Rugby club struggling to match top salaries as cost of financing debt limits profit
Could tight finances threaten Leicester Tigers’ supremacy in premiership rugby? There are fears that the club’s phenomenal success might dwindle over time as spending on players fails to match that of wealthier competitors.
The new stand being built at the Welford Road ground is designed to bring in more paying spectators. The club’s attendances, already the highest in the premiership, will expand as capacity grows from 24,000 to around 26,000. That means, over time, more income.
Yet there are doubts that the club can afford the players’ salaries needed to perform at the highest level.
A salary cap operates in rugby union as in many elite commercial sports. An agreed maximum limits clubs’ total wage bill for players. This helps avoid soaraway inflation and is designed to secure the financial viability of all 12 clubs in the premiership.
Richard Cockerill, the club’s director of rugby, hinted earlier this summer that Tigers may not be able to afford to spend the full salary cap. The cap is now £5.5m a year. Clubs can also nominate two excluded players whose salary is not included in the cap.
How strapped for cash is Leicester Tigers?
Around 29% of Tigers’ £19.4m turnover in the year to the end of June 2014 was ticket sales. Nearly £4m came from deals and payments organised by Premier Rugby Ltd. The rest, £9.9m, was income from commercial activities.
Operating profit for that year was £482,000. That’s a rise over the previous year’s £396,000, and looks good. But operating profit doesn’t take account of how the club is financed.
The club paid interest on its debts of £370,000. That brought pre-tax profit down to £115,000. Once tax is deducted, the profit is lower still – just £60,000. In the year to June 2013 the club didn’t make a profit after tax at all – but a loss of £43,000. And that was on a turnover of £19m.
It is those margins that make Richard Cockerill contrast the club’s position as a public company with privately owned clubs with wealthy owners. He told reporters, “We are not the rich kids that ask their dads for a new bike and Dad just buys it. We have to save up bit by bit and spend what we can afford.”
In the past two years, Tigers has saved up just £17,000. It’s not much towards the salaries of hundreds of thousands that top-flight players can now demand.