The SRU’s accounts – 2019/20

There can be a certain amount of glazing of the eyes that takes place when the conversation turns to financial statements. The nitty gritty of accounting policies and income & expenditure doesn’t grab the attention like a new signing for instance.

The financial health of the governing body is an essential component of the current and future success of the national side, the pro teams and the game of rugby across Scotland though, so it’s important (and interesting – honest!) to take a look and try and understand what is happening. Allow On Top Of The Moon to be your guide to some of the information that stands out in the SRU’s Annual Report for 2019/20.

This is an unusual year with the initial stages of the Covid pandemic and national lockdown impacting the final two and a bit months of the period.

Turnover and other income

£55.5m v £61.1m in 2018/19

This was the first decrease in turnover since 2006/07. Covid certainly played its part but the SRU were already anticipating a reduction to income of £59m before the pandemic hit, with just 4 games at Murrayfield (and one of them a Friday night fixture against Georgia leading to a rare non-sellout). World Rugby provides grants every four years to make up for lost income arising from competing in the Rugby World Cup but this wouldn’t have closed the gap entirely to 2018/19’s record turnover.

The lower revenue for 2019/20 would have been factored into the original budgets – which in this day and age almost certainly have a four year timescale to tie in with RWC cycles – but there was no way to predict the impact of Covid.

It’s worth noting that grant income included in turnover will include amounts claimed under the government’s Coronavirus Job Retention Scheme (furlough payments). With that in mind, based on the reported numbers of staff being furloughed, somewhere between £1.0m to £1.5m might have been claimed up to the year end.

Removing the effect of these grants would leave a drop of £4.5m to £5.0m from the turnover that was expected to be delivered. At least part of that would have come from the professional game. Based on competition income receipts from PRO14 and EPCR in the WRU’s accounts the decrease would have been somewhere in the region of £1m per team. The bulk of the remainder of that drop in turnover would have come from TV monies relating to international matches. Final payments in relation to the Six Nations were deferred with four games not being played on the originally scheduled dates.

Some of the lost income will have been recovered when the competitions were finished. European club tournaments and the Six Nations were fully completed in the Autumn and all remaining broadcast revenues should have been received and will be included in the 2020/21 year end. The PRO14 did reach a conclusion but, after being shortened by six rounds, not all related income will have been paid. Lost ticket revenues from cancelled and behind closed doors fixtures will never be recovered.

The challenge for the SRU is to keep increasing revenues despite the prime driver of income, Murrayfield, reaching its maximum capacity. Key broadcasting contracts are negotiated alongside the likes of Ireland, Italy and Wales so there is little opportunity to make up ground (or steal a march there). Even with the potential for an improved PRO16 TV deal and CVC driving commercial income these numbers will also improve at the same rate for some of Scotland’s key rivals.

Alternative, uniquely Scottish sources of turnover are required. Mini Murrayfield has the potential to transform ticket revenues generated by Edinburgh in the way that Scotstoun did for Glasgow. Ideas like a previously mooted hotel development on Roseburn Terrace would be another way of growing income. Ultimately it may still come back to the SRU’s biggest asset – the national stadium. Investment in improved facilities could open up new opportunities. As it stands Murrayfield’s hospitality and other income generates around a third of what comes from ticket sales for Scotland matches. For the RFU that category is their biggest single source of income. Edinburgh isn’t London but there will surely be fresh possibilities once the Covid recovery is complete if the Murrayfield experience can be enhanced.

While the SRU may have performed well in terms of the cumulative percentage increase in revenue across the last decade the reality is that starting from such a low base (as they did going all the way back to the beginning of professionalism) means that Scottish Rugby has barely made a dent in the lead their rivals have in cold hard pounds and euros – in fact England and Wales have increased their lead in this respect.

Expenditure

International & professional rugby
£31.7m v £30.8m

This category includes:

  • All staff involved with national sides and pro teams – players, management, coaching, medical and strength & conditioning.
  • Match day outgoings such as advertising, turnstile staff, ticket printing, venue preparation and entertainment.
  • Other costs include – travel, food, accommodation, kit, travel insurance, training facilities.

2019/20 was always likely to be an expensive year in this area with the impact of the Rugby World Cup meaning higher costs for the national side and a knock on effect on the pro teams with extra players required for cover in their squads.

Costs for this category have increased pretty much in lockstep with the rise in turnover, hovering in and around 50% of revenue. The more monies generated the more there is to spend. This is also the area responsible for bringing in almost all of the SRU’s income so there is a bit of a feedback loop. Successful teams need more money – successful teams also generate more money. Staying in a virtuous cycle is essential.

Domestic & performance rugby
£9.4m v £9.9m

This category includes:

  • Scottish Rugby Academy – players, coaching (including analysts, strength & conditioning and medical / physio), facilities, kit, equipment, venues and logistics
  • Cashback for Communities programme (funded by Scottish Government grant) delivering participation programmes, Street Rugby and Youth Coaching courses.
  • Exiles programme – identifying and involving players from outwith Scotland.
  • Referee development – from grassroots to international level, including salary, travel and associated costs for professional refereeing.
  • Coaching courses (part funded by sportscotland) and Coach Development team plus various other coaching resources and initiatives (on-line training hub), workshops and conferences.

This is the area of spending that has seen the biggest percentage increase over the last decade, uplifting by 133% between 2011 and 2019 before a slight decrease in 2020. This is investment that will hopefully bear fruit a little bit further down the line in terms of players and coaches coming through to the professional and international levels.

Commercial & operational
£15.2m v £15.5m

This category includes:

  • Running costs of the national stadium – pitch repair, roof and other maintenance, security, utilities.
  • Operational and commercial staff costs.
  • Marketing and commercial – costs of working with and maintaining relationships with sponsors and advertisers. Marketing campaigns, promotional materials, media events, social media activity.
  • Other support staff and programmes – ticketing, HR, procurement, IT, finance, governance.

These are the core administrative costs of running an organisation like the SRU. Like all other areas in the organisation expenditure is significantly up in the last decade although this area did see the lowest percentage increase of the four key categories through to the end of the last ‘normal’ season in 2019.

Club support & development
£3.0m v £3.1m

This category includes:

  • Clubs supported through payment of – participation monies, player accident insurance, travel costs, sustainability fund, referees travel costs.
  • Ticket commissions – for clubs’ sales of international tickets.
  • Player reward scheme payments – reflecting clubs’ contributions to development of players who have earned academy or professional contracts.
  • Club Development Officers – in partnership with clubs and local authorities

Comparisons aren’t straightforward when looking at other unions but the IRFU spent €11.2m on “Domestic and community rugby” in 2018/19 – 12.8% of their turnover. This category includes not only €2.8m of direct spending on community rugby but also things like development officers which are included in the Domestic and Performance heading for the SRU.

In the notes to the accounts the SRU have analysed out a total spend on club support and development which is more in line with the IRFU’s Domestic and community rugby expenditure category. For 2018/19 this totalled £7.4m of Scottish Rugby’s costs – or around 12.2% of turnover.

Staff numbers

Staff costs cut across all categories of expenditure but remain the biggest single cost when aggregated together. The average number of staff employed during the year when compared to 2018/19 were:

Professional players – 115 v 104
Professional teams: coaching & operations – 39 v 35
National team: coaching & operations – 10 v 11
Elite development players & coaches – 37 v 34
Domestic & performance – 88 v 79
Strength & conditioning – 20 v 17
Medical & physiotherapy – 20 v 19
ALL RUGBY – 329 v 299
Other employees – 116 v 102
ALL EMPLOYEES – 445 v 401

Staff costs totalled £31.6m compared to a figure of £31.5m for 2018/19. Impacted by reduced income, staff costs ran at 56.9% of turnover for 2019/20. Over the last decade that figure has been closer to 50% of turnover – with a low of 48.5% in 2017 and a previous high of 54.1% in 2015.

Again it’s not straightforward to make comparisons with other unions. The RFU do not employ players directly in the same way and the WRU and three of the four regions are separate entities. A rough consolidation of the Welsh entities (and assuming Ospreys and Cardiff Blues cost/turnover ratios are in line with the spend of the Scarlets) suggests their staff costs were around 48% of turnover in the last ‘normal’ season.

The IRFU has the closest setup to the SRU but don’t include an employee costs note in their accounts. They do disclose figures for:

  • Player and management costs – €40.6m
  • Admin salaries and pension – €3.7m

Based on income of €87.5m these two streams alone would account for 50.6% of revenues – and that’s before adding in the staff costs of Ireland Women, 7s development officers and provincial staff among others.

Gordon McKie made an interesting point about the increase in staff numbers since his time in charge. It’s maybe worth digging in to those numbers in a little more detail to see how things have changed across a decade at the SRU.

The headline is an increase in average staff numbers from 283 in 2010/11 to 445 in 2019/20. The majority of that increase has come on the rugby side with professional player numbers up from 77 to 115 and coaching and other staff up from 133 to 214. Stadium operations staff have grown from 28 to 47 and commercial, marketing and other corporate functions from 45 to 69.

Staff costs percentage was 49.1% of revenues in Mr McKie’s final year in charge, compared to 51.6% of revenues in the most recent ‘normal’ year – 2018/19. That sweet spot around the 50% of revenues mark does appear to have a consistent basis and provide the most reasonable guideline for the SRU’s spend on staff costs. If Edinburgh and Glasgow fans want more cash to spend on pro team players there will need to be an increase in turnover to cover this.

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