By Smurf
November 22 2005

I have today sent a letter to the Office Of Fair Trading requesting that they reopen the case of the Warriors takeover. Text of letter is below. I have placed the text of the accompanying report below, for details read on.

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Completed acquisition by Welsh Rugby Union of Ever 2033 Ltd

 

In late 2004 the Office of Fair Trading conducted an investigation into the events surrounding the acquisition of Ever2033 Ltd by the Welsh Rugby Union. Your report published in October 2004 concluded that there were no grounds for referring the case to the Competitions Commission.

 

I request that this case be reopened on the grounds of:

 

1. Factual inaccuracies in the original report.

 

2. Insufficient consideration of the competition issues arising, or consideration of the beneficiaries.

 

3. Further information which has subsequently come to light, namely the source of the funding for this acquisition. This issue is also the subject of separate court proceedings which are likely to uncover further details.

 

I attach a brief report in support of the above, and request that this matter is reconsidered and the investigation reopened.

 

It is my firm belief that four competing organizations have acted in concert to assist a third party to purchase and eliminate a fifth competing organization so as to reduce competition, in contravention of the Enterprise Act.

 

YS ..

 

This is the text of the report sent to the OFT. I am sure ther are some inaccuracies in it, but I reckon it makes the point.

 

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Background

 

Prior to 2003, Welsh Rugby was organized around a series of clubs, playing in a competitive league which varied from 9-12 clubs in the top division.

 

From season 2003/2004 the top level was reorganized by the Welsh Rugby Union (WRU), with the 9 clubs combining into 5 ‘Regional’ teams.

 

Three of these teams were formed by combination of clubs:

 

• Celtic Warriors (owned 50% Bridgend RFC, 50% Pontypridd RFC)

 

• Gwent Dragons (owned 50% Ebbw Vale RFC, 50% Newport RFC)

 

• Swansea-Neath Ospreys (owned 50% Neath RFC, 50% Swansea RFC)

 

Two of these teams were based on single clubs:

 

• Cardiff Blues (owned 100% Cardiff RFC)

 

• Llanelli Scarlets (owned 100% Llanelli RFC)

 

There is some confusion as to the ownership structure of the Neath-Swansea Ospreys, with Neath RFC fully owned by WRU prior to reorganization, and WRU consequently held 50% share in Ospreys at some stage, although it is believed that this was divested in January 2004.

 

During November 2004, Gwent Dragons went into administration and were reestablished as Newport Gwent Dragons (owned 50% by Newport RFC and 50% by WRU).

 

During November 2004, Pontypridd RFC went into administration. Their 50% share in Ever2033 Ltd, trading as Celtic Warriors, was purchased by Decorframe, the owners of Bridgend RFC, and this share was subsequently gifted to the WRU.

 

Funding for the teams by the WRU was initially established for season 2003/2004 at 1,450,000 for the combined teams and 1,250,000 for the ‘standalone’ teams, making a total of 6,850,000 pa. It was stated by the WRU that funding for the standalone teams would be equalized with the combined teams after 2 seasons.

 

Transaction

 

In May 2004, the WRU acquired the remaining share in Ever2033 for a sum of 1,250,000.

 

At the time it was stated that the funding for the sale had been provided to the WRU by third parties. The subsequently published accounts for the Swansea-Neath Ospreys and for Cardiff RFC for 2003/2004 both indicate exceptional payments of 312,000 relating to the closure of the Warriors. The implication is clear – at least 2 of the 4 remaining ‘Regional’ teams provided 25% funding each to the WRU to enable the acquisition and closure of the 5th team.

 

Current Situation

 

In season 2004/2005, the 4 remaining ‘Regional’ teams each received equal funding from the WRU of 1,650,000, making a total of 6,600,000.

 

The former Warriors ‘region’ has been divided between the Swansea-Neath Ospreys (Bridgend area) and Cardiff Blues (Pontypridd and area) and both teams have marketed themselves aggressively in their respectively allocated areas.

 

Legal Action

 

An investigation into the acquisition of Ever2033 by the WRU was carried out by the Office of Fair Trading in October 2004, where it was determined that the case would not be referred to the courts. The report contained a number of inaccuracies, and did not identify the source of the funding, which has since come to light.

 

The acquisition of Ever2033 is currently the subject of a court case brought by Bridgend RFC and Decorframe against the WRU, where misrepresentation of sale is alleged. This case is due to be heard in early 2006.

 

Competition

 

In addition to competing against each other on the playing field, the regional rugby teams are competing against each other commercially for income from the following main sources of funds:

 

• WRU Funding

 

• Gate Receipts

 

• Sponsorship

 

The WRU funding represents the largest single source of income, and is mainly based on television sponsorship deals. This is a finite source of money which is split equally between the regional teams who are in direct competition with each other for a share of this money.

 

Gate receipts represent the most variable source of income, and is driven by success and by geographical considerations. While many supporters are loyal only to their team, others are casual and will visit the match of the day. This was especially the case during the first year of the regional structure where supporters were being asked to disregard previous club loyalties, in favour of the new structure and all teams were trying to attract new fans. The Warriors would have been competing for casual and new supporters with both the Blues and the Ospreys, but less so against the Dragons or Scarlets.

 

Sponsorship is also a lucrative source of funding, and while some is clearly locally based, many commercial opportunities are national or regional, and the teams will have been in direct competition with each other for this limited funding. As an example, in 2003 the shirt sponsors of the Ospreys were JVH who were based in the Warriors region and had previously sponsored Bridgend RFC.

 

Beneficiaries

 

As a result of the closure of the Warriors, the following teams benefited directly due to increased WRU funding:

 

Llanelli Scarlets 400,000 pa reducing to 150,000 pa in later years

 

Cardiff Blues 400,000 pa reducing to 150,000 pa in later years

 

Newport Gwent Dragons 150,000 pa

 

Swansea-Neath Ospreys 150,000 pa

 

In addition, Cardiff Blues and Swansea Neath Ospreys have increased their potential customer base, ie paying supporters. It is difficult to assess the actual realized benefit for each of the teams, but assuming a small increase in fans of say 500 then this would be worth around 100,000 pa. If resulting in an increase of 2000 fans this could represent an increase of 400,000 pa. For geographical reasons there is unlikely to be any potential or realized benefit to the Scarlets or Dragons.

 

The ‘regions’ were also able to benefit by acquiring players without payment of transfer fees. The main beneficiaries were:

 

Blues 11 players including internationals including Robert Sidoli, Gethin Jenkins, Nathan Budgett, Deiniol Jones

 

Dragons 6 players including internationals Gareth Cooper, Ceri Sweeney, & Kevin Morgan

 

Ospreys 5 players including internationals Ryan Jones, Sonny Parker & Brent Cockbain

 

Scarlets 2 players

 

In the absence of a well-developed transfer market it is difficult to accurately assess the value of these players, but it could be in the region of 100 to 250k for the three teams taking most of the transfers, with only nominal benefit to the Scarlets.

 

The WRU has benefited directly by a reduction in its funding commitments of 250,000pa. In addition it has benefited indirectly as a result of its 50% shareholding in Newport Gwent Dragons.