The Lease

Many rumours are flying around the world of Welsh rugby as to the future of ownership of Cardiff Blues, some of which are more accurate than others. The world of Cardiff Blues is, at best, a complicated place that leads many to come to the wrong conclusions, so hopefully the following will shed a little light on what possible conclusions may arise from this saga.

It’s important to break down the players in this soap opera so that it’s clear as to which part influences the other and who has ultimate control, if anybody does at all:

Cardiff Athletic Club

The organisation affectively known as CAC (often with good reason) is the owner of 7 acres of city centre land in Cardiff on which sits Cardiff Arms Park (CAP) (and a Bowls club). CAC is a “Members Organisation” which means that it is owned, run and controlled by its members who pay an annual fee to be members. There is a Members Lounge at CAP to which non-members are often excluded from entering on Cardiff Blues match days, much to the annoyance of many.

There are a number of sporting sections to CAC: Bowls, Cricket, Hockey, Tennis and Rugby. As noted, the Bowls and Rugby sections share CAP and, of course, the rugby section has by far the largest number of members – about 600 – more than the other sections combined. We, as members, “own” CAP.

CAC is incredibly wealthy. Not only does it own those 7 acres but it also owns land in Lisvane, where the Tennis Club plays. Therefore, it sits on assets worth (conservatively) £10m.

Within CAC, there is a Bowls team, a Cricket section running multiple teams, a Hockey section running multiple teams and (I assume) a number of Tennis teams. There is, however, no rugby team. CAC has a rugby section but it doesn’t have a rugby team.

The reason for this is because it did once have a rugby team called Cardiff RFC but, in 1996, ownership of that team transferred to Cardiff RFC ltd – the business set up to run rugby when it turned professional. As part of that incorporation, CAC is the major shareholder in that Company and instigated a ruling (through a mechanism called Heritage Shares) that no group or individual can own more than 24.9% of the Company.

Whilst that Company changed name a couple of years ago to Cardiff Blues Ltd, the same ownership structure remains. CAC own 1,250,001 shares in the company, which is more than the just over 1,000,000 shares that Peter Thomas owns. Other major shareholders (at least 500,000 each) are John Smart, Paul Bailey and Martyn Ryan.

This is a crucial point in this story as you may read that “Peter Thomas owns the Blues”. He does not. He is not the major shareholder. He controls the company through loans he has made to it, but he does not own it. It is not his.

One other major issue to raise is that CAC’s income (£201,858 in 2016) mostly comes from the rent Cardiff Blues ltd pay to play at CAP – £115,161 in 2016. It is this rental payment that is at the root of this issue.

Cardiff Blues Ltd

This is the company that runs and owns both Cardiff RFC and Cardiff Blues. This is the company that employs all of the players, the coaches, the staff etc. for BOTH teams. It used to be called Cardiff RFC Ltd but changed its name a few years ago.

For many years there has been a battle between CAC and “Club Limited”. Late rental payments from Club ltd, promises broken, plans of growth blocked by CAC, personality clashes etc. It’s been as pathetic as its been entertaining at times. Suffice to say, the leading lights of both parties have not always seen eye to eye.

Therefore, for many on both sides of the divide, there would be a happy divorce and this is despite CAC holding three seats on the board of Cardiff Blues Ltd.

The company are seeking a 150 year lease on the land at CAP so that they can redevelop the stadium into a 365 days a year facility that will bring conferences, concerts, a “drop in pitch / sliding pitch”, other meeting facilities, huge car part, hotels, flats, bars etc. All of this is hugely exciting and should “cement” the future of professional domestic rugby within the City Centre of Cardiff.

However, to do this, the Club ltd is seeking to completely change the set up of the business to rid the block of the previously mentioned 24.9% of ownership. There are many good reasons to amend that particular clause, first of which would be allow Thomas to convert his somewhere near £14m in loans (made over 21 years) into equity, leaving the company debt free.

Therefore, in theory, the Cardiff Blues could be set up for “200 years” with a debt free start (other than the debt of the redevelopment, which should be more than met from the income of the new facilities) and this would be pretty similar to the set up Wasps enjoy at Coventry.

The Supporters

In 2003, Welsh rugby nominally changed to a ‘regional structure’ that was actually club mergers to form development pathways. If anybody moans that this isn’t the case, the Rugby Services Agreement (the contract that presently governs the relationship between the WRU and the four professional teams in Wales) explicitly states “four pro teams running regional development pathways”. This is exactly the same structure the English clubs run.

At Cardiff, we stood alone in 2003 and merged with nobody. Even when the WRU put through the Celtic Warriors, the business and ownership structure at CAP did not change. We continued to stand alone and gave up £1m in services payments from the WRU in order to do. So, there’s £1m of Peter Thomas’ £14m gone.

The first jerseys worn by Cardiff Blues in 2003 were the change jerseys from 2002-3 with a new bade sewn over the top. You could buy these shirts in the club shop – just with the badge sewn over the top. We were told we had a new brand, an addition to the Cardiff name and, to this day, the crowd continues to chant “Cardiff”.

Why is this important? Simply because those who were CAC members, shareholders and season ticket holders in 2002-3 moved our viewing habits to Cardiff Blues. We went en masse because it was exactly the same thing under an amended brand. There was a team called Cardiff RFC that remained, but the crowd didn’t watch that team and few still watch it today.

For the vast majority of supporters, Cardiff Blues today is the same as Cardiff RFC was in 2002, just the brand has changed. Its also worth noting that Thomas’ debt is all caused by decisions he has made. He authorises the “overspending” that he meets by loaning the business money, such are the tax laws in the UK that make it advantageous for the business to do so. He wasted another couple of million on the move to Leckwith that many of us warned was not economically sensible. So, in short, he’s made two key business decisions (one of which utterly ludicrous) that constitute £3m of the £14m or so he’s owed. This means that he’s spent c.£10m on the team over 20 years. Or that his season ticket has cost him £500,000 a year. That’s roughly 2000 times what my season ticket costs me and I’m pretty confident his net worth will allow that cost to be in line with his wealth.

Cardiff RFC

This is the team that plays in the Welsh Premiership and is, seemingly, unloved by many. Cardiff Blues flip flop between wanting the team and not wanting it, as part of the lease negotiations and have now seemingly settled on something quite bizarre (more of which later). The team is run by a Committee made up of four Cardiff Blues employees and two volunteers from CAC, although the number of meetings attended by the four Cardiff Blues employees can be counted on the fingers of one hand.

The budget for the team is to “employ” 25 players on very semi professional wages, with the squad then topped up by academy and fringe first team players of Cardiff Blues.

The total spent on wages for the core 25 is under £100,000 and it is no wonder the team lost out on the top 8 position in the Welsh Premiership this season and lost in the Cup to Pontypool, as all the more superior opposition have higher wage bills.

Some in CAC wish to take this team fully back ‘in house’ but this is where the soap opera takes a turn for the sour and sad. The number of non-Cardiff Blues season ticket holders (i.e. Cardiff RFC only) is well under 200. Of the 600 CAC Rugby Section members who can watch Cardiff RFC for FREE, fewer than 200 do so on average. Crowds are typically around 300 to 400, with the more popular visiting sides often outnumbering the home support.

The ‘New Lease’

Negotiations over this have been ongoing for many, many months and a number of deals have been put on the table that have been re-negotiated and changed. I’ll try to break things down as clearly as I can:

• the desired term of the lease is 150 years (although even this has changed at different times of negotiations)
• there will be a lump sum payment of £8m up front from Cardiff Blues ltd to CAC in order to cancel the Heritage Shares and to remove CAC shareholding from Cardiff Blues ltd
• the annual rent will increase to £200,000 and this will obviously be indexed linked
• the source of finance for the redevelopment is supposedly Middle Eastern based, with the strong rumours being that those involved in Manchester City FC maybe providing at least some of the money.
• At least initially, Cardiff Blues Ltd would continue to run Cardiff RFC but the operations and finances of that team could be transferred to a presently dormant company called “Cardiff RFC ltd”. You’ll remember above that I mentioned the name change of the company, so this action would be to almost reverse that by moving the Welsh Premiership team back to a company named appropriately. This transfer, and its timings, would be reviewed over a period of the first three years
• During the redevelopment of CAP, Cardiff Blues would play out of Sardis Road, Pontypridd and Cardiff RFC would play at the Athletics stadium in Leckwith.

The Future

The cessation of any CAC ownership / shareholding within Cardiff Blues ltd is obviously the severance of the hard link between Cardiff RFC and Cardiff Blues. The transition of support many of us made in 2002 to 2003 would, in some ways, be replaced by a new entity.

With that severance comes the risk that Cardiff Blues Ltd would then be fully the plaything of Peter Thomas for him to do with what he wants. This is where the rumours of name changes and ownership arrive in this saga so it is vitally important to note that this can only happen once the Heritage Shares are bought off. At this stage, that 24.9% block will disappear so, in theory, Thomas could hand the keys to the WRU or anybody else.

What must be considered here is that the company owning Cardiff Blues after the signing of a new lease will be sitting on the asset of that lease and the income it brings. The redevelopment will obviously bring great debt but great income to that business and it is believed that the income will fund the rugby team for many years to come – again, a la Wasps. Therefore, that company will have a positive value.

Many within CAC think the shares held in Cardiff Blues ltd are worthless. Indeed, the book value of these shares in the CAC Annual Report is £0. There are those within some other sections of CAC (especially the cricket club) who want the £8m to sit in the bank to make CAC even more wealthy. These guys want “the Blues” gone, to be nothing more than tenants paying £200,000 a year (remember, that £200,000 is the same as the whole annual income to CAC at the moment).

BUT – why get rid of shares in a company that is obviously going to be sitting on the income of a 7 acre city centre redevelopment?

There are those within CAC who think that having Cardiff RFC back ‘in house’ is a positive. However, let’s look at the business plan for this team:

• it has only a few hundred supporters, many of whom are of a ‘certain age’
• it has no mechanism of attracting new support as the next generation will follow “the Blues” and those interested in community rugby will watch local Cardiff sides such as St Peters, Canton etc.
• the WRU are planning on reducing funding to this tier of rugby in the future. Therefore, the team’s ability to pay players and its place in Welsh rugby will be greater under threat.
• If the Ground Redevelopment leads to a successful concert / conference venue, there is no commercial value in Cardiff RFC using that facility. Simply put, if there is a choice between hosting a weekend conference or Cardiff RFC playing semi-pro rugby in front of 300 people, it’s quite obvious which will take preference.
• The number of rugby section members will steadily decrease if there is no hard link between Cardiff RFC and Cardiff Blues. In turn, this will make the other sections within CAC relatively stronger and soon that £200,000 income will go to making the cricket and hockey sections even wealthier.
• Cardiff RFC will, no doubt, be left to die a slow death in front of an ever ageing and decreasing in number support base, in the Athletics stadium in Leckwith.

Therefore, for me, outside of Cardiff Blues, the team branded Cardiff RFC has a 5-10 year lifespan maximum before its playing full community rugby.

That means that I believe that those who wish to protect the future of Cardiff RFC must look very, very closely at the final proposal offered to members of CAC to ensure they are happy with the terms.

There is also the issue as to whether the Steering Committee of CAC who have been negotiating this deal have done so with the correct mandate from members. If, for example, a Rugby Section EGM was called and it was decided that members would NOT support any change to the Heritage Shares that allowed a split between the teams, or allowed any future potential change of ownership to a group or individual who did not value the Heritage of Cardiff Rugby, any negotiations undertaken so far could be a complete waste of time and money.

Those who don’t want the WRU to own and run Cardiff Blues must also consider closely how they will vote for any change. If they are against such an option, they too must vote against the lease deal unless it protects from such outcomes.

This soap opera has a long way to run yet and its storyline has fluctuated significantly since it started. This blog, despite being over 2500 words, has tried to remove the emotion from the research undertaken behind it and no doubt more will come out in the coming days and weeks, so this will be just Part One of my summary of the story.

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