Warburg Dillon Read, one of the world's leading investment banks, have been asked to investigate a possible securitisation of some of the unions' revenues - TV, sponsorship and advertising. The move, which in essence is similar to taking out a mortgage on the future income of the unions, could create a level of financial security which has been conspicuously absent since the game turned professional more than four years ago.
The need for financial stability in the game is clear and pressing. Just last week, Tom Walkinshaw, the owner of Gloucester rugby club and the principal architect of plans for a British league, admitted that the club game, with collective debts of between pounds 20m and pounds 30m, was on the verge of bankruptcy.
In addition, with the exception of the Irish Rugby Football Union, the governing bodies of the home countries are under severe financial pressure, with massive debts to pay off as a result of building projects. The Irish, however, are playing their rugby in a stadium which cannot cope with the demands of the international game and needs to be replaced.
The effect of an injection of such a large amount of cash into the game would be dramatic. In general terms it would give the unions the opportunity to regenerate the game from the grass roots up, thereby stimulating competition at club and national level. It would also enable them to embark on the long-term development programmes which are so vital if the northern-hemisphere countries are to have any chance of competing with New Zealand, South Africa and Australia.
The merchant bank see pounds 250m as a conservative estimate of how much can be raised. Given the increasing income from televising international rugby and deals for sponsorship for the Six Nations' competition, the City would be happy to stump up pounds 400m or more for rugby if the sport needed it.
It would also appear to fit in with the plans detailed this week by Rob Andrew. He put forward a structure of 12 professional franchises in England, three from the North, three from the Midlands, three from London and three from the South-west, which would be run as a joint venture by the Rugby Football Union and the clubs. He also suggested a structured season of domestic league, European Cup and Six Nations' Championship.
Andrew's task force to look at the structure of the game was set up by the RFU, whose chief executive, Francis Baron, endorsed the plans on Thursday. Andrew said yesterday: "I would be broadly supportive of this scheme because for our plans for the restructuring of the English game to work it is vital that the unions are working together from a financially robust position."
The initiative for the Warburg proposals came from Dr Tony O'Reilly, the former Ireland and Lions international, who is Chairman of Independent News & Media plc, publishers of The Independent on Sunday. Following discussions with Allan Hosie, the chairman of the Six Nations' Committee, the bank were asked to conduct an investigation, with all haste, with the unions which, if positive, could lead to a possible launch of the securitisation early in the new year.
Hosie said: "I am indebted to Tony O'Reilly for leading these conversations and for assisting us in the appointment of the very best of advisers. His interest is for the greater good of rugby, and the time which he has already given from his busy schedule is extraordinary."
Clearly, discussions have been taking place over a period of time and the proposals are not therefore a knee-jerk reaction to the Walkinshaw plan, which has not been favourably received by the unions.
Dr O'Reilly has consistently rejected approaches from clubs seeking funding, believing that rugby union has to remain in the control of the governing bodies rather than a few owners. "Anyone who cares about rugby cannot fail to be moved by the unhappy plight of the game in these isles," he said. "My hope is that this exercise will deliver financial stability and that this in turn will produce a natural, stable and genuinely collective base from which the four home unions can fulfil their true potential."
Securitisation has already been used successfully in sporting circles. Warburg themselves recently helped Chelsea football club raise pounds 75m from securitising their gate receipts and TV revenues, while Newcastle United are in the process of raising pounds 50m for their new stadium from a bond secured on their season-ticket sales.
The best-known sports securitisation has been the bond issue for Bernie Ecclestone's Formula One Holdings, which raised over pounds 850m, while pop stars ranging from David Bowie to James Brown have raised money by selling bonds secured on the future revenues from their songs.
Presentations will now be made by Warburg to each of the unions against a time scale measured in weeks rather than months, and although the precise form of the securitisation will be a matter of detailed agreement between the unions, it is likely to be based on projected revenues from broadcasting, sponsorship and advertising. Ken Costa, vice-chairman of Warburg Dillon Read, said: "We are delighted to be supporting Tony O'Reilly's initiative, and we are confident that there would be a strong demand in the international capital markets for an orderly and well-structured offer based on a united approach from the home unions."
If this plan is accepted it will mark an important sea change in the way rugby is organised and run. Not least, it would provide the unions with a considerable and lucrative incentive to co-operate.Reuse content