What does the future hold for Cardiff Blues?

Whatever happens to Cardiff Blues in the future will be dictated by money. All of the theory and arguments about whether we should have ‘Super Clubs’ or ‘Regions’ in Wales won’t matter one jot because when push comes to shove it’s only money that matters.

In this blog we explore the possible financial scenarios which face the club and what the likely actions will be of those that have influence on future decisions. But first let’s discuss where we are.

Current Situation

At the recent AGM of Cardiff Blues Ltd the Company Secretary, Martyn Ryan, reported that the operating loss for the company had increased from £667,000 in 2015 to £1.45m in 2016. If you are interested in the details of the AGM read our blog The Truth Is Out There. This illustrates the dire situation faced by the club.

The loss in 2017, according to rumours is said to be over £1.5m and the likely scenario for next year with the loss of BT sponsorship is projected to be £1.8m allegedly. It is no wonder that Peter Thomas has been in early discussions with the WRU with a view to the latter taking over the operational management (i.e. future losses) of Cardiff Blues, or as he calls it, ‘babysitting’ the club.

So why is this different to Newport Gwent Dragons where the plan is for the WRU to own the Dragons? Well, Cardiff Blues has significant debt of nearly £15m so the WRU can’t afford to buy the company. Hence the desire that they will simply take over the operational management related to rugby-it’s a bit like a local authority putting out its leisure centres for someone else to manage.

We can only speculate at what might happen. For the sake of clarity, we’ll keep the language simple and avoid business speak. So, what are the likely scenarios?

Scenario 1 - The Peter Thomas’ Plan

It’s fairly clear that Mr Thomas does not want to prop up the company anymore. The debts are getting bigger and nobody can see a situation where income from attendance, sponsorship, TV or even a lottery win will reduce the losses. You can’t blame the guy for wanting to get out given that situation. Unfortunately for him nobody wants to buy the company/club so he can’t get his £10m loan back. So the plan was that Cardiff Blues would be given a 150 year lease by Cardiff Athletic Club (CAC) the owners of the Arms Park freehold and in return they would give them £8m. Once they received this they would redevelop the ground into a 15,000 capacity stadium and indoor arena. The whole project would be paid for by commercial land development (flats, offices etc.), whatever produced a commercial return and Cardiff City planners would accept. The whole project would generate on-going income for the club and pay off its loans. Everybody would benefit, or so it appeared.

The WRU would manage the rugby side and Cardiff Blues Ltd would concentrate on the redevelopment. Many stakeholders were aware that the ‘babysitting’ option was to take place during the period of ground redevelopment but the decision to bring this forward to 1st July caught everybody by surprise, including the WRU. As a number of people said on Twitter, ‘This is the first time a babysitter has turned up to adopt the baby’.

The relationship between Cardiff Blues and the WRU can’t be great and there is no guarantee that the babysitting option will happen from 1st July or while the ground is being redeveloped. If this happens the company will probably have little option but to reduce its costs significantly in order to lessen future losses.

Unfortunately, CAC were also unaware that Cardiff Blues were preparing to hand over the operation of the club to the WRU from 1st July. When they found out, allegedly just a week or so before the AGM, they were not best pleased. Having thought that they were dealing with a rugby club they were now dealing with a property development company. They started to worry that the club may be sold after the redevelopment and they could have given a lease to a person or persons unknown. They are now seeking clarity about the situation. To compound this Cardiff Blues are again in arears on their rent payment to CAC and some are concerned that a club which can’t pay its rent and has such massive debts isn’t someone they want to get into bed with.

It has also been suggested that under its Articles of Association (Article 3.2j), Cardiff Blues Ltd does not have the power to hand over the business of the company to the WRU as it states it cannot ‘sell or dispose (either directly or indirectly)… the business of the company or any substantial part thereof’. We’ll let the lawyers argue that one!

Cardiff Blues have told their shareholder the deal with CAC is 90/95% agreed. However, given the lack of trust and confidence this may fall at the final hurdle.

Scenario 2 - Cardiff Blues Goes Bust

There are a number of different circumstances where Cardiff Blues could go bust. The first and most obvious one is that the deal with CAC falls through and there is no prospect of the ground being redeveloped and therefore loans being repaid. The Directors will want to limit their exposure even more. They will no longer be prepared to underwrite the loans and losses and the company will become insolvent.

Secondly, CAC could also trigger a bankruptcy claim as a result of arears on its rent.

Thirdly, the deal with the WRU may take too long and again the company becomes insolvent. Or possibly, the WRU may think to itself why do we need to get into a complicated deal with Cardiff Blues Ltd when we can pick up the pieces when it goes bust?

After all they only want to contract the players in order to continue running four pro teams. They could do this by setting up a new company and negotiating a deal with CAC. The team would continue to play out of the Arms Park under the name ‘Cardiff Regional Rugby’ (for the sake of argument to suit both parties).

At some point in the future, CAC or the WRU or both, through a joint venture company, could seek to redevelop Cardiff Arms Park.

Scenario 3 - No Pro Rugby in Cardiff

The WRU are buying the NGD for £3.75m, although the actual amount received by club/company will be £2.25m as £1.5m is owed to creditors including the WRU. The rumour is that the Union plan to recoup some of this investment by selling off the northern part of Rodney Parade for development. This may bring in £2.25m which will help to offset the cost but will go nowhere near the amount needed to bring the pitch and ground up to standard. Just to maintain the status quo could cost £1.5-£2m not counting the need to invest in new players, coaches and restructure the administrative staffing.

The cost of keeping Cardiff Blues going could add £1.8m - £2m and there will, understandably, be similar shouts from the Ospreys and Scarlets for unknown sums of money.

Contrary to what its desire may be, the WRU may decide that it can only afford to run 3 teams and isn’t prepared to extend its own debt significantly. Given the choice of locating the amalgamated club (let’s give it a novel name for now, the South Wales Waratahs) at Rodney Parade (which it owns) or the Arms Park (which it doesn’t own) which is the likely scenario? Cardiff would lose its super club but retain its Premiership team operated by CAC using its substantial reserves and commercial income.

Conclusion

Nobody should be in any doubt about the parlous financial position which faces Cardiff Blues. There may be other scenarios to those discussed above or there may be variants to the ones identified.

We have set them out not to scare but to inform. Shareholders like the Trust and supporters have a right to know. The situation is not looking good for the club or the company. In such circumstances the tendency is that people keep their cards close to their chest and plead commercial confidentiality. Well, the only way we can see a way out of this is for the parties mentioned above to get themselves around a table and be open and honest with each other for the benefit of the company, the club and the supporters. They need to take the latter with them otherwise they could find that the business model they agree is not accepted by those emotional people who pay to attend matches.

We suspect that this is probably the naivest point in the whole blog.