West Wales News Review — analysis with a sustainability slant

A Council, a Rugby Club, and a Scary Debt

The Scarlets rugby club owed £2.496 million to Carmarthenshire County Council at March 31st 2012, £72,000 more than a year previously, according to the council’s accounts.

This loan debt prompted the questions:

  • How healthy are the finances of Scarlets Regional Ltd, formerly Llanelli Rugby Football Club Ltd, the famous rugby union club in the former industrial powerhouse of Llanelli; and
  • How much more money, over and above the loan, has the council pumped into the club ?

Scarlets Regional Ltd’s figures for the year to June 30th 2011 are in the public arena, and show that the turnover of £7.591 million was not enough to cover the combined £5.807 million costs of sales and the wages bill, for 125 employees, of £5.807 million. Despite the pre-tax loss of £1.819 million, the directors received a total of £117,694. There were 11 of them, so the payments work out at an average of under £11,000 each – quite restrained in the context of bankers’ bonuses, but should they be taking anything at all out of the club?

Total liabilities added up to £13.497 million, which was better that 2009-10’s £17.395 million and the preceding year’s £15.577 million, but still short of covering the total assets of £11.551 million. The gearing ratio — the ratio of debt to equity — was a scary -477.6% and worse than in the previous two years. The figure is negative because in fact there was no equity: the company’s net worth was also a minus, a negative £1.946 million.

There is a sizeable risk that the only way to repay the debts would be to incur even more debt in a major refinancing, if backers could be found, or to sell the stadium and the club’s other assets, which would be Goodbye Scarlets. A middle way could be a combination of refinancing and cost slashing, including players’ wages — but would the club then be able to retain enough top players to keep it in the top flight?

Carmarthenshire County Council, which has invested heavily in the Scarlets, claims that the millions paid in on behalf of the county’s residents is money well spent. Council chief executive Mark James told walesonline.co.uk[1] that the authority “invested £10.2 million in the development [of the club’s new stadium at Parc y Scarlets, Parc Pemberton, Llanelli] along with £5.6 million Section 106 legal agreement money from the sale of Stradey Park for development. The council also gave the club a £2.4 million loan on top of that.” That makes £18.2 million. In fact £18.3 million, because the £2.4 million loan had grown to £2.496 million by March 2012, as noted at the top of this post.

A Section 106 agreement covers monies paid by developers, in this case the developers of the Scarlets’ old ground at Stradey Park, to the local authority.

Carmarthenshire County Council’s officers, it seems to me as an outside observer, sometimes show a tendency to reject policy criticisms with counter-attacks directed at the objectors personally, apparently with the aim of belittling them and thus implying that any views they hold are not worth a candle. Tessa Finch, an accountant, had told walesonline that the county council had invested around £40 million in the Scarlets, a claim that chief executive Mr James decried as “ongoing nonsense peddled by a small minority of people who didn’t want the stadium built”, adding that he was “concerned but not surprised about the language used by those who would wish the club and council harm.”

It’s a huge assumption to make that criticism of the amounts of public money spent inevitably come from critics who wish harm to the authority. I would guess that most critics just want a democratic dialogue and have no intention of starting a vendetta.

Local resident Richard Roper pointed out to walesonline that Carmarthenshire’s figures for the amounts invested by the local authority excluded the value of the council-owned land on which the new stadium had been built. Mr Roper estimated the value as £14 million, which added to the £18.3 million gives £32.3 million.

Mr James dismissed the figure of £14 million as “just nonsense” and claimed: “We would never have developed any of the land in the area, had it not been for the decision to build a stadium, so it had no value.”

Can it be correct to say that such a large site had no value? I find that very hard to accept. It seems that the council has given a free loan of the land to the Scarlets, until such time, if ever, when they no longer want it.

The Scarlets are an important sporting asset, and the club has a superb history, but genuine concerns about the amount of council money injected into the Parc y Scarlets development are just that, genuine, and should be treated with respect and answered in clear detail.

Grant Thornton, auditors of Scarlets Regional Ltd, added a note to the 2010-11 accounts, expressing concern that “the existence of a material uncertainty …. may cast significant doubt about the company’s ability to continue as a going concern”.[2]

This doubt, from the auditors themselves, means that Carmarthenshire’s investments in the club are likely to come under rising scrutiny from the county’s residents.

Pat Dodd Racher, August 4th 2012

[1] ‘Scarlets in revival plan after financial auditors issue earning’, by Martin Shipton, May 3rd 2012, http://www.walesonline.co.uk

[2] ‘Scarlets in revival plan after financial auditors issue warning’, as above.


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7 thoughts on “A Council, a Rugby Club, and a Scary Debt

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  4. Foel Boy on said:

    The residents of llanelli deserve an independent enquiry to clarify the full extent of the investment made by the county council.

    • Maybe one of our problems in Carms is the lack of media scrutiny of local authority activities. Nowadays it’s all down to tenacious but spare-time bloggers. Local media may say ‘We can’t afford a local government reporter’, and ‘We can’t afford to lose council advertising’. Both of these factors enable the authority to push through its agenda, I think.

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