Scarlets latest: £12.673 million losses to carry forward
UPDATE October 15th 2014
Exactly a month ago, Carmarthenshire County Council’s Executive Board allowed Scarlets Regional Ltd to borrow another £900,000. The new loan is from the Welsh Rugby Union, and is at least interest-free. The loan can be taken in three stages, to a maximum tranche size of £325,000, and the final tranche should be taken in September 2016.
The county council could have stopped the Scarlets from accepting the loan, because of the terms of its own financial agreement with the company. The Scarlets owe the council £2.614 million (and rising), after all.
The directors are required to provide security of up to £180,000, 20% of the maximum loan, and the WRU takes a “fixed and floating charge over the assets of the club with the exception that there is no fixed charge over the club’s stadium, barn or track”, in the words of the report to the Executive Board. The stadium premises belong to the council anyway and are leased to the Scarlets.
Currently, there is clearly insufficient net worth to provide security for additional loans because, as the latest published accounts show, as at 30th June 2013 the company had an excess of liabilities over assets of £3,568,287.
Will the extra £900,000 spark a financial revival? A long run of sporting success would help greatly, but currently the Scarlets rank seventh in the Guinness Pro12, below their near neighbours the Ospreys, who are top, then Glasgow, and all four Irish teams. There is a crumb of comfort in the mid-table position — it’s a lot better than propping up the bottom. The next few months will be interesting.
Loans from directors and from Carmarthenshire County Council are just about keeping the financial wolves away from the battered body that is The Scarlets rugby region, but for how long?
The Scarlets are central to the self-image of Llanelli in particular and of importance to West and North Wales in general. One of the four professional teams in Wales, and with the largest geographical area, the Scarlets are the modern incarnation of Llanelli RFC, which for so long played at Stradey Park inside Llanelli.
The Scarlets’ six-year-old stadium, outside Llanelli at the retail estate Parc Pemberton, seats 14,870 but the average gate, reported in newly available financial statements for 2012-13, was “over 8,000”. That gate is good for a town like Llanelli, population 35,000 according to the town council, but it’s not enough to keep the club solvent. Two particular problems are evident: the Ospreys rugby region is only just down the road at the Liberty Stadium in Swansea, and the Ospreys attract fans from the lion’s share of what is becoming a single Neath-Swansea-Llanelli conurbation. The Scarlets look to sparsely-populated West and North Wales for their fans, but these are areas with ageing and less-and-less mobile populations.
Stradey Park had a capacity of 10,800. Parc y Scarlets is a lot bigger, more anonymous, and seats are further away from the play. Maybe it will acquire character in time.
Meanwhile, the shareholders found themselves more in the red at end-June 2013 than a year earlier. Their investment in the club was a negative £3.568 million, compared with negative £3.243 million the year before.
The auditors, Grant Thornton, resigned in March 2014, just before the 2012-13 accounts should have been filed with Companies House. The financial statements for the year were eventually audited by James & Uzzell Ltd of Swansea Vale, and filed with Companies House after the chairman’s report was signed on July 31st.
The auditors say: “The company incurred a net loss of £690,701 during the year ended 30th June 2013 and, at that date, the company had an excess of liabilities over assets of £3,568,287.
“These conditions along with the other matters explained in the accounting policies to the financial statements indicate the existence of a material uncertainty which may cast significant doubt about the company’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern.”
The value of the company’s dominant asset, the stadium, is reported as £10,073,345. More than £10 million. Would it be worth that much if the company folded? Who would be willing to pay over £10 million for a 14,870-seater stadium on a retail park outside Llanelli? There could well be a buyer, but intense competition for the property is rather unlikely.
The director with most invested in the company’s shares at the year end, according to the financial statements, was Nigel Short, owner of 3.17% of the columns of red ink. Philip Davies owned 1.95% and Nednil Ltd, of which Mr Davies is a director, owned 1.46%. As well as investing in shares, the directors have been generous with interest-free loans. Just in 2012-13 Nigel Short advanced £340,000 and Nednil Ltd £200,000. At the year end, directors Huw Evans, Granville Wise, Tim Griffiths and Nigel Short were owed £3.179 million, £1.541 million, £1.003 million and £440,000 respectively. Nednil Ltd has loaned a total of £2.047 million, and Welsh Whisky Co Ltd, a business interest of Mr Short, lent £100,000.
Carmarthenshire County Council’s outstanding loan to the company increased by £100,000 from £2.514 million to £2.614 million. This is secured by a “floating charge over the company’s assets”, to quote from the financial statements. The main asset is of course the stadium, which could not realistically have been built – the Carmarthen Journal reported that the development cost £25.4 million — without a grant of £10.3 million from the county council, plus £5.56 million in ‘Section 106’ money from the developers who received planning permission to build homes on Stradey Park. The council’s grant more or less equals the stadium’s present value.
The county council issued a 150-year lease to the Scarlets, at nominal rent, and part of the car park on this leased land was sold to pub company Marstons for £850,000. Only £200,000 of this made its way into county council coffers, although a fairer split would have been 50:50.
Scarlets Regional Ltd is a privately owned company and some people feel that Carmarthenshire County Council might have broken European Union regulations about handing state aid to commercial concerns. The council argues that it has not broken any rules.
Certainly no one appears to be making profits from the council’s largesse.
The Scarlets’ financial performance in 2012-13, as presented in the accounts, was rather better than in 2011-12. Turnover rose 0.15% from £7.980 million to £7.992 million, but this lagged behind inflation. The cost of sales soared 13.1% to £6.153 million, but net operating expenses fell over a third from £3.647 million to £2.395 million. No worries about corporation tax, for there was no profit. And although the loss on ordinary activities almost halved from £1.297 million to £690,701, the losses carried forward rose by this amount to £12.673 million.
Servicing debt is feasible at present, because interest rates are so low, and in addition the Scarlets are benefiting from many interest-free loans. During the year to June 30th 2014 Scarlets Regional were due to pay bills and repay loans totalling over £5.272 million, a tall order. The next accounts will show if this was achieved. The average gate at home games in 2013-14 was 7,218, a little down on 7,478 in 2012-13, according to calculations from figures on the Scarlets website. The company put the 2012-13 average gate at over 8,000, which could well be correct if absent season-ticket holders were counted in.
More than 4,300 people had season tickets in 2012-13, a respectable total. A standard season ticket for the current season costs £215, with more expensive variants up to £590 for a Carwyn James Patron ticket, and lower prices for students and children. Better public transport to and from Parc y Scarlets could entice additional season ticket purchasers, but that seems an unrealistic wish. Charging a lot more for season tickets is also unrealistic. Greatly increased income from TV rights would help. Couldn’t the Welsh Rugby Union be more generous? According to David Moffett, group chief executive of the WRU from 2002 to 2005, the regions are being starved of WRU funding because the union opted to repay early £16.6 million of debt.
A few big matches – against the All Blacks, Australia or South Africa, maybe – could be life-prolongers. On October 31st 1972, the then Llanelli RFC played the All Blacks on the old ground at Stradey Park – and won. There would be little doubt about the Scarlets being a going concern if rugby was still played at Stradey.
The gloomy finances at Parc y Scarlets are also emphasised by the fact that Scarlets Regional Ltd lost its auditors in March 2014, and in August 2014 company secretary Nick Gallivan resigned after just over two years in the post.
That stadium is just TOO BIG and TOO EXPENSIVE for a club which needs to devote more resources to RUGBY.