Investment in first division clubs slow to pay dividendsThe cost of running a top rugby club is high and the return on investment is slow, writes HUW RICHARDS
TWO moments determined the revolutionary phase in rugby union following the abandonment of amateurism in 1995.
The first was the Rugby Football Union's decision not to regulate or limit professionalism. The second was Sir John Hall's recruitment of Rob Andrew on a lucrative contract to lead his Newcastle, northeast England club, followed by Newcastle's cheque-brandishing pursuit of top players.
The resultant surge in costs has been matched by an influx of television money and by a change of ownership.
The new breed of owners - individual entrepreneurs, often with interests in other sports - are banking on the assumption that rugby can broaden its appeal. For the time being, at least, it is proving an expensive investment.
"The union could have avoided a lot of grief if it had followed the example of the New Zealand Rugby Union, which contracted all the leading players," said one London club official. "They would have been paid on a standard-tariff basis and there would have been no transfer market. Instead, the clubs have had to do bloody miracles."
Players' salaries have been the driving force in the professionalisation of the game, pushing costs rapidly to a level where outside capital and professional marketing and management, have become essential for clubs' survival. Most clubs are, in effect, controlled by a single investor, although there are exceptions.
One club watching with great interest is Leicester in the Midlands, whose large membership has given it the ability to fund professionalism from its own resources. But it, too, is planning a share issue.
The fate of those without external support is all too clear. Bristol in the west of England and one of the game's giants, lost two British Lion forwards during the summer, lending urgency to its talks with an unnamed investor.
The salaries of players have risen sharply. Gloucester is budgeting about £1.5-million for salaries this season. London Irish will pay £2-million, while both Saracens chief executive Mike Smith and Howard Thomas, the chief executive of northwest England club Sale, put annual salary costs of a top club at £21.5-million or more. As a result, the minimum cost of running a first division club is now well over £2-million a season. London Irish has budgeted £2.3-million and Gloucester more than £2.5-million.
Ticket prices have also risen. The game that cost £5 to watch three seasons ago may now cost £10 or more. But gate money comes nowhere close to matching costs, even for a relatively well-supported club such as Gloucester, which is estimated to make about £657 000 in season-ticket and gate income.
Such figures underline the importance of the Rugby Football Union's television contract with British Sky Broadcasting, the satellite television network which will pay each first division club about £500 000 this season, rising to £700 000 for the four leading clubs.
Sponsorship income is also significant: Harlequins' deal with Japanese electronics company NEC is worth £1.5-million over three years, while Saracens will get £1.2-million from Kenwood over the same period.
But nobody, except the players, is expecting to make any money in the near future: London Irish lost £442 000 last season. "Any club which manages to break even under current conditions is doing remarkably well," Gloucester operations manager Jonathan Davis said.
It is too soon to tell whether rugby's capitalists will see a return, but they look to be in for a long wait. - Financial Times