GRAEME Cattermole, the former chairman of the RFU, has written an explosive letter to a member of the RFU council which lays bare the apparent financial inadequacies of the governing body.
Cattermole says in the letter to Malcolm Caird, a council member for Surrey who has defended the current administration, that the RFU’s handling of the recent funding cuts to the Championship clubs (CC) has lacked transparency and been “disrespectful”.
He alleges that, in the process, the management board and its chief executive, Bill Sweeney, have failed to adhere to the RFU’s frequently heralded ‘core values’.
Cattermole says that the proposed reduction in the CC funding is nothing more than a “cost cutting” exercise which the RFU has tried to represent as a consequence of the second tier professional clubs failing to respond to an agreed series of five conditions.
He argues that no such agreement exists, and that this behaviour is unworthy of a national governing body.
Cattermole calls on the RFU to make fundamental changes – and warns that if the current board fails to act then it will be forced to.
The Cattermole Letter
Dear Mr Caird
I have read with interest the contents of a recent email in which you have made the following statement:
“Championship clubs have not delivered on the five strands which were agreed in 2015, and to which they signed up. Why should anyone continue to provide finance in such circumstances?”
It is my clear understanding and many others that from all the evidence seen that there was no such agreement between the Championship Clubs (CC) and the RFU. The five strands to which you refer, with one exception which is that the CC are required to limit the numbers of Non-EQPs, otherwise the funding is reduced, were NOT contained in the Agreement which the CC and RFU agreed and signed back in 2015. Nor was there any “side” letter which set out these strands as a condition of the funding Agreement between the CC and the RFU…
…The behaviour of the RFU Management Board and Executive has been disrespectful to the CC and flies in the face of the regularly lauded Core Value by the RFU which is “RESPECT”. NO Respect has been shown by the RFU towards the CC, its members and or its supporters…
The RFU Management Board and Executive need to be open and transparent in all their dealings with its Members which is not currently the case.
…The RFU needs to change its Administration, its Structure and improve its Financial Management to meet the modern world but more importantly post the coronavirus pandemic. If the RFU does not make these changes then others will.
Former chairman of the RFU finance committee and management board
RFU SHOWS NO RESPECT
His letter states: “The behaviour of the RFU management board and executive has been disrespectful to the CC and flies in the face of the regularly lauded core value by the RFU which is “Respect”. NO respect has been shown by the RFU towards the CC, its members and or its supporters.
“The RFU management board and executive need to be open and transparent in all their dealings with their members, which is not currently the case.
“Change is urgently needed and the current difficult period we are all witnessing points to the need for that change which is advocated by many commentators, clubs and individuals in the game.
“The RFU needs to change its administration, its structure, and improve its financial management to meet the modern world, but, more importantly, post the coronavirus pandemic. If the RFU does not make these changes then others will.”
Cattermole goes to cons iderable lengths to refute the idea of a funding-based five-strand agreement between the Championship clubs and the RFU.
He states that, with the exception of the Championship clubs undertaking to limit the number of non-EQP (English Qualified Players), there was no evidence of these clauses.
“The five strands were NOT contained in the agreement which the CC and RFU agreed and signed back in 2015. Nor was there any ‘side’ letter which set out these strands as a condition of the funding agreement between the CC and the RFU.
“This is supported by the fact that at no time during the period of the Agreement has the RFU engaged with the CC to review as to whether or not the five strands were being achieved, and, if not achieved, agree with the CC actions to bring about their achievement.
“There is no evidence that I or others have seen or are aware of that supports that any such review(s) has taken place.
“It is clearly a failure on the part of the RFU not to have included the five strands in the Agreement, and it is therefore totally unacceptable for the RFU executive to use the failure to meet them as a reason for the reduction in the CC’s funding going forward.”
SWEENEY ACCURACY QUESTIONED
Cattermole adds that there is a dispute over the accuracy of the statement made by Sweeney in The Rugby Paper in February that, “We have been in conversation with the Championship chairman since the World Cup. We discussed and we gave an indication of the direction we were likely to go in and have had ongoing conversations since”.
He continues: “It appears that there have been NO formal discussions and or negotiations with the CCs for a funding arrangement post the end of the current four-year agreement, but rather a diktat by the RFU management board to make a drastic reduction in their funding.”
The former RFU chairman says: “This is unacceptable.” He asserts that this RFU approach would never have been taken in negotiations with Premiership clubs (PRL).
Cattermole points to another apparent Sweeney inaccuracy: “The RFU chief executive also stated that CC funding compared to 2014/15 was down three per cent whereas the professional game was down 15 per cent. How can that be the case when the PRL agreement from 2016 to 2024 rose from about £112m to about £220m?”
He says that the PRL agreement pre 2008 was c.£14m per year (c. £112 over eight years), while from 2016 to 2024 it is c.£27.5m per year (c.£220m over eight years).
Cattermole says: “That is an increase of over 96 per cent, not a reduction of 15 per cent as stated by the RFU chief executive.”
Cattermole believes that this is part of an unfolding story of the RFU being stuck between a rock and hard place after making a mess of its financial stewardship. He says: “It is understandable that the RFU wants and needs to reduce its cost base substantially because of its poor financial position. This has been brought about by the disastrous financial management of the RFU since 2012, which has seen total operating losses accumulate in excess of £70m.”
DEBTS GROW TO £196m
The fiscal concerns flagged by Cattermole are multiple. They concern the RFU’s levels of debt, forecasting, and planning.
He says that the RFU’s reliance on financing from debt lending is reaching levels that are too high, and could leave it exposed during a prolonged coronavirus-induced economic downturn.
He estimates the RFU’s debts now total more than £196m, and are made up of a bank loan of £100m plus the £96m Compass loan, which it raised as part of the joint RFU/Compass corporate hospitality venture, Twickenham Experience Ltd.
The bank loan is scheduled to be repaid by 2023, and the loan from Compass, who take 40% of the Twickenham Experience profits, is due to be settled by 2028.
The RFU will also have to find a further £10m to re-roof the West, East and North stands at Twickenham because their 25-year life span requires them to be replaced imminently.
There are also questions about the quality of the RFU’s financial planning. This is highlighted by the audited figures in the 2018 Business Plan being light years apart from the forecast figures, illustrated by a forecast operating loss of £0.3m as opposed to a loss of £24.4m in the audited accounts.
Accurate forecasts are crucial given the profits which have to be generated to repay loans, and also to meet costs.
THIN END OF WEDGE FOR GRASS-ROOTS
Any shortfalls leave the RFU’s chief financial officer, Sue Day, under sustained pressure – not least because of the huge increase paid to the Premiership clubs, under the £220m eight-year Professional Game Agreement (PGA) negotiated in 2016-17 by former RFU chief executive Ian Ritchie, and his successor, Steve Brown.
The PGA deal, which is due for a mid-term review this summer, is another highly contentious issue. It has rankled with community clubs for some time that the split in funding between the professional game and its community counterpart has altered radically during the period in which Ritchie, Brown, and now Sweeney, have been in office.
From 2000 to 2011 the RFU Council’s approved objective was that funds between the professional and community games would be split 50:50, with a 5% leeway either side.
However, Ritchie’s arrival at Twickenham in 2012 saw the start of a massive swing towards increasing the funding of the Premiership clubs.
The result is that the current professional-community funding split is closer to 64:36, with those running community clubs incensed by a recent RFU claim that its continuous losses over the last six years have been as a result of a policy, “to increase investment in the game to address falling participation levels”.
The RFU’s coronavirus support scheme for community clubs which was said by the RFU to be worth £7m is another contentious issue, because many of them believe that £6.6m of this is funding that the clubs would receive annually in any case.
It means that of the £7m advanced by the RFU there is only £400,000 allocated to the lockdown support scheme funds. On the basis that the RFU has almost 2,000 member clubs, that amounts to £200 per club. This is insignificant against the funding given by the Scottish and Welsh Rugby Unions to support their community clubs.
The growing belief of a dislocation between English grass-roots rugby and the RFU is not helped by a block being put on club members, or the RFU Council, approving the appointment or removal of eight of the 14 Management Board members.
This includes the RFU’s chief executive, chief financial officer, chief commercial officer, and three independent non-executive directors. It has led Cattermole, and others, to question a top-end Twickenham administrative structure that appears to be increasingly unaccountable and self-perpetuating.
Cattermole says: “Openness, transparency and truth are needed in all the actions of the RFU, and these should be added to the Core Values of the RFU as these three aspects are currently lacking.”
RFU’s response to this article…
Question: Is it good financial management for the RFU to become so dependent on financing from debt lending, which currently totals more than £196m?
RFU: These figures are incorrect we have a bank loan of £75m – as is normal business practice that was taken out to finance investment in long term assets and we are below the ceiling on this facility.
The Compass £96m is not a loan. It is a commitment to buy back or roll over Compass’s 40% holding in the TEL JV in 2028. This would allow the Union to keep or resell the valuable rights to 100% of the future revenues, which on current valuation are worth more than £96m.
Q: Why are the audited figures in the 2018 Business Plan so wide of the forecast figures?
RFU: The underlying numbers were in fact better than forecast figures. The differences highlighted were based on a one-off transaction and changes in accounting practices. This is explained in great detail through our Annual Report.
Q: Are accurate forecasts not crucial given the profits required to repay the loans?
RFU: Our forecasts are very accurate. The RFU is confident that its forecasting and financial management is very strong.
Q: Why has the 50-50 split between the Pro and Community game shifted so radically?
RFU: The vast majority of RFU revenue comes from England men’s XVs games played at Twickenham, it is therefore critical we invest in a winning England team in order to re-invest revenues across all areas of the rugby.
Historically, the split of investment has always been approximately 60% professional and 40% rugby development.
In 2018/19 the RFU re-invested £65.6m into the professional game and £34.9m into rugby development. This community spend is more than twice as much as any other Union in the world.
Q: Does this not contradict the RFU claim that continuous losses over the last six years have been as a result of ‘increased investment in the game to address falling participation levels’?
RFU: Numbers taking part in Rugby Union have remained stable, against a general downward trend in team sports over the past few years.
Over 2.5m enjoy rugby, of which 500,000 are regular players and more than 100,000 are volunteers supporting 2,000 clubs up and down the country.
Building upon an inherently healthy community game, we continue to focus on sustaining and enhancing men’s XV-a-side rugby, while growing women’s and girls’ playing numbers, which have substantially increased.
Q: The RFU’s coronavirus support scheme for clubs was said to be worth £7m. Is it right that the clubs would receive £6.6m of this annually in any case?
RFU: The £7m support package includes a new £5m loan facility, £400k of additional funding plus the preservation of financing despite games at Twickenham not being played. We have released funding payments early and suspended loan payments.
The RFU has also provided extensive club support guides and estimates clubs will be accessing approximately £10m in government funding. In our discussions with clubs, the vast majority have welcomed the wide-ranging support provided by the RFU.