is always a suspicion that you have acted in your own best interests rather than in the best interests of your wider stakeholders.

Directors of companies are required to declare their interests in a matter being addressed at Board level, and very often have to leave the room or abstain from decision-making.

In the aftermath of the general election, real concerns have been raised over government’s deal with the DUP. As part of the Good Friday Agreement, Westminster has an arbitration role to play in the Northern Ireland devolved government. But if the Tories and DUP are scratching each others back to keep Mrs May in power, so the argument goes, how can Westminster be said to be independent? There is a risk of perceived impartiality, which could itself destabilise Northern Ireland’s peace process.

There is a parallel (albeit trivial in comparison) to be drawn here with the WRU/Dragons deal. The WRU’s finances are now inextricably linked with the fortunes of the Dragons. If the Dragons start playing well and crowds return to Rodney Parade (and we hope they do), both the WRU and the club could do very well out of it. If on the other hand they continue to underperform, or become a drain on the WRU’s cash reserves, the governing body will be forced to make some very difficult decisions.

So there is an in-built commercial pressure for the WRU to maximise the return on their investment. That means pouring cash into the club. They have already announced funding for the a new pitch, investment into the ground generally and the appointment of a new coach. The appointment of Kingsley Jones as a WRU employee with responsibility for the the Exiles is a further below-the-line cost which the Dragons don't have to absorb instead of paying redundancy.

All very positive for the Dragons. Not so great for the other Welsh regions, also struggling financially, who do not have access to the WRU pot.

Gone will be any notion of a level playing field.

Are there any legal implications?

Could the WRU takeover of the Dragons even be anti-competitive in the eyes of the law? Organisations are not generally permitted to abuse dominant market positions. We are no experts on competition law, but from a layman’s perspective the whole thing smells pretty rotten.

No doubt the regional clubs’ lawyers will already be looking very closely at this point.

What about the Rugby Services Agreement?

This secretive 2014 document, which we have not seen but the broad details of which are well-known, effectively put an end to the incredibly damaging civil war in Welsh rugby.

There is talk that there is an ‘equal treatment’ clause in the agreement somewhere, designed to prevent the WRU favouring one club over another. We would be very interested to see if that is the case. At our own recent Q&A session with the Cardiff Blues top brass, Martyn Ryan cited it when discussing the Dragons deal (then, just a possibility).

If there is such a clause, on the face of it there is a clear incompatibility with the WRU’s Dragons takeover without equal treatment of the other regional clubs.

So when Rodney Parade gets its new pitch, will we see equal WRU investments in Cardiff, Swansea and Llanelli? At a conservative estimate, to install a modern pitch at Rodney Parade will cost the WRU around £700,000 with other cost sending their initial investment to around £1million.

Just think what we could do with that money, if an ‘equal treatment’ clause was enforced. Maybe bring in a superstar player or coach. Or make much-needed improvements to the Arms Park. Write off some debt. Or perhaps just make the club more financially stable.

But alas, we doubt this will happen. Which just underlines the point: now that the WRU owns one of the regional clubs, we are in effect in competition with our own governing body. Awkward.