SCOTLAND ON SUNDAY REPORTS

SRU faces staff cuts and sale of assets

MIKE J WILSON


THE financially troubled Scottish Rugby Union has confirmed it is under pressure from its bank and will be forced to sell some of its land assets and make swingeing staff cuts.

Newly published financial results showing another trading loss compound problems on and off the field. Poor performances coincided with the fierce internecine conflict that followed the publication of the £127,000 Genesis Report on the restructuring of the game, and the loss of several executives.

"It is fair to say that our bankers [Bank of Scotland] are saying, 'this far and no further,' and have made it quite clear that they have concerns about the business going forward," said Mike Keohane, SRU director of corporate affairs, who is leaving the organisation in the autumn.

"Our business plan for 2005/2006 forecasts a profit of £2m, and Scottish Rugby simply has to deliver it," he said. "Whilst increased revenues are envisaged, we are in a cost-cutting phase and are under sustained pressure to significantly reduce the levels of indebtedness."

In a rash of departures, the SRU lost its chief executive, executive chairman, company secretary, three non-executive directors, the director of rugby and its national coach.

Current chairman Allan Munro announced on Friday that the appointment of a replacement for chief executive Phil Anderton had been put on hold. But Willie Finlayson, director of Edinburgh-based executive recruitment consultancy believes a top-class chief executive can be attracted "at a price".

He said: "Whilst some might see it as an elephant's graveyard, there are many top executives who could be attracted by the challenge, but they would have to pay substantially more than the salary [£130,000 per annum] Phil Anderton was earning."

Superficially, the 2004-05 financial year shows an improvement in trading over the previous year, but 2003-04 was a one-off, a 13-month period with revenues artificially suppressed due to lost fixtures caused by the Rugby World Cup.

The figures show a year-on-year reduction in losses from £8.4m in 2003-04 to £2.25m last year. However, because of the abnormal trading position in 2003-04 a more direct comparison can be made with 2002-03 when the trading loss was £2.6m.

The burgeoning debt burned has increased by £1m to £25.5m, costing £1.3m a year to service and £15.5m in bank loans due for repayment in the next 12 months have had to be rescheduled.

One former Scotland international, until recently an associate with one of the 'big four' accountancy practices who analysed the accounts, said: "I think we are approaching the endgame, and a drastic package of measures is required otherwise the SRU is in very, very serious trouble going forward. The scope for increasing income is marginal, the potential for cost-cutting limited, and the sale of its property portfolio offers the only significant way out towards sustainability."

Often viewed as 'the family silver', Scottish rugby property is valued at around £40m on the balance sheet, and finance director Graham Ireland confirmed that liquidation of these assets is now a reality.

He said: "Whilst we remain committed to the retention of training pitches at Murrayfield, we believe it is in the best interests of the business that, with land prices at their current levels, some of the available land bank be released for development."

Property management company Jones Lang LaSalle (JLL) was commissioned by the SRU in 2003 to evaluate the potential of the 40-acre Murrayfield site - of which less than half is suitable for development - but the recent election of the firm's Scottish chairman Andy Irvine as SRU president would appear to have brought that relationship to a close.

Keohane said: "Andy has declared that interest and it would be difficult to envisage JLL/Andy Irvine being involved in a professional capacity going forward and we would be anxious to avoid a conflict of interests."

Plans to capitalise on the property portfolio have been hindered by Edinburgh Council's flood defence scheme, but, according to Keohane, matters are at an advanced stage.

"It is now SRU policy to sell land, subject to a satisfactory outcome to the impending flood defence scheme public enquiry," he said, adding, "Plans are well-advanced, and the SRU would enter into a partnership for what would be a residential development."

Asked whether the proceeds of the sale would clear the SRU debts, he said: "No, but it would go part way towards that and relieve some of the pressure."

John Brown, director for DTZ Residential in Scotland, said: "The SRU could expect to gross between £2.5m and £4m per acre depending on the density, and they would be well advised to phase their release of land in order to maximise their return."

Despite its perilous financial position, the SRU increased its head count from 220 to 238 between 2003 and 2004 and by a further two last year.

But Murrayfield staff can brace themselves for cuts as the business seeks to turn a profit. Keohane said: "There are probably 60 jobs at risk, at all levels, with between 20 to 30 fewer posts forecast over the next 12 months. That is the harsh reality."

Playing personnel are thought to be unaffected, but with the SRU taking the Sodexho-held stadium catering and hospitality sales in house, cutting the wage bill overall may prove difficult.

Neil Cunningham, managing director of Scottish-based hospitality agency Matchpoint, said: "It is disappointing, when they have two major hospitality players in Edinburgh, and with only half a dozen major events a year at Murrayfield, it doesn't make good business sense."

Many Murrayfield insiders are said to be unhappy about the reported £250,000 pay-off (part of an £856,000 'reorganisation' provision in the accounts) to Anderton, who resigned in January, but Keohane explained: "Although Phil resigned, he had a clause in his contract enabling him to consider his position in certain circumstances, which triggered the payment of the balance of his contract."

Having won only three of their last 17 test matches, Scottish rugby's on-the-field results reflect the business performance off it, and Keohane agrees there is a direct link.

"There are some key sponsorship negotiations ahead, and sponsors are key stakeholders in Scottish rugby who want to be associated with a level of success and a stable environment in which they can be confident, and that is an issue at this time.

"Similarly, hospitality clients and their guests, and indeed supporters in general want a positive climate on and off the pitch, and, like sponsors, need to be satisfied that the business is being effectively run."

With renewal negotiations for the 16-year Famous Grouse national team deal due to begin next year, Tara Kildare, sponsorship manager with The Famous Grouse, said: "The future of our relationship depends on how long this trouble goes on. If it is prolonged and performance is affected, this will affect the total amount of coverage we get. It is vital that the SRU resolve the issues as quickly as possible."

Matchpoint's Cunningham agreed. "The political wrangling has left a bad taste in the corporate mouth."

But Alistair Gray, managing director of Genesis Consulting, the company that produced the controversial six-figure strategic report is more upbeat about the prospects for Scottish rugby on and off the pitch.

He said: "Scottish Rugby has to grasp this opportunity, to show the people of Scotland how to manage change and lead the sports community, but it is about having self belief."

This article was posted on 9-Aug-2005, 14:02 by Hugh Barrow.