In the Sin-Bin: What do the financial struggles of Worcester Warriors and London Wasps mean for English Rugby?

Wasps Holdings Limited, the holding company of London Wasps RFC (Wasps), filed a notice of intention to appoint administrators in September 2022. Only a few days later, Worcester Warriors RFC (Worcester) were placed into administration, having been suspended from playing competitive rugby by the Rugby Football Union (the RFU) earlier on the same day. 

In this post we explore the consequences for Wasps and Worcester (the Clubs) and what impact this may have on Gallagher Premiership Rugby (the Premiership) going forwards. 

Issues facing the Clubs

As has been widely publicised, the Clubs have been facing severe financial issues for some time.  Wasps failed to repay their £35 million bonds due May 2022. Issued in 2015, the bonds were used to finance their move to the 32,000-seater Ricoh Arena in Coventry. Since the default earlier this year, Wasps have been in talks to secure a refinancing solution. Wasps also face an outstanding tax liability believed to be of around £2 million. Following HM Revenue & Customs reportedly preparing a winding-up petition, Wasps have filed a notice of intention to appoint administrators in order to protect their interests and to buy time to raise the required funding. Wasps have stated that discussions to refinance the bonds are “at an advanced stage”, but no refinancing has yet been announced. 

Worcester are reportedly facing a £6 million tax bill and owe a further £14 million in Covid-19 sports survival loan repayments to the DCMS. As a result of their financial struggles, Worcester have been struggling to pay salaries since August 2022. Whilst a consortium headed by former chief executive Jim O’Toole has expressed interest in purchasing Worcester, O’Toole previously stated that they would only do so after the club was placed into administration. Having failed to meet a 5pm deadline on Monday 26 September to provide the RFU with proof of a “credible plan” for their future, Worcester was placed in “special measures” by the RFU, which grants the RFU certain additional oversight powers, and which resulted in automatic suspension from competing in the Premiership. Later that day administrators were appointed. The administrators reportedly remain in discussions with potential buyers but to date Worcester remains unsold and suspended from competitive rugby. A further complication is that the Worcester players are contracted with a separate entity that is not currently in any insolvency process but which is expected to be placed into liquidation this week. It is understood that despite not being paid at the end of September, Worcester’s players must wait 14 days from such failure to pay before their contracts are terminated. 

Despite the financial uncertainty, both Clubs had managed to fulfil their fixtures until the end of September. However, Worcester’s suspension and the subsequent cancellation of their fixtures against Gloucester and Harlequins, along with the continued uncertainty about Wasps’ stability places future fixtures this season in doubt.

The Rules

The two relevant sources of rules are found in the Rugby Football Union Regulations (the RFU Regulations) and the Premiership Rugby Regulations (the Premiership Regulations). The most recent publicly available version of the Premiership Regulations (for the 2021/22 season) provide that a club shall not be entitled to remain a member of the Premiership following an Insolvency Event (as defined in the RFU Regulations) unless licensed by the RFU to continue to play (Premiership Regulation 2.3(i)). 

Following Wasps Holdings Limited lodging a notice of intention to appoint administrators and administrators being appointed at Worcester, both Clubs appear to have triggered an Insolvency Event under the RFU Regulations. 

What sanctions may be applied to the Clubs?

There are a range of possible sanctions in this scenario, some fixed and others discretionary. As the Clubs have suffered an insolvency event during the current season, there is a fixed sanction which provides as follows:

“Where a Club suffers an Insolvency Event during the Season… that Club’s most senior first XV team shall, in respect of the following Season, be relegated to the league below that in which it participated at the time the Insolvency Event occurred, without a right of appeal” (RFU Regulation 5.5.5). 

The RFU has not yet announced that this sanction (or any other beyond Worcester’s suspension) has been imposed on either of the Clubs, nor has it formally placed Wasps into “special measures”. 

The RFU has discretion to reduce or waive any sanction that would otherwise apply, where it is satisfied that the Insolvency Event would not have occurred but for an event or circumstance which was beyond the control and without the fault or negligence of the affected club (RFU Regulations 5.5.9 – 5.5.12). Given the impact that Covid-19 has had on finances, the Clubs may seek to make an argument under this exception to set aside sanctions. It is reported that the administrators of Worcester have been urging the RFU not to relegate Worcester. 

The practical application of the rules is difficult to predict as there are no instances of professional rugby clubs entering administration under the current RFU Regulations (or when the Premiership has been ringfenced). In January 2017, London Welsh RFC (Welsh) were removed from the Championship after falling into liquidation. Richmond FC (Richmond) entered administration in 1999 and their shares in the English First Division Rugby were then acquired by London Irish RFC. 

Richmond were required to re-enter the league pyramid in the ninth tier and now compete in the Championship, whilst Welsh continue to exist through their amateur wing, whose first team are currently in the fifth tier.

Comment on regulation

It is worth considering how potential sanctions for the Clubs fit within the current context of promotion and relegation in English Rugby. In normal circumstances there is no relegation from the Premiership for the 2022/23 season. In addition, there is no promotion from the RFU Championship (the Championship). Recent Championship winners Ealing Trailfinders (Ealing) have been refused promotion for failing to meet the Minimum Standards Criteria on the basis that this could be perceived to weaken the standard of the league. If there are no viable promotion candidates, the relegation of Worcester and Wasps may result in the Premiership reducing from thirteen to eleven teams. This shrinkage could have a knock-on impact on revenues from broadcasting and media rights as well as gate and match-day receipts for the remaining clubs, all of which are key for their financial viability.

Against this backdrop, the Clubs’ stakeholders (and any potential new owners or financiers) may be optimistic that the Premiership and RFU may seek to retain the status quo and avoid relegations if possible. Such a solution would seem to depend not only on the Clubs being able to solve their current financial issues but also them showing a no-fault Insolvency Event (in accordance with RFU Regulation 5.5.9) to the satisfaction of the RFU. Alternatively, the fact that Worcester was able to play a match with a reduced capacity prior to entering administration may be the argument that Ealing are looking for to secure promotion with their current stadium. 

Landscape of English Rugby

The issues faced by Wasps and Worcester come amidst a backdrop of financial issues that have been faced by Premiership clubs for some time. Whilst Covid-19 had a significant impact on revenues and clubs became dependent on loans to survive, most Premiership clubs were already making losses prior to the pandemic due to unsustainable levels of expenditure on player wages. 

The Premiership salary cap, which dictates how much clubs are permitted to spend on player wages each season, was reduced from £6.4 million to £5 million in order to help clubs’ finances recover following Covid-19. Whilst a small number of clubs have since voted to raise the salary cap back to £6.4 million from the 2024/25 season, some clubs, such as Gloucester Rugby have voiced concerns as to whether this rise will be sustainable. 

Even recently, Rugby looked like a viable investment opportunity. In 2018, CVC Capital Partners (CVC) invested over £200 million in the Premiership in exchange for a 27% stake. CVC later acquired a stake in the Six Nations Championship in 2021. CVC’s Premiership deal resulted in each club receiving around £13 million. Despite this investment, collective debt amongst the thirteen member clubs stands at a reported £509 million. Bristol Bears owner Steve Lansdown recently admitted that Premiership teams lack the revenue required to survive. 

It may be that in order to prevent further clubs ending up in the same situation as Wasps and Worcester, reforms to the structure and model of the Premiership will be necessary. Gloucester chief executive, Lance Bradley, said that he does not believe there will be a “domino effect” following the struggles of Wasps and Worcester. However, other club owners have expressed concerns both anonymously and publicly over the financial model of the Premiership, whilst the chief executive of the Premiership, Simon Massie-Taylor, has called for clubs to provide greater clarity over their financial situation. 

Following the allegations of mismanagement by Worcester’s owners, the structuring of the Worcester players’ contracts with separate entities, and loss of players’ insurance, the RFU and Premiership may also look to impose more stringent requirements on owners and the structuring of clubs to ensure stability. What impact this has on the attractiveness of the Premiership and its member clubs as an investment opportunity remains to be seen. 

Overall, the current situation appears to be a key turning point for the future of English Rugby both from a financial but also a governance point of view. This situation will be watched with interest by insolvency, financial and legal professional and sports fans alike. At a time when plans for an independent regulator in football are reportedly being shelved by the UK government, might a similar question be raised in the context of rugby?

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