Why financial regulation is key to the future of pro rugby
November 8 2019
Trevor Watkins, global head of sport at international law firm Pinsent Masons, runs the rule over Saracens’ massive fine and points deduction for salary cap infringements and suggests relegation may be been even more effective.
Many of those England players soundly beaten by South Africa in the Rugby World Cup final have returned home to find their club side, Saracens, on the end of an equally resounding defeat.
Adjudged to have breached the financial rules of Premiership Rugby, the top tier of English professional club rugby, current champions Saracens find themselves at the bottom of the league after a substantial points deduction and having to meet a significant fine.
Like many professional sports, top-tier club rugby in England operates a system that caps the amount of money a club can spend on a playing squad. Whilst the players at Saracens were in receipt of contracted salary payments, at the heart of this matter was the status of a series of investments made by the club owners into private ventures of individual players. Saracens appear to have argued that these items should not have fallen within any salary cap calculation; the panel clearly disagreed. It found that the club failed to disclose payments to players in each of the seasons 2016-17, 2017-18 and 2018-19. The club was also found to have exceeded the ceiling for payments to senior players in each of these seasons.
Arguably the strength of the Saracens squad and the talent available had led it to become a dominant force in the English game in recent years. The link between being able to select top-tier talent, that in turn delivered club success, and the apparent breaches of the rules appears at first blush to be strongly in the mind of the panel. It is then, unsurprising, that the panel applied unparalleled punishment with a total fine of £5,360,272.31 for the three salary cap years breached and a total deduction of 35 league points for the salary cap years of 2016-17 and 2018-19.
Rugby has for many years been an apparent poor relation to professional football. There are few clubs with the infrastructure and resource to compete in the top tier. The values of clubs ebb and flow but have generally settled around the equivalent sum for acquiring a leading League One or mid-ranking Championship football team. In recent times, however, the advent of US private equity firm CVC betting big on the future of professional rugby both domestically and internationally has, given their track record, demonstrated that they see a significant upside in the value of investing within the sport.
Ironically, notwithstanding the acumen and financial clout CVC bring to the game, it is the rules regarding club finances that are pivotal to the future success of the game. By limiting the ability of teams to spend at will and in effect providing each with the same financial resources, arguably it ensures success on the field is more directly linked to the better player selection, coaches and strategies adopted. It encourages uncertainty of outcome, making the competition more interesting and considerably more appealing to sponsors and fans alike.
It is then understandable why, if found to have flagrantly abused a rule underpinning those purposes, a team is likely to find itself significantly punished. The offence undermines a fundamental part of a structure created to maintain a level playing field, to help preserve the integrity of a competition and ensure no team has an unfair competitive advantage. Notwithstanding this, if imposed last season Saracens would still have avoided relegation. In all likelihood the same thing will happen this season. Whilst it does not, however, impact on their participation in the European knock-out competitions this year, it will likely prevent them from achieving enough points to qualify for next year’s European games.
Whilst Saracens contemplate an appeal, the fall out for professional rugby within England is likely to be significant and prolonged. Some commentators have suggested there have long been rumours circulating about supposed breaches. Even so, with the earliest offences impacting on a season three years ago the system of uncovering and pursuing breaches would clearly benefit from being made more robust to enable sufficient checks and balances to be in place to at least limit the extent and duration of incidents.
Saracens have said they’ll appeal. Most likely seeking to challenge the rules themselves on the basis that they are anti-competitive; it’s an argument that has been made before and is increasingly one deployed to challenge decisions of sporting bodies. We’ve used it ourselves five or six times to overturn similar situations. However, to do so the club would need to demonstrate that the rules themselves either did not have a legitimate aim or even if they did were disproportionate.
My take on it is that this time the rules should stand. And whilst the panel stood up for imposing a robust decision, particularly financially, the message may have been all the clearer if automatic relegation was the penalty.
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The players involved MUST have known, if they didn't then their manager/agents need sacking, so are all culpable