So, as the clock ticks down towards the general meeting of Newport RFC shareholders on May 9, and as the cash begins to run out, Geraint Powell gives his definitive analysis of the deal on the table.

 

 

There are, realistically, only three remaining impediments to the Welsh Rugby Union (WRU) securing the ratification of 75% of voting Newport RFC shareholders to the accepted conditional agreement for them to buy the Newport Gwent Dragons professional rugby region and the Rodney Parade facility off Newport RFC.

After much debate with Dragons region and Newport RFC fans in recent weeks, it is clear that most issues, however unpalatable, are widely recognised and accepted by the overwhelming majority of Newport RFC fans and shareholders. There is equally a broad consensus across Welsh rugby that there is no viable alternative for Newport RFC, if it wishes to continue in existence. Of particular note was an article in the Sunday Times by Stephen Jones, a lifelong Newport RFC fan and no great fan of the regional rugby concept, urging ratification.

Albeit begrudgingly by many Newport RFC fans, in very much a realpolitiks kind of way, but there is a widespread recognition and acceptance by most fans of the following 16 fundamental points:

1. There is an acceptance that the Dragons region and Newport RFC have been run as one group business since 2003, rather than as separate entities. Practically everything has been entwined, together with the Rodney Parade Ltd management company. This has funded the otherwise unaffordable Rodney Parade facility but has left Newport RFC assets exposed to Dragons region liabilities, exceeding the assets by £1,629,175 as of 31 May 2016 even with a very generous book value for the Rodney Parade facility.

 

2. There is a general acceptance that current group Chief Executive Stuart Davies has inherited something of a “hospital pass”, having played no part in setting up this group structure, but has faced-up to the cash running out with a complex group structure unappealing to fresh private investment. He has confronted the issues without there being further drift into unexpected sudden cash-flow crisis and insolvency.

 

3. There is an acceptance that the all-consuming underlying principle, rightly or wrongly and certainly not always consistently communicated to all fans as perhaps as well as it might have been since 2003, and some Newport RFC fans understandably feel aggrieved over this, has been to preserve professional rugby and to ensure that it is regionally based at the Rodney Parade facility for Gwent.

 

4. There is an acceptance that the immediate crisis that will plunge the group into insolvency, in the event of a “no” vote, will be cash-flow driven. There may be £7.4 million of historic debt, but no more working cash will be the downfall. That the group of companies, without the post-9 May £400,000 injection from the WRU to get the group through until the intended completion on 1 July, or any other major cash injection from another source without any hope of repayment, will collapse almost immediately into insolvency due to no cash and/or to avoid director exposure to allegations of wrongful trading under S.214 Insolvency Act 1986 when there is no prospect from that point onwards of being able to pay all bills as they fall due.

 

5. There is a recognition that, of the £5,405,813 owed to Tony Brown and Martyn Hazell, £4,195,000 of that secured debt is specifically owed to Tony Brown and Martyn Hazell in relation to the funding of the Bisley Stand and their priority legacy of that stand ensuring Rodney Parade remains the home of professional regional rugby in Gwent. If that legacy is preserved, through a WRU takeover of the Dragons with an independent Newport RFC using the facility as the WRU Premiership feeder club from the city of Newport for the Dragons, Tony Brown and Martyn Hazell are prepared to write-off the £4,505,813 owed to them.

 

6. There is also a recognition that, unless the WRU could still obtain the ground off the receivers/administrators of Newport RFC in an insolvency distress fire sale, a “no” vote would be a vote to demolish their Bisley Stand legacy and would always realistically trigger the recall of their funding. Nevertheless, there is undoubtedly frustration that the Newport RFC shareholders are having a gun, or rather a nuclear missile (if we are frank), pointed to their heads. Albeit from the gentleman who has bankrolled professional rugby in Newport for much of the last 19 years and is prepared to write-off yet more millions in order for professional rugby to continue/be reborn there under the WRU. And that a “no” vote is now a vote to end Newport RFC, even if the Dragons will still survive elsewhere or even via the WRU purchasing Rodney Parade off the receivers/administrators or elsewhere.

 

7. There is an acceptance, in this difficult public sector fiscal climate, that there is no realistic alternative option or appetite involving the council when the WRU, as the governing body and ultimate custodian of Welsh rugby, are prepared to commit £3.75 million of their resources as the purchase price and to spend millions more upgrading both the facility and the Dragons.

 

8. Whilst there is a frustration that no formal land valuation of Rodney Parade has taken place, albeit with caveats over lapsed planning permission and new criteria, there is an acceptance that the stance of the benefactor creditors in relation to their full loan recall if the facility is not preserved for professional rugby makes the point entirely academic. There is no disagreement over a valuation that is remotely big enough to make a dent in the difference between Tony Brown and Martyn Hazell wanting £900,000 or less in cash if Rodney Parade is preserved as a professional rugby facility and requiring £4,505,813 in cash if it is not. And there is also a recognition that it is all too late now anyway, with the cash flow position in the event of a “no” vote leading to insolvency next month.

 

9. There is an acceptance that the WRU hold all the negotiating “aces”, even having to loan/advance the group £400,000 after any ratification next month to see it through to the intended takeover completion date on 1 July. The WRU, if it so desired, could simply sit back and watch the natural collapse and do absolutely nothing or alternatively acquire the Dragons and/or Rodney Parade in a distress fire sale through the insolvency process.

 

10. There is an acceptance that the WRU, particularly Group Chief Executive Martyn Phillips, are intervening with the best of intentions and to preserve top flight regional rugby in Gwent for all 73 clubs including the otherwise insolvent Newport RFC. It is widely recognised that, if the agenda was to move a region from Gwent to North Wales this summer, the WRU would simply not get involved at all but would instead sit back and let the insolvency run its natural course save for maybe acquiring some of the players and any competition platform shareholdings for a Rhanbarth Gogledd Cymru professional squad next season.

 

11. There is a widespread recognition that there can be no absolute guarantees, including in relation to security of tenure. It is hard for anybody to imagine any WRU reviving Dragons strategy based on conflict with the residual independent semi-pro Newport RFC, for there is and will be some fan crossover between the semi-pro club team and the professional region team. In practical terms, for as long as the professional region play at Rodney Parade or elsewhere in the city, Newport RFC will remain unless they decide for their own reasons to relocate. There needs to be alignment, for it to be in the interests of the Dragons for Newport RFC to do well and vice versa. To sink or swim together, with no cosy guarantees.

 

12. There is an acceptance that this is a takeover based primarily on trust, particularly in WRU Chief Executive Martyn Phillips. He is not buying into Gwent regional professional rugby as a commercial decision, when North Wales is maturing nicely towards professional rugby and free of all the tribalism and historical acrimony. Welsh rugby requires a four team professional model to underpin the “financial engine” of the Welsh Test team, and he already has a commercial duplication problem either side of the River Loughor that is a financial ticking time bomb. Very few have questioned his underlying sincere motives, given the WRU member club cash and executive management time that will be devoted to this project when other regions and clubs are struggling. Whilst he should be around for the best part of another decade, the minimum time for a WRU Group Chief Executive to make a real impression and to leave a lasting legacy, obviously there are concerns over the risk of an early departure and his replacement by a less trustworthy individual with less empathy for the game.

 

13. There is a recognition, give the mutual shared interest in both the Dragons and the independent feeder Newport RFC doing well, and notwithstanding the impartial governance role, that the WRU will have residual informal low level mechanisms to aid Newport RFC should the need arise. Double headers played on a Saturday afternoon (club) and evening (region), joint season ticketing, extra corporate boxes opened up for Newport RFC matches, bar takings etc. But these should be based on future rapport, not on legal documents.

 

It is in the interests of the Dragons for Newport RFC to flourish, and for Ebbw Vale RFC, Bedwas RFC, Cross Keys RFC, Bargoed RFC and other non-WRU Premiership clubs such as Pontypool RFC, Newbridge RFC and Penallta RFC. For a sleeping giant to become a vibrant rugby region, at both professional regional and semi-pro club level.

 

14. Notwithstanding that the shareholding of the three major funding benefactors, including Will Godfrey, will initially increase from 79% to 84% as a result of this transaction, there is a recognition that this is very much an opportunity for a rebirth at Newport RFC.  An opportunity for a board and/or a management committee exclusively focussed upon them rather than (inevitably) becoming almost an afterthought for a board pre-occupied on the professional region team in a stressful trading environment. None of the “in house” feeder clubs of the professional regions have covered themselves in glory in recent years and all arguably for this same reason. I have this season watched Pontypool RFC knock non-severed Llanelli RFC and Cardiff RFC out of the WRU Cup, before losing to independent Cross Keys RFC.

 

15. There is a recognition of the brutal reality of a “no” vote. Newport RFC would quickly go into insolvency, and could expect no favours from a frustrated WRU stepping in to save professional rugby in Gwent. Even if the WRU still saved the Dragons and acquired Rodney Parade off the receivers/administrators, there would be a serious moral hazard issue for the wider WRU membership in relation to then saving Newport RFC. And especially if the cost of the same result would be higher for the WRU via administration than it would have been via a “yes” vote ratification from Newport RFC shareholders. That would be that, unless volunteers from the club, if there would be the will to do so, from scratch and with no cash or other assets, were to re-start in Division 3 East D, 7 promotions below the (ring fenced) WRU Premiership. A ground share would be needed, and the legal right to call the club “Newport RFC” might need to be purchased off the administrator of the old Newport RFC.

 

16. It is equally recognised that, even without security of tenure, there are grounds to approve the takeover even amongst those individuals who harbour doubts about the Dragons continuing at Rodney Parade beyond 2020 or, if they do so, in Newport RFC continuing to long-term share the same facility with the Dragons. If the WRU takeover is not ratified, that is the insolvency end. If the vote is “yes”, there is a guaranteed £600,000 in the bank from Tony Brown and Martyn Hazell and time to plan any post-Rodney Parade future in the WRU Premiership and which remains ring fenced with no relegation risk until the 2019-20 season.

 

However, and whilst these 16 points may seem to comprehensively point in favour of ratifying the accepted conditional agreement with the WRU, at least when emotion is removed and people are thinking with their heads rather than with their hearts, it is not always easy to separate raw emotion from clear headed thinking in the sports club context.

 

Newport RFC fans are no different to others in this regard, irrespective of their illustrious history.

 

The required figure of 75% of individual shareholders to ratify the sale of Rodney Parade is deliberately high, even when the only alternative is sudden death for a club constituted in 1874, and was specifically designed in 1998 to protect rugby at Rodney Parade from Tony Brown’s estate upon his death if things had gone commercially in the last two decades. He owns 73.4% of the shares, and is owed £3,270,000 either directly or via one of his companies, but only has one vote.

 

There are three remaining impediments to certain ratification of the accepted conditional offer:

 

Firstly, there are a few still in shock and in a state of denial. Still hoping that somehow, if there is a “no” vote, a better offer or different outcome will somehow come about. That somehow ownership of Rodney Parade will be retained and somehow a Newport RFC will still kick-off next season in the WRU Premiership.

 

It is difficult to see any realistic basis at all for this hope, founded upon reality. If the WRU do not walk away from professional rugby headquartered in Newport or in Gwent altogether, the WRU could make an offer to buy Rodney Parade when Newport RFC slides quickly into insolvency as the cash runs out. The first mortgagee, Handelsbanken, then paid in full, the remaining proceeds from the distress fire sale of Rodney Parade part paying the secured debt of Tony Brown and Martyn Hazell (subject to any non-legal decision they make to prioritise trade creditors etc).

 

It would be the same end result as ratification on 9 May, but without a residual independent Newport RFC with £600,000 in the bank.

 

Secondly, there are a few fans so terrified of the future uncertainty that they may elect to try and put an end to Newport RFC on 9 May.

 

A preference for a sudden, swift and clean suicide, for those unable to accept a Rodney Parade not owned by Newport RFC rather than to run any risk (however small) of a perceived lingering death. This in fairness taps into wider fan concerns about the commercial dynamics of the neglected WRU Premiership, with its controversial split season, and the severance with the Dragons just heightening in Newport fears that are widespread across the league’s fan base.

 

But this should be balanced against the future opportunities, without being an afterthought for Dragons directors and executives.

 

It is hard to imagine that these two reasons, in isolation, not so much purely emotional as emotionally anti-logical, will amount to 25%+1 of voting shareholders.

 

Thirdly, there are concerns that Rodney Parade will not remain (albeit of necessity discreetly on non-Newport RFC match days) a welcoming home for Newport RFC fans. A facility where there is an area on match days that is a de facto Newport RFC clubhouse, a permanent place to display Newport RFC’s extensive collection of memorabilia. These are legitimate concerns, which I think should be assuaged by the WRU to the extent possible.

 

As a Pooler fan, I have seen the damage done by the loss of the clubhouse i.e. Elm House. I am not quite in the category of Mark Ring, when he wrote “no clubhouse, no soul” in relation to a rugby club without a clubhouse. And I can see no business model that would make it viable for Pooler’s current generous owners to incur capital costs in rebuilding a clubhouse, other than perhaps as a suite ancillary to a rebuilt stand at a future enclosed and redeveloped Pontypool Park.

 

But this is a significant issue for Newport RFC fans, and one where there is probably widespread sympathy from fans across the Welsh game.

 

There is undoubtedly a difficult balancing act, for Rodney Parade has primarily been a professional regional facility for many years and the Bisley Stand is almost exclusively so. Rodney Parade’s long-term security is dependent upon it becoming a regional home, for fans of differing club traditions and for fans of no club tradition. The WRU will ideally want a clean facility, for corporate hospitality immediately and for future private investment in due course and probably from 2020.

 

Especially if the WRU moves forward on a Welsh tailored version of the New Zealand licence private investment model, the WRU retaining coach and player ownership at the Dragons through central competition platform income and the equivalent of current WRU payments but with private investment in the devolved commercial side of operating the Gwent professional regional side.

 

But I find it difficult to believe that it is impossible to find and include some discreet facilities, a welcoming home for the Newport RFC committed fan to migrate towards on his match day without the vast majority of regional fans probably even being noticeably aware of the existence. Or to temporarily convert a large area with bar into a de facto Newport RFC for a match day, complete with some memorabilia and black and amber everywhere!

 

It is finding that happy medium and compromise, between the elite game past and the elite game future, that is the key.

 

But ultimately, it all comes back to re-building trust and creating alignment in Welsh rugby. These mostly won’t be 2017 contractual issues and guarantees, for Rodney Parade will be an evolving professional regional facility.

 

And if relations between the Dragons and Newport RFC become productive, a desirable requirement for the WRU Group Chief Executive in revamping professional regional rugby in Gwent, a standalone feeder club aiding the regional cause through performance and player development, the WRU Chief Executive has a whole host of informal mechanisms through which to quietly aid the cause.

 

For, ultimately, just as with the rest of Gwent rugby, the WRU want as many Newport RFC fans as possible to align themselves with the professional region at one level of engagement or another. The era of fan alienation in South Wales rugby must end, and this is a good place to start.