English rugby faces moment of reckoning

It’s El Clásico weekend in Spain. On Sunday, Barcelona will meet Real Madrid in a top of the table clash. The Blaugrana will be sporting a new look — the front of their shirts will feature a golden owl logo. In case you’re wondering, the avian addition is to celebrate Canadian rapper Drake hitting 50bn streams on Spotify, Barcelona’s main commercial partner.

Drake made the acronym YOLO famous. But Barcelona’s bigger concern is FOMO. After drawing 3-3 against Inter Milan on Tuesday night, the club’s prospects in the Champions League are starting to dim. Missing out on the knockout stages will quickly revive questions about whether selling €700mn of assets, including future broadcast rights, to fund a squad overhaul was wise. A win on Sunday would at least change the conversation.

In this week’s Scoreboard, we’re looking further down the league tables of Spanish football, and asking how things stack up against Portugal in the eyes of investors. But first, we examine what lies ahead for English rugby after another Premiership team hit the buffers. Do read on — Josh Noble, sports editor

English rugby’s financial crisis points to a reset

The crisis engulfing English rugby union is a wake-up call for a sport that has struggled with fragile finances for years but that has been put in real jeopardy by the pandemic.

Worcester Warriors has already plunged into administration. Wasps warned this week it is likely to follow suit, sending shockwaves through the sport. Taxpayers have skin in the game too: the UK government is the main creditor for both sides.

Radical solutions are on the table. The Premiership and the domestic governing body, Rugby Football Union, are examining the entire structure of the league. Some clubs favour cutting it down to 10 teams, rather than 13. This would immediately concentrate revenue and talent, strengthening club finances.

A smaller league could also help resolve fixture congestion. At the moment club matches often clash with internationals, robbing the domestic game of its best players and a lot of its fans. 

“We’ve had 25 years of professional rugby now and the model is bust”, said one club executive. “This is a moment to reset the dial.”

It’s a rapid descent for a sport that had received a major endorsement in 2018 when the Premiership sold a 27 per cent stake for £200mn to private equity firm CVC Capital Partners.

But even before the pandemic, clubs were struggling to turn a profit. High wages are part of the problem. The Premiership has already cut its annual salary cap from £6.4mn to £5mn per club, but some worry that further reductions would send top talent to France, where the sport is in much better financial health.

Whereas top-flight football clubs generate billions of pounds in broadcast income, Premiership Rugby relies far more on gate receipts, one of the reasons Covid hit so hard. The government was forced to step in, while cash that had been earmarked for growth was instead used simply for survival.

English rugby’s problems have been brewing for a long time. But the current situation also presents an opportunity to put the sport on a firmer financial footing. Never let a good crisis go to waste.

When it comes to buying football clubs, the biggest deals get all the headlines, Chelsea FC’s £2.5bn takeover being the obvious one. But outside Europe’s top five leagues, there is a lot going on.

Just this week, Qatar Sports Investments — owner of Paris Saint-Germain — dipped its toe in Portugal, buying a 22 per cent stake in SC Braga. New Chelsea owner Todd Boehly is also looking at the league, with the hopes of adding more teams to his budding sports empire.

In neighbouring Spain, a handful of clubs outside the top tier have changed hands this year, including Sporting Gijón, Oviedo and Leganes.

Despite the proximity, the two countries offer contrasting prospects for investors. In Portugal, the focus is on talent. The country’s top three teams — Benfica, Porto and Sporting — have a rich history in developing players and selling them on for big profits. In the past decade, the three have sold players for combined fees of more than €2.7bn, according to Transfermarkt.

The small league is pretty competitive too: the big three teams have each won the Primeira Liga in the last four years. Braga has real ambitions to challenge for the title and play in the Uefa Champions League. With that comes a huge financial boost.

There is also a media play. Portuguese football is due to centralise its TV rights in the next couple of years, meaning the league will negotiate as one. Investors see potential for significant growth when that happens.

In Spain, the proposition is very different. On TV rights, La Liga has the advantage over every European rival bar the English Premier League. It makes almost €900mn a year from international broadcast rights, compared with less than €300mn the German and Italian leagues pull in.

La Liga also has strict financial controls that make it hard for rival owners to throw money at a club in a dash for promotion — unlike in England’s lower leagues, where the finances are a mess. Jeff Luhnow, who led the recent buyout of Leganes in Spain’s second tier, credits the economic rules brought in by La Liga chief Javier Tebas for making the league a good bet for investors.

“We do like what Tebas has done with the financial controls — we think it promotes competition. It’s not just about who has the biggest cheque book to fund losses,” he told Scoreboard.

The rising cost of entry has priced many out of European football’s top leagues. But further down the pyramid, investors are finding a lot to get excited about.

An invitation:

There is not long to go until our Business of Sport Summit in New York on October 24. Marc Lasry and Josh Harris will be among those there to share their insights. As a Scoreboard subscriber, you can claim your free digital pass using the promo code Premium22 and purchase access to our VIP in-person discussions and drinks reception. Register for your pass today.

Highlights

• Japan has rapidly stepped up its post-Olympic investigation into alleged sponsorship-related bribery, engulfing household names in the country like advertising group Dentsu and publisher Kadokawa and putting top executives behind bars.

• Saudi Arabia’s $620bn Public Investment Fund has committed to more than $2bn worth of football club sponsorships this year. The funding, earmarked mostly for the domestic game, forms part of Crown Prince Mohammed bin Salman’s goal of making the economy less reliant on oil. Meanwhile, state oil company Saudi Aramco agreed to sponsor the men’s cricket World Cup in India next year as part of a wider deal with the Dubai-based International Cricket Council.

• Petrochemicals billionaire Sir Jim Ratcliffe said that the Glazer family is unwilling to sell Manchester United FC after he met two of the siblings who control the Premier League club. The life-long United fan told a Financial Times Live conference that he “can’t sit around hoping Man United becomes available”.

• Ever wanted to know the inner workings of one of the biggest investors in global sport? Go deeper in this FT Big Read on private equity firm CVC Capital Partners, which has invested in Spanish football body La Liga, Formula One, and rugby.

Final Whistle

Cheesehead wants a selfie with Roy Keane; he’s having none of it 😂 pic.twitter.com/kBKl86UFHd

— Colin Faulkner (@Deafoe77) October 9, 2022

In his playing career, former Manchester United footballer Roy Keane tackled hard and took no prisoners. These days, Keane deploys his sharp tongue and wit as a pundit. But he still enjoys watching sport in his downtime. One fan was brave enough to obstruct Keane’s view to ask for a selfie during the NFL match between the Green Bay Packers and the New York Giants in London. Keane, who once claimed Arsenal would struggle to win the league because its players were overly interested in selfies, was less than amused.