This blog post was co-authored by Lawrence Evans and Christopher Gunby.
The world of sports governance has once again been rocked, this time in the wake of Saracens’ salary cap scandal. A lot has been said on the specifics, but there’s a broader concern that affects many professional sports clubs: the tension between a wealthy owner wanting to run a club as his passion project and the need for good governance. If the latter ignores the former, it can have catastrophic effects — as it has done with Saracens.
Rugby’s penalty try
Wither the “Saracens Way”
Saracens (the reigning English and European Rugby Union champions, home to most of the England team, and so proud of their “way” that they parlayed it into a training tool for business) breached the Premiership salary cap for three years in a row, resulting in a hefty points deduction and multi-million pound fine. Finally, after failing to reduce their wage bill for this season (reportedly still around £2m over the £7m limit) they’ve been automatically relegated from the Gallagher Premiership.
A report released last night reveals the extent of the “administrative errors” that lead to the breaches. Interest-free loans to buy houses, over-investment into image rights, and payments for non-existent hospitality appearances amount to over-generous negligence at best or systematic cheating at worst. It’s not pretty reading.
So who’s in the Sin-Bin?
Saracens are one of many sports clubs operated by a single, high-net-worth owner. In this case, Nigel Wray, who’s funded the club in some form or another since the ‘90s, and has worn the Chair, CEO, and principal shareholder cap until recently stepping down. Wray has a reputation as an excellent businessman and entrepreneur, so the idea that these payments were naïve accidents seems improbable. This looks like a classic case of hubris.
What about the regulations?
Compared to football, professional Rugby Union is in its relative infancy and has had opportunities to try to regulate the game for greater sustainability from the start. Checks such as salary caps are in place to supposedly keep a level playing field and stop the team with the loosest purse strings winning.
Much of Saracens’ defence relied on the fact they spent £3m on legal advice to back up that these payments were above board. Maybe if they had spent a few pennies on a call to the PRL’s Salary Cap Manager, this whole situation could have been curtailed. A clear channel of communication between those who set the rules and those who should be following is vital.
But despite the best efforts of rugby’s regulators and the influx of investment from TV and Private Equity (CVC are slowly working on monopolising the Rugby Union world), Rugby is becoming more reliant on rich hobby owners. Clubs continue to attract the likes of Steve Lansdown (Bristol) and Simon Orange (Sale Sharks), and with them can come relative success.
That said, for all their might on the field, Saracens haven’t been close to turning a profit in recent years, much like the rest of the Premiership (bar one club, Exeter Chiefs, who are the only real contradiction to many of the points here). In fact, as of April last year, they registered a £4m loss, with around 70% of their turnover spent on the player wages they actually did declare. They also have one of the lowest attendances in the league, and all this despite being arguably the most successful club side of recent years.
Is football any better?
The owner/executive/chair model remains more common in sport, and football in particular, than in the business world.
Football clubs have often been owned and run by individuals. The all-powerful “Owner Chair” who really runs the club is still relatively common in football, and we can also hark back to the days of Ken Bates at Chelsea, “Deadly” Doug Ellis at Aston Villa, and Peter Swales at Manchester City. Whilst all of those clubs had a modicum of success during those ‘characters’” tenures, all of them either went bust, came precariously close to it, or failed in their competitions.
Somebody save me from myself!
So, what’s to be done? If you’ve got a few million quid burning a hole in your pocket and want to buy a rugby club (or a few billion for top-flight football) shouldn’t you be allowed to get on with it?
Well, sure. But there’s lots of evidence that you’ll lose all your money, fail to achieve your goals, or both. Take former Crystal Palace owner Mark Goldberg. By his own estimation, he lost his entire £40m fortune in 18 months after buying the club in 1998. They didn’t win anything either.
At the final whistle
We’ve now seen Saracens join Bury FC and Bolton FC as fundamental sports governance failures in the 2019–20 season. If the major sports can’t get their own houses in order, they’re in danger of having regulators foisted upon them — and if that happens, you can bet that the well of passionate sugar daddies who want complete control over their plaything will soon run dry.
Of course, the truth is that badly governed clubs will still win stuff. Better governance structures don’t always translate to better performance (look at The Leicester Tigers) and there is some way to go to balance the needs of sports teams as a business and the responsibilities of Directors, with the need for immediate success. But that’s governance as a corporate structure, not governance as a set of principles, or governance as a discipline.
The savvy owner puts proper governance forums and principles in place to monitor access to the cookie jar that is his personal fortune and pride. Look at the well-run ships at AFC Bournemouth, Southampton FC, and, latterly, Manchester City. All of them have owners with a few bob. But they’ve all put in place clear management structures and defined strategies which aren’t solely dependent on success on the field or TV money. You can bet they’re also receiving the information they need from management to take as dispassionate as possible a view of their club’s performance.
It seems a historical truth that ego is often the driver to buy a sports club, but it doesn’t have to follow that harnessing the insecurities of a billionaire egomaniac always means abandoning the basic principles of good governance. It’s surely the combination that delivers the greatest promise of performance — the challenge is in finding billionaires who agree.
This blog post was co-authored by Lawrence Evans and Christopher Gunby. The views and opinions expressed in this article are those of the authors.