Clubs face meltdown in spite of cash boom

Gloucester chief executive Stephen Vaughan fears Premiership clubs face financial meltdown unless steps are taken to curb rampant wage inflation.
Vaughan’s stark warning comes as the RFU announced a new eight-year heads of agreement with Premiership Rugby which, as revealed by The Rugby Paper in April, will see clubs double the money they receive from the Union to £220m.
With TV and sponsorship revenue, individual clubs can expect to receive in excess of £6m from central funding next season. But with the salary cap rising to £6.5m and then £7m from 2017-18, Vaughan believes a chance to stem losses is being wasted.
Club finances remain under huge pressure and Vaughan told The Rugby Paper: “If you take a helicopter view, there’s never been more funding coming into rugby.
“With the new heads of agreement, plus sponsorship and TV income, it’s at record levels. But at a time when we’ve got more revenue coming in, many clubs are facing some really significant financial challenges, particularly in relation to higher player wages.
“We should be flourishing now and, as a group of 12 clubs in the Premiership, we should be looking at the business and saying, ‘surely we should be reaching a point where we’re all becoming sustainable businesses rather than collectively losing millions each year’.
“Unfortunately, due to the nature of sport and how things have been voted through with the salary cap, we’re in a position where our revenues are improving but we’ve almost been masters of our own downfall in terms of costs, which have rocketed.”
The Rugby Paper understands a number of Premiership clubs have suffered severe cashflow problems over the summer, partly through delays in the new RFU/PRL deal being signed, but also through having to finance increased salary levels to meet the revised cap.
Vaughan said: “The market does get inflated and just because the salary cap has gone up and there are two marquee players on top, I’d be pretty certain there aren’t too many teams in the Premiership with larger squads than they had last year.
“The extra money is just going to players and agents, so that if a player’s value was £50,000 last year his agent is automatically asking for £70,000 or £80,000 now.
“That multiplies the higher up the food chain you go and is making things very difficult.”
With marquee players, injury dispensation and various credits added on, the true cost of next season’s salary cap is estimated at around £9m. Vaughan believes further rises are unsustainable and fears the league may become uncompetitive.
He added: “We are competing in Europe now, we are seeing some of the best players, with Toomua, Beale, Faletau, Picamoles and Burger coming to the Premiership, but we must ensure that we put sensible procedures in place to control finances.
“If not, only the clubs with the ability to draw on benefactors will be in the top positions year after year and that is not good for the league. And what if those benefactors walk away when, instead, you could have a model that is self-sustainable?
“It’s within our gift to do something about it and I believe a majority of clubs support my view. But if not, I fear our league will become uncompetitive.”
NEALE HARVEY