Project Reset: Influence or Control?

Project Reset. Is it a new MI5 anti-terrorism initiative or maybe a revolutionary approach to taxation by the Government? No, it’s neither of these but it is shrouded in the same level of secrecy. It’s actually the new relationship between the WRU and the four Regions.

For some reason they have decided that it must remain TOP SECRET. Whoever you ask about it is reluctant to divulge any information but we have, through various sources and the written word, manged to put together what is at least a direction of travel, if not a completely accurate picture of the initiative.

There was, initially, an article about it from Simon Thomas on 1 July^[1]; a bit more information from Mark Orders on players’ pay in mid-November^[2] and an article this week from Andy Howell^[3] which added to the previous pieces from his Walesonline colleagues.

However, there has been nothing published by the WRU and the four regions. What you will read below is our interpretation of the situation as we haven’t seen any documentation. Because of the level of confidentiality surrounding the project some consider that it is, at best, a means by which the WRU will have more influence over the Regions or at worst that it is a means by which the WRU will control the Regions. Others believe it is a first step to central control of all 4 Regions.

So what is the driver for Project Reset? Well, like most things to do with Welsh rugby it’s about money. The Regions have been underfunded for many years and believe that if they are to be competitive then they need more money from the WRU- something that was brutally exposed in our game at Saracens last weekend. The latter, understandably have said that they can’t have more money unless they change. At CF10 Towers we have been calling for governance changes at Cardiff Blues for some time so it would be difficult to disagree with that principle. Project reset is fundamentally about change. In simple terms it has 5 components:

1. New Relationship 

A new relationship is being developed between WRU and Regions built on the principles of trust and openness. There is a recognition that pro-rugby is a zero sum game and the national and regional games are inter-dependent not just in terms of player development and availability but also in relation to finance. If there isn’t openness and honesty in the relationship then it won’t work, no matter what a contract says. This is fundamentally different to the culture we saw during the Roger Lewis era and is very much to be welcomed.

It is interesting that about 6 or 7 years ago Mervyn King, the then Governor of the Bank of England, visited Wales and had a private meeting with a number of sports’ governing body CEOs, including Roger Lewis. He made the point at the meeting that he thought that the WRU and the Regions should be working much closer together because they were mutually dependent. It has taken all this time for that message to sink home. So the Regions and WRU should be working cooperatively and in partnership.

2. New Structure

In order to reflect the new culture a new structure will be established to make decisions. This will be a sub-committee of the WRU with delegated responsibility for the professional game. It will be called the Professional Rugby Board (PRB) and will make decisions on a collective basis. It will comprise an Independent Chair plus another independent member; theWRU (probably represented by Martyn Phillips the CEO and possibly Steve Phillips, Group Finance Director, who bizarrely is also a director of the Dragons as well) and the four Regions (probably represented by their Chairs).

Under the PRB two sub-groups will be established, the Rugby Management Board and Business Management Board, reporting to the PRB. The RMB would scrutinise the business plans and annual reports of the five entities. Future funding would be dependent on successful delivery. Plans and reports will be independently audited and the findings reported to theRMB and PRB.

The current Regional Services Agreement (RSA) expires in 2020 but Martyn Phillips has always made clear he wanted it replaced much earlier than its expiry date. In fact, during one interview when asked about the document he was quoted as saying that he hadn’t read it! It is allegedly a tome written in legalese and based on the principle that the WRU didn’t trust the Regions and everything needed to be tied down in a binding contract.

The RSA will be replaced by the Professional Rugby Agreement (PRA) which will reflect the new relationship and the new culture the five entities want to establish. As a result it will be less prescriptive and much shorter.

4. New Assessment Criteria

The Regions are required to deliver on 5 identified Pillars in order to obtain funding:

Academy – If Welsh rugby is to achieve long term success then we need a developmental structure to deliver it on a continuous basis. To the credit of all four Regions, academies have been established with significant support provided by the WRU to put in place coaches and the accompanying infrastructure.

Coaching – There has been a desire by the WRU’s Head of Performance, Geraint John, to put in place coach development with an aim that the Regions and the Welsh team will one day have World Class coaches at the helm rather than having to import from the Southern Hemisphere. As well as coach education, the only way you find out whether someone is good enough is to try them. It was with this in mind that the WRU influenced the appointment of Cardiff Blues coaches following the departure of Danny Wilson. No Welshman was considered experienced enough for the head coach role but there is little doubt that the appointment of the assistant coaches was heavily influenced by the WRU.

Community – Each Region is required to have a community programme. At Cardiff Blues, this is being delivered by the newly established charity the Community Foundation. There is a great deal of activity taking place but the indicators of success have not been published.

Commercial – This is where it gets challenging. The WRU have made clear that they are not the only source of funding and the regions must generate more money through commercial activity. It is understood that the Cardiff Blues plan to the WRU for funding contains significant projected increases in commercial funding. As the Capital Region this should be achievable but it will be challenging if the team is not successful on the field.

Governance – If the above is going to work at Cardiff Blues it needs fundamental change to the Board members and the governance of the organisation. The first step was for Peter Thomas to step down and an independent Chair to be appointed. Alun Jones has been appointed to that role following an interview process and it is expected that some other members of the Board will follow when Alun takes up his role on 1 January 2019. It is thought that two or three non-executive directors (NEDs) will be appointed to support Alun. In this way Cardiff Blues Limited will look more like a skills-based board fit for the 21st century.

5. New Financial Model

A new funding formula is being put in place (of which little is known) to turn the outcome of the above criteria into money. No longer will each of the four Regions be funded on a so called equal basis (although it could be argued that never happened anyway because of the inequality of the distribution of dual contracts). Funding will now be based on performance. It is believed that the Scarlets will have the largest pot and the Dragons the lowest. There is some debate about whether Cardiff Blues or the Ospreys receive the next highest funding. It would make sense that it was CBL given its place in the Champions Cup but Andy Howell reported in Walesonline that it was the Ospreys. Its baseline funding may be lower than Cardiff’s but its overall package may be larger due to existing dual contract commitments.

A major aim of Project Reset has been to clean the balance sheets of the four Regions. Cardiff Blues balance sheet has a debt of probably £16 million (the accounts for 2017/18 are not available). It is understood that Peter Thomas and other benefactors will write-off this debt.

There are also aspirations to merge some elements of all five business where there is duplications of activity. These could be led by any of the five entities and doesn’t have to be driven by the WRU if they are not the most appropriate organisation to do so. It is important to make savings as well as generate additional money.

A controversial component of Project Reset is the alleged establishment of salary banding for Welsh players (there is no information on non-Welsh qualified players). Salaries would be determined by whether an individual was a Regional player; Welsh squad members; regular international or Lion. The bandings would be quite broad but the Welsh Rugby Players Association (WRPA) are said to be concerned about the concept. It could be argued that five companies working together as a cartel are operating in an anti-competitive way. It will be interesting to see whether this is tested legally or whether the players will consider industrial action.

The funding agreement with Cardiff Blues will require a separation of funding to Cardiff RFC. From next year the RFC will not receive a direct grant from Cardiff Blues and some renegotiated commercial funding related to the new lease will need to be put in place.

The PRA was initially due to be signed on 28 September but various hiccups along the way have delayed this. Depending on who you speak with they will invariably blame the other party, which is not an auspicious start to establishing a new culture.

Influence or Control?

So what does all this mean? Well it’s not just a new process but a radical change in the way Welsh rugby is run and its various components are funded. It is hugely positive that the aim is to work more cooperatively and to develop a new culture.

However, the big issue for the regions is whether the increasing role of the WRU is about achieving more influence or is it about more control? The two things are very different. For example, the Welsh Government funds many public bodies. It has agreements/contracts with them and even provides guidance but it doesn’t control independent bodies which are required to make their own decisions and to justify these. The same is true in the way Sport Wales works with national governing bodies of sport (NGBs). They are a major funding partner of NGBs but the latter are required to comply with various principles of governance while making their own decisions. NGBs appoint their own staff and are accountable for delivery and financial performance. Sport Wales does not interfere in that process except in rare and exceptional circumstance.

To date, even before the PRA contract has been signed, the WRU’s influence has arguably amounted to control. The veto of Geordan Murphy’s appointment as Head Coach at Cardiff Blues and the requirement to appoint Welsh assistant coaches to John Mulvihill cannot be seen as anything less than control. Additionally, half of the appointment panel in the search for a replacement for Peter Thomas were from the WRU.

The proposal to introduce salary banding for players is also of concern to the Regions. You can see why the WRU are keen to introduce it since it controls wage costs and reduces/eliminates competition between regions based on salary. For example, Hallam Amos has the same value to the WRU and Team Wales whether he plays for the Dragons or Cardiff Blues. However, Cardiff may want to put a higher price on him because of a need for back-three players. The system in this case will eliminate completion based on salary.

As time goes on it will be increasingly important for the Regions and the WRU to be clear about the influence/control boundary. It does the WRU no good if it not only has to run its own business but also feels that it can dabble in the day-to-day operations of the Regions. The lessons from the first 18 months of the Dragons and the appointment of Bernard Jackman should be a noted. That failure rests squarely at the WRU’s door. The whole point of having four independent regional bodies is that it brings in additional and varied expertise. The WRU needs to allow these bodies to operate in their own way and not seek to constrain them or worse second guess them.

The new model and new Board structure at Cardiff Blues will create a very different operating environment. No longer can the company rely on the bank account of Peter Thomas when it faces cash flow or deficit problems. The new regime effectively removes benefactors from the scene and thecompany will need to live within its means. With no Peter Thomas as a ‘funder of last resort’ the unanswered question will be ‘what happens when the club does go into deficit’(which it surely will at some time)? Will the WRU bail it out but insist on Board or executive changes?

There is little doubt that the company needs significant reserves if it is to avoid such a scenario but, again, where will these come from unless it intends to be extremely frugal over the next couple of years and make savings? Three year budgets being agreed between the WRU and Regions would be a major help and a sensible way forward in smoothing cash flow problems.

The next few years will be challenging, even more so than usual for Welsh rugby as the five entities find their feet and establish new working arrangement. The Regions must control their own destiny; if they don’t, the WRU will do it for them. The key to joint working is trust and honesty between the various partners. You can only achieve this with transparency and openness. With these principles in place, influence shouldn’t become control.

References
[1] Project Reset uncovered: the confidential new deal that's going to change Welsh rugby forever Simon Thomas
[2] Angry Welsh rugby players warn of drastic action as pay row threatens to explode Mark Orders
[3] Historic new Welsh rugby deal agreed as game set for major change Andy Howell