Oh What A Tangled Web...

Two weeks ago a meeting of Cardiff Athletic Club rugby section was held in order to try and update members on progress (or rather, the lack of) on the redevelopment of Cardiff Arms Park. Though the meeting was sometimes confused and confusing, it was brave attempt to at least involve members in what is probably the most crucial decision that Cardiff rugby will take in its long and famous history and one that has to date been the exclusive preserve of committees and negotiators. Unfortunately, many people came away as least as uncertain about the position as when they went in, and so CF10 is going to try to explain the situation as we see it.

The last point is important, as we clearly don’t have all the facts. What we do know-as detailed below-is all in the public domain, but perhaps needs piecing together in an effort to help people understand and untangle the current situation.

We’ll start off then with a summary of the parties involved in the deal and then lay out our understanding of why the redevelopment plan was rejected. Finally, we’ll suggest the principles that need to be agreed for the deal to progress quickly and efficiently. That it should do so is of paramount importance given that the future of the professional side, and therefore the Premiership side also, is largely dependent on it.

Who’s Who?

In May 1996, Cardiff Rugby Football Club Ltd. was formed in response to rugby in Wales (and elsewhere) turning professional; in December of that year it became a Private Limited Company. The company name was changed to Cardiff Blues Ltd. on December 3rd, 2014, in line with the terms of the contract between the Company and the WRU (the Rugby Services Agreement, or RSA).

The Company is run in accordance with its Articles of Association. These detail what the company can and cannot do and were formalised on May 6th, 1997. Within the Articles are the following clauses:

Memorandum of Association

3.1.2 ...to accept the transfer and undertake the engagements of Cardiff Rugby Football Club and/or the Rugby Section of Cardiff Athletic Club

5 The share capital of the Company is £7,750,000 divided into seven million Ordinary Shares of One Pound each and seven hundred and fifty thousand Heritage Shares of One Pound each

Share Capital

3.2 Except with the prior approval of the holders of a majority in number of the Heritage Shares the Company will not:-

(a) alter the general nature of the business of the Company so as to constitute a substantial alteration the business of the Company. For the purpose of this paragraph (a) any cessation of or material reduction in the playing of rugby union football shall be deemed to be a substantial alteration in the general nature of the business of the Company

Other clauses prevent the club colours (yes, Cambridge Blue and Black!) being changed (though they can for ‘promotional commitments and at the discretion of the Directors’-hence the awful green kits etc.); the location of the Company’s home ground being moved from within the boundaries of the City of Cardiff; the sale or disposal (either directly or indirectly) of the undertaking or business of the Company or any substantial part thereof; and any individual from holding more than 24.9% of the issued share capital of the Company.

Of the Company’s allowed capital of £7,750,000 (which includes £750,000 Heritage Shares held by CAC), only £5,035,202 have been purchased to date, thus leaving £2,714,798 up for grabs for anyone with a spare million or two. The major Shareholders are:

The rest of the shareholding is made up of around a thousand individuals owning relatively small numbers of shares. CF10 is one those; the trust also holds almost 40,000 proxy shares, placing it in 10th position in terms of largest shareholders.

There are a number of other key points. At the formation of regional rugby in 2003, the playing side changed its name to ‘Cardiff Blues’ and, along with Llanelli, successfully campaigned to retain stand alone status but at a cost of £1 million pounds in funding; other clubs (Pontypridd and Bridgend, and Neath and Swansea) merged to form new companies. As reported above, there was no change in the name of the Company until 2014 and the Articles still remain unchanged from 1997.

The upshot of all this is that Cardiff RFC and Cardiff Blues are owned and run by the same company, and both are governed by the rules of that company. CAC are the major shareholders in Cardiff Blues, and Cardiff Blues Ltd. controls and provides budget for the Cardiff RFC side that plays in the Welsh Premiership; the latter is however managed and administered by the rugby section of CAC.

Crucially, the major asset at Cardiff Arms Park, the ground itself, is not owned by Cardiff Blues, but by CAC, a member organisation whose sections also include cricket, hockey and bowls, though the rugby section has by the biggest membership.

The redevelopment proposals have been driven by Cardiff Blues and have involved them seeking a 150-year lease on the ground from CAC so that a new stadium can be built. The stadium is only at the concept stage at present, but exists in a number of versions ranging from a massive wholesale redevelopment that involves an indoor arena and conference centre, to a more pragmatic rebuilding of the two stands and associated infrastructure. All versions are dependent on residential and commercial developments on part of the site in order to provide the required finance.

In order to secure the lease, an offer to CAC was made that included an £8 million up-front payment (if the deal was completed within a two-year period), rental of 200k per annum, overage agreements (a technical term that reflects the fact that developed land will be worth more than its ‘undeveloped state’), and the giving up of the aforementioned Heritage shares. This deal was rejected by the CAC rugby section committee and subsequently unanimously by the CAC Management Committee earlier this year.

Crash and Burn

So, why was a seemingly irresistible redevelopment deal for our beloved Cardiff Arms Park – a deal that had taken around four years to negotiate, £100k in legal fees, and was on the point of being signed –fall at the (almost) last hurdle? There seemed to be a number of reasons for this:

• Just when we were on the verge of having a CAC EGM to seal the deal, the parlous state of Cardiff Blues finances became apparent with the publication of its annual accounts.
• More critically, it became known that Cardiff Blues had been in discussion with the WRU about some sort of takeover deal as a result of the significant hole in its finances. This became public knowledge after repeated questioning by CF10 at the Cardiff Blues Shareholder AGM had let this slip; an interview that Simon Thomas conducted with Peter Thomas subsequently confirmed this position.
• The future of Cardiff Blues was thrown into significant doubt at this point. Understandably, CAC were hugely concerned about signing a very lengthy lease agreement with a company that potentially could cease to exist once the deal was done.
• Once signed, the CAC would have no influence over what happened at the ground due to it giving up the Heritage shares as a condition of the agreement.
• Given that the WRU were just in the process of cleansing the Newport heritage out of Rodney Parade, there was every suspicion that they would seek to do exactly the same here if Cardiff Blues was taken over as planned.
• This was a particular risk given that the extensive protections for heritage within the lease proposal (and which has been trumpeted loudly by the Cardiff Blues) covered the heritage of the RFC, and not the Cardiff Blues themselves. In other words, there was nothing to stop the professional team playing at Cardiff Arms Park just resorting to the feeble ‘Blues’ branding or being renamed the ‘Glamorgan Druids’ as part of the new RSA negotiations.

The sudden moving of the goal posts by the proposer of the ground redevelopment meant that the whole idea came crashing down in flames, even though the Cardiff Blues subsequently announced that the WRU deal was off. Rather revealingly, there was seemingly no plan B in place should it do so. The rugby section of CAC felt that a complete breach in trust had occurred, and sought a ‘cooling off’ period as a result. The consequence is that there is currently an impasse, with neither side seemingly having a clear view on a route forward.

Ways Forward

If our diagnosis of why the deal failed is correct, the steps required to make it happen appear relatively clear:

• The worries about what might happen to the ground after a deal is signed can be eliminated by making the development a joint venture between Cardiff Blues and CAC. The former have already said that this would be no problem from their perspective and, so long as the main asset (i.e. the land) remains in the possession of CAC, there is no risk to the latter in setting up a third party development company.
• The venture has to be attractive to all CAC sections in order to gather management support and should therefore be as close as possible to the deal which is currently on the table (and so that the amount of new work required and associated legal fees are minimised).
• The venture would need to include the facility to allow any existing personal debts to be converted into equity, thus leaving the company debt free and paving the way for any new investors to buy out current interests and, potentially, a new era in the management of rugby at the Arms Park to be ushered in. This would probably require the 24.9% ownership point in the Heritage clause to be altered for it to happen.
• The lease agreement has to protect the heritage of all the sides that play at Cardiff Arms Park by stating that any team playing on the ground has to be called ‘Cardiff’.

The last point will naturally generate further apoplectic responses from our haters, who see the removal of our allegedly ‘toxic’ name from the face of professional rugby in Wales as a cure for all ills, but we’ve already made the argument why this is important to keep it and therefore won’t do so again. It’s the claim of some senior figures in the Cardiff Blues hierarchy that the professional team will be penalised by the WRU if it isn’t prepared to drop the city name and fall on its sword as per NotNewport. This doesn’t really stack up though. Down West, the heritage of Llanelli rugby has been well managed by the Scarlets-check out their recently published history and the 9-3 sign in the club shop. In contrast, Cardiff Blues –a new name introduced at the dawn of regionalism, don’t forget- have completely ignored their shared heritage. So if there were punishments to be applied for acknowledging one’s history, surely our colleagues at Parc Y Scarlets would be feeling them right now and we’d be (literally) quids in? Yet, they got Halfpenny and we didn’t.

This will sound a bit harsh, but whether or not the name ‘Cardiff’ is important to the modern day ‘Blues’ supporter is somewhat irrelevant (though it’s a self-fulfilling prophecy that our heritage will be unimportant to them given they’ve had no exposure to it for 14 years); it is important to the owners of the ground, which don’t forget is our biggest asset, and therefore crucial to the deal. Would the WRU actually oppose the retention of the Cardiff name, perhaps with the ubiquitous ‘Blues’ bit being subject to a re-brand, if it unlocked the ground redevelopment and new funding streams for both its Capital region and premiership side? We somehow doubt it.

This is clearly not all that needs to happen to turn the fortunes of the Capital Region and the RFC around. For example, in combination with the above, the Cardiff Blues need to significantly big up their regional role and how this is publicised. The narrative from the Cardiff Blues is that WRU are quite happy with how they’re performing in this respect but, as we suggested in our blogs over the summer (see The Player Pathway and The Supporter Pathway), there are plenty of ways in which we think this can be improved. The income streams that are projected to flow from the redevelopment also need to feed the RFC, so that both parties benefit. There also needs to be significant improvement in communication by all parties, an effort that incorporates not just members and shareholders, but other interested stakeholders like the City Council and the residents in the Westgate Street flats; difficult thought it was, the member meeting was a positive start in this direction.

As we’ve already said above, this redevelopment is critical to our shared future. The current lease runs out in 2022. We therefore don’t have years, but realistically only months, to get this sorted. Let’s get on with it!