Where it went wrong for Wasps

Wasps have followed Worcester into administration and with their players being made redundant, the Coventry Building Society Arena likely to soon have a new owner and in all probability their P share being purchased by PRL the club will become an empty brand with no assets.

All of which is a very far cry from the heady days of 2015 when the Black-and-Golds’ business model was being praised to the skies and Wasps were even described in some places as one of the wealthiest sports clubs in the world.

I covered the club for the Coventry Telegraph from early in its Midlands existence before having a brief spell as Dai Young’s Media Manager. Since then I’ve been a regular at Wasps for BBC Coventry & Warwickshire and the written press as well as keeping an eye on the bigger picture for RugbyPass. Here are my thoughts on where it all went wrong.

For something which has ended in such a complex tangle with multiple companies, the stadium receivership being separated from the rugby club and the training ground being owned by one of the club’s directors, I can’t help but think the central issue which sank Wasps is very straightforward.

Simply put, the club took a huge financial gamble and it didn’t pay off. They are not the first business to do this and they won’t be the last, however this was a punt taken with other people’s money at long odds.

When Derek Richardson bought the business it was about to be liquidated. He stabilised the situation and spent a couple of years working out that doing more of the same – training in Acton and renting Wycombe’s Adams Park ground on Saturday afternoon – would not improve its commercial performance.

Wasps were losing money at a steady rate and had debts pushing £10 million. He saw that without access to match day revenues and a venue from which the club could generate non-rugby income the losses would continue.

I remember Dai saying that the operating costs were pretty low in the Acton days – he had few expensive names in his squad and the club got by with a minimalist approach to support staff and facilities. The training pitch was threadbare, the gym was like a primary school facility complete with wallbars and crash mats and the changing rooms were similar to those found in many grassroots clubs.

There were no further cost savings to make which meant Richardson had to grow revenue. When the Wycombe council were unwilling to allow Wasps to build he cast his eyes further afield and quickly happened upon a vacant stadium in Coventry whose owners were desperate to be rid of an asset they never wanted.

However, even given that Wasps were sold the stadium at a knock-down price below £20 million, this was way beyond the sort of cash which Richardson – the 100 per cent owner of the club – was willing or able to invest.

With the assistance of newly-appointed Chief Exec David Armstrong Wasps came upon the idea of a bond issue – an innovative alternative to conventional bank borrowing. This quickly generated the club £35 million which allowed them to purchase the Ricoh Arena and for Richardson to temporarily clear his personal loan account. However, it was also spelled disaster for one of English rugby’s oldest clubs.

On top of their existing operating losses, Wasps now had to find 6.5 per cent of £35 million each year from 2015 to 2021, at a stroke adding more than £2 million per annum to their liabilities.

They also now had all the costs associated with managing and maintaining a 32,000-capacity stadium plus exhibition hall, hotel, casino and sundry supporting features. The previous owners Arena Coventry Ltd never turned a profit; admittedly with Coventry City FC in exile an obvious revenue source was missing, but in effect Richardson had put two loss-making enterprises together while adding £2 million of funding costs to do it.

I remember being flabbergasted by the scale of the back-room operation when I crossed the divide to work for the club. With hindsight Wasps had taken a calculated decision to throw money at marketing, community engagement and the development of the wider brand in an attempt to rapidly drive up revenue but it was very high risk because of the levels of cost involved.

The sales and marketing team numbered 15 people – more than the staffing level which allegedly ran the whole of Newcastle Falcons at the time – while ticket giveaways reportedly numbered thousands on occasions.

A more cautious approach would have seen the merger done on a graduated basis, aiming to rationalise along the way and control costs, but there was nothing during my time working for the club to suggest this was ever considered. Their approach was to sell their way out of the hole they had dug, but all this managed to do was bury the club deeper under a pile of debt.

In addition, Wasps had to be playing high-octane, winning rugby which meant the likes of Charles Piutau, George Smith, Willie le Roux, Kurtley Beale and Danny Cipriani arrived in Coventry. In Dai’s own words he moved from shopping in Aldi to pushing a trolley round Marks & Spencer, and as the salary cap threshold rose Wasps spent to the maximum permissible level.

While revenue levels did grow, they never got anywhere close to matching the cost base which quickly soared out of control. The club was regularly losing more than £8 million per annum and because of the reporting requirements associated with the bond it was unable to shield this from the watching public which in turn brought damaging reputational impact.

The first obvious sign of problems came when Richardson went back on promises made to players and staff regarding the provision of world-class training facilities. By 2017 he was clearly concerned about the scale of the losses and reluctant to invest more of his own cash above and beyond the £18 million he had by now ploughed in to ensure that the club had enough liquidity to fund its now astronomic borrowings and continue to trade.

This issue drove a big wedge between the owner, his Director of Rugby and the players. Young and former captain James Haskell were especially upset since both had previously played influential roles in persuading London-based players to uproot families and move north on the back of promises regarding training facilities. Haskell and Young were both to leave the club within the next two years.

Many have suggested that the arrival of Covid finished Wasps off – which is partly true. However, this overlooks that the club first had a couple of extremely big pieces of good fortune without which it is unlikely that it would have survived long enough to even hear the word pandemic.

Their trading losses were briefly halted by CVC’s £200 million 2018 investment in PRL which generated each of the 13 shareholder clubs a sizeable windfall. On the back of this Wasps also benefitted from a substantial revaluation of their P shares – which sat on their balance sheet at £17.6 million despite seemingly being worth under half that if and when PRL activates its buyback clause.

Along with two sizeable upgrades in the valuation attached to the Ricoh Arena – which like the P shares is unlikely to generate a sale price anywhere near its balance sheet value – this enabled Wasps to deliver financial KPI’s which made surviving with their colossal debt just about possible.

Businesses that fail ultimately run out of cash and after Covid hit hard Wasps was no exception. They received the Government’s pandemic loans – yet more debt burden but this time at a low interest rate. However, with player wages forming a sizeable part of their annual costs the furlough scheme (with its £30,000 ceiling) was of limited use even after wage cuts were agreed. With revenue levels in the exhibition hall, hotel and other Ricoh-based venues drying up Richardson’s business simply ran out of options.

Matters came to a head when the club failed to meet its deadline to repay bondholders and as a result the FCA stepped in. Since this body also regulates the UK’s banks getting a sizeable loan with which to kick the debt can further down the road suddenly became a very difficult proposition for Wasps.

But ultimately it seems it was the reputational damage this did rather than the debt itself which finished Wasps off. HMRC – doubtless aware of the club’s financial predicament – seemingly became twitchy about the amount of outstanding VAT and employer NI and called in a reported £2 million of debt.

And when Richardson declined to further put his hand in his pocket the writing was on the wall – perhaps the same one to which Wasps Holdings has now gone in the absence of a buyer.

In years to come business schools will write case studies about the Wasps project and students will speculate about the club’s attitude to risk and debt. The cold figures tell us that Wasps were under £10 million in debt when Richardson saved them and they now have debts reported to top £90 million. For me those figures speak for themselves.