Wasps owe £2m in unpaid taxes to HMRC and £35m to bondholders related to the purchase of their stadium in 2014; they have continually made losses and were confirmed as in administration on Monday; the club have won four Premiership titles and two European Cups
Monday 17 October 2022 16:01, UK
We look into the ongoing crisis engulfing English club rugby, with four-time Premiership winners and two-time European champions Wasps the second club to enter into administration, three weeks after Worcester Warriors suffered the same fate.
Administration has seen Wasps become the second Premiership club to succumb to financial turmoil following the demise of Worcester - now player-less, as yet without new ownership and relegated from the Premiership.
Wasps, ever-presents in the Premiership's 25-year history, will follow suit out of the top flight and into England's second tier - provided they can find new owners and continue to exist.
Suspension, administration, relegation, players without wages and staff job losses for one of England's biggest and most famous clubs. A club which has been home to some of the most famous players the sport has seen.
Below we look at what has happened to this point, why it's happened, and what's next...
After two previous notices of intent to appoint administrators, and a race against time to receive funding or be taken over, Wednesday saw Wasps declare that the club would not be taken over in time, and as a result, they were forced to pull out of Saturday's Premiership fixture vs Exeter Chiefs.
Monday then saw the inevitable confirmed with Wasps announcing they were now in administration, had ceased trading, and 167 employees - including all players and coaching staff - had been made redundant.
The RFU's response on Wednesday was to confirm Wasps were suspended from the league. Their next action will be to confirm relegation in line with Premiership rules.
The club owes £2m in unpaid taxes to HMRC, and also owes £35m plus interest to bondholders as part of a scheme which saw the Wasps Group purchase their current stadium, the Coventry Building Society Arena - formerly the Ricoh Arena - in 2014.
With negotiations ongoing, Wasps revealed it became clear insolvency was now an inevitability, and the club have since had administration confirmed following a court hearing.
The aim of the club is still to find new owners and a cash stream capable of funding operations - something the club are no longer capable of doing.
"While the companies within the Group all represent strong and viable businesses, the reality is that they have insufficient cash at this time to continue to fund operations until these complex negotiations have concluded," a statement by Wasps Holdings Limited read on Wednesday.
Andrew Sheridan, joint administrator, said on Monday: "This is a dark day for English rugby, and we know this will be devastating news for every Wasps player and member of staff, past players, sponsors, and their thousands of supporters throughout the world, and anyone who has ever been involved with this great club.
"Our immediate focus is on supporting those who have lost their jobs this morning. This will be an incredibly challenging time for every individual, and we will be assisting them in making claims to the redundancy payments service.
"The board and many others across the club have worked tirelessly over the last few weeks to try and find a solution that would allow the club to move forward, and it is with great regret that there has been insufficient time to allow this to happen. However, we remain in ongoing discussions with interested parties and are confident that a deal will be secured that will allow Wasps to continue."
The club's beer sponsor Heineken removed all of their products from Wasps' home stadium last weekend ahead of the Premiership clash vs Northampton Saints, as the club struggled to pay suppliers.
Paying player wages in full is also understood to be a problem this month, while the club's press conference on Wednesday was cancelled and their website crashed for a period too.
Filings at Companies House on Thursday confirmed two Wasps directors, Nick Eastwood and Robert Gray, have left the board. The players were told at a lunchtime meeting on Wednesday to cease preparations for fixtures, and even look for potential loan moves.
A further complication could see administration affect Wasps' ability to remain at their home in Coventry. Arena Coventry Ltd and Arena Coventry Ltd (2006), the companies responsible for the trading of the stadium, have not yet been placed into administration, though.
Coventry City Council own the freehold to the land and granted Wasps a 250-year lease back in 2014 when the club moved there and bought the operating company responsible for the stadium.
The council's lease to Wasps at the time included a stipulation that insolvency of any kind could see the club forced to forfeit ownership of the stadium, with the exact wording: "If the tenant enters into some kind of insolvency regime."
When Wasps provided notices of intent to appoint administrators, they did so against three companies: Wasps Holdings Ltd, Arena Coventry Ltd, and Arena Coventry Ltd (2006) - the latter of which holds the lease. Whether the council would see it fit to act on this at the moment, particularly with bondholders due so much money, would appear unlikely though.
Financially, Wasps' most recent accounts for the financial year ending June 2021 read losses of £18.5m over two years and net liabilities of some £54.7m.
Premiership Rugby and the RFU confirmed on Wednesday that in order for Wasps' suspension to be lifted, they would need to reapply and demonstrate means. This has obviously not happened.
The club are currently suspended for two games, and should this period pass, they will be suspended for the remainder of the Premiership season.
With administration confirmed now, however, Premiership rules will see Wasps relegated to the Championship - as Worcester have been - come what may in terms of Premiership performance should they manage to get back on the pitch this season.
In this circumstance, Wasps would be able to appeal on the grounds of a 'no fault insolvency', which would centre on the impact of the Covid pandemic on sport. But with Wasps one of a clutch of clubs to have been making losses since before 2020, success in this would seem unlikely.
Wasps' No 1 goal in terms of their next action is to be taken over, with three parties said to be interested.
The first of these, as reported by Sky News, is led by former Wasps chief executive David Armstrong, who is working with Terminum Capital investment firm on a bid to buy the club and stadium. The Coventry Telegraph have since reported this bid may have been unsuccessful.
The second party is led by former Newcastle United owner Mike Ashley, who is said to be interested in the purchase of the club and stadium, and the links to Coventry City Football Club. These links are said to be far more tedious, however, and any interest looks to be over.
The third potential takeover group to have shown an interest is the Birmingham-based NEC Group, which is controlled by the private equity giant Blackstone, who have looked into buying the club's CBS Arena stadium.
For Worcester, having already had their administration and Premiership relegation confirmed, in addition to the loss of their entire playing and coaching staff due to the company holding the contracts going into liquidation, the future of the club rests on a takeover.
Administrators Begbies Traynor are still seeking a buyer for WRFC Trading Ltd, while the club also fear that Premiership Rugby (PRL) may next buy the Warriors' P-share - at £9.8m - as one of England's elite 13 clubs, which would cut access to central funding. This is something that will worry Wasps too.
Sky Sports understands Worcester's administrators are confident they will have more than one indicative offer for the club in the coming days as they continue their search for a new buyer.
An indicative offer for the club can show a financial range that prospective buyers are prepared to spend on acquiring Worcester, any potential conditions to a purchase, and allows administrators to assess whether they can move to a preferred bidder phase if a party looks to possess both the funds to acquire the club and also credibly fund Worcester for the future.
Premiership club owners will soon vote on whether Worcester and Wasps retain their P-shares. All of the Warriors' assets are currently in the hands of the administrators, who have confirmed they will appeal the club's relegation via the 'no fault insolvency' route.
"Worcester and Wasps are at the hearts of our communities and deserve a future," the two clubs said in a joint statement. "We are at the mercy of the clubs and Premiership Rugby. Don't take our P-share."
This is the big question, and as is to be expected, there is no straightforward answer and a number of contributing factors.
For Wasps, once HMRC indicated an intention to issue a winding-up order against the club for unpaid taxes to the tune of £2m, Wasps Holdings triggered an insolvency process, both regarding that debt and the whopping £35m debt owed to bondholders regarding the stadium, to give themselves time to acquire funds in a rescue package.
The timeline for this gave Wasps approximately 20 days to find £2m, after notices to appoint administrators came from the club on September 21 and October 4.
With the deadline fast approaching, and no new ability to pay off the £2m, Wasps had to admit defeat, but how has their mounting debt situation happened?
Back in 2014, bondholders raised millions of pounds for Wasps to relocate to the West Midlands and purchase the CBS Arena in a first-of-its-kind scheme.
At £2,000 per bond, plus 6.5 per cent interest over a fixed seven-year period, money was secured to allow Wasps to move and own the stadium, but the date to repay bondholders came and went on May 13, 2022.
Rather than repayment, Wasps Finance PLC released a statement to the London Stock Exchange titled 'Notice of Refinancing and Delay to Repayment', where it was said the bonds were being refinanced by bank HSBC, and a new date of June 30 was given.
This came after approved amendments in November 2020 due to the fall in revenue caused by Covid-19.
June 30 came and went without bondholders being repaid too, as Wasps Finance PLC confirmed further delays to refinancing and a new date of August 12.
In late July, a statement released then confirmed Wasps were now "pursuing different refinancing options" parallel to discussions with HSBC.
The August date came and went before Wasps confirmed their first notice of intent to appoint administrators in September.
Such a situation in being unable to pay debts has come principally due to dire financial accounts at the club over a number of years.
Yearly losses, between £3.7m and £11.1m, have been posted by the Wasps Group since their move to Coventry. With 2019 the only year to see a profit, and this was due to investment in the Premiership by private equity company CVC.
Full-year revenue between 2019 and 2020 fell by a massive £12.5m, while the year-end account in June 2021 saw a loss of £7.4m.
The wider Wasps business was hit hard by Covid-19, with the stadium, hotel and casino all unable to generate any income, but it is too simplistic to blame it all on the pandemic.
Rising wages for top players and coaches in the UK and Europe in general, dwindling attendances and gate receipts, plus a salary cap well beyond prospective and functioning income has hammered a number of clubs in England, with Wasps one of the main ones to suffer. And this was all pre-Covid, with the pandemic then exacerbating things.
At one point, Wasps even requested £13m of public money from the West Midlands Combined Authority (WMCA) to ease the financial strain.
The club also owe owner Derek Richardson circa £20m, while each Premiership club took eight-figure loans from the government during the pandemic as part of the Sport Survival Package. Loans which, at some stage, will be called in too.
Yet, at the same time, the CBS Arena hosted Commonwealth Games events earlier this year, while Wasps opened a brand new, state-of-the-art 13-acre training ground in Henley-in-Arden in September 2021, costing £4m, as the club have seemingly sleepwalked into administration.
Worcester's plight came in large part due to financial mismanagement from the top, while Wasps are severely hamstrung by the original financial deal which saw them relocate to Coventry.
Both had unpaid taxes, were sought after by HMRC, and larger financial cracks have been exposed, resigning the clubs to administration.
As authors Michael Aylwin and Mark Evans wrote in their 2019 book Unholy Union, "football was not a solvent industry until it became so big it could not fail to make money." Rugby Union, commercially, is nowhere near the stratospheric numbers football is, and never will be.
The Premiership, as Aylwin and Evans have posited, has found itself in a circumstance where its clubs were and are "daring each other to ever greater heights of expenditure."
In a persistent and constant battle between wages and revenue, wages have almost always been shown to have accelerated and increased.
The cumulative losses of Premiership clubs in the first 25 years of the competition stand at more than half a billion pounds. A staggering statistic.
Clubs have seen wage bills of £9m per year, but an average of just £4m brought in per club from match ticket sales.
In response to the pandemic and with sustainability in mind, the Premiership reduced its yearly player salary cap per club to £5m from £6.4m for the start of the 2021/22 season. But for two clubs, it appears to have come too late.
In fact, according to the Daily Mail, half of the Premiership's 13 clubs are currently in huge financial difficulty.
"Now it's about viability and visibility - let's work out who is viable and hope there is no one else in the same boat," Will Greenwood told Sky Sports.
"The ins can't get close to matching the outs. The irony is that the rugby on the pitch is amazing. We should have hundreds of thousands of people watching it because it's that good, but the numbers don't stack up.
"The wage bill and salary cap is too high and with it needs to be joint governance and independent auditors. The French do it in terms of Pro D2 and Top 14, so there's real independent oversight of clubs - if clubs look like they are in hot water with overspending compared to what they are bringing in, they can be warned and told to cut their cloth.
"In the race to be the best, win European Cups, compete at the highest level, clubs [in England] have leveraged and taken on debt. Eventually debt needs to be paid back and when debt becomes really expensive people come calling on your door for it."
