Profile: Nick Eastwood, FD of the Rugby Football Union

Profile: Nick Eastwood, FD of the Rugby Football Union

With the rugby World Cup in September and the England team’s performance inextricably linked to the RFU’s finances, Nick Eastwood is banking on a successful tour of South Africa this month

Nick Eastwood’s Cross of St George cufflinks are a telltale giveaway that the
Rugby Football Union’s finance
director literally wears his heart on his sleeve. A successful England team in
any sport is almost a licence to print money for those at the helm, but how many
times have we seen it before – a team that has catapulted itself to the pinnacle
of sporting achievement manages to engineer an equally spectacular fall from
grace.

After the zenith of the World Cup win on 22 November 2003, Eastwood knows
only too well that there is one incontrovertible fact; the England team is the
backbone of the RFU. If it doesn’t perform then it truly hits you where it hurts
– in the pocket.

‘We’ve estimated that the cost of England performing poorly is a possible £4m
a year sales loss from hospitality merchandising and licensing,’ Eastwood says.
‘It’s true of some supporters that they jump onto the bandwagon when a team is
winning but they jump off it just as quickly when a team’s underperforming.’ The
odds are truly stacked against Eastwood in 2007, a year in which England only
had two home internationals in a lacklustre Six Nations and no lucrative Autumn
Test series to swell the coffers because of the World Cup in France. The South
Africa tour will cost £350,000 and £1m has been earmarked for the World Cup.

The continuing tug-of-war for control of England players between the clubs
and the union is also a cruel thorn in the RFU paw. Talks with the club envoys
resumed at the end of April. ‘What we’re trying to do is keep England apace with
the other countries. We’re hopeful that we’ll be able to come to a satisfactory
agreement.’

Eastwood is usually up with the birds to arrive at the finance department
offices opposite the imposing Twickenham edifice about 7:30am. He spends the
first hour clearing emails from various people in the game or addressing club
finance issues. But because of the demands associated with being the FD of a
sports body, Eastwood entrusts his 15-person strong team with responsibility of
the day-to-day running of the department.

‘I have a lot of meetings with other colleagues talking about the business
plan and the South Stand which is obviously the most significant thing we’ve
done.’

The £110m development is going to plan and should be completed in early 2008
and will provide a crucial safety net if England fails to revive their fortunes
in the coming years. A large cut of the RFU’s £82.7m revenues earned to 30 June
2006 came from long-term fixed contracts. A significant portion, £33.5m, came
through sponsorship and TV. The RFU’s lucrative 02 contract finishes in July
2008 but Eastwood maintains the phone operator will remain faithful. Contracts
typically run for three to four years, with sponsors accepting the fact that
they might have to take the rough with the smooth.

‘Sponsors clearly want to be associated with winning teams because they get
the spin-off from the brand values but they do generally accept that there are
going to be peaks and troughs performance-wise.’

Eastwood explains that the changeable nature of England’s rugby programme
makes life very difficult especially in a World Cup year: ‘You don’t have a
consistent match programme and all of our revenue is really derived around the
internationals that we stage. The economic model of international rugby is that
the home team keeps all of its revenues. Because the main revenue earner is the
Six Nations, you get really big peaks and troughs and in a World Cup year you
get a massive downturn in revenues. Our ticket revenues to 30 June 2007 will be
£22m, and about £10m up to 30 June 2008. It’s one of the challenges of managing
the business.’

The RFU operates on an eight year investment cycle, i.e. two World Cups with
all the profits reinvested in the game. England’s current woes mean that the
non-essential programmes will not be renewed.

As the England team’s performance has dropped off, the curve of the
investment in the game has followed the revenue cycle. The RFU has been forced
to reduce the level of investment in the game: ‘We have to deal with the fact
that some rugby programmes coming to the end of their life will not be replaced.
We currently invest £20m. You literally could invest £200m a year. We’ve cut
back on the programmes we’d like to invest in. We’ve had to say that’s got to
wait until England’s performance recovers.’

The RFU has also had to strike a finer balance between what tickets are
available to the public and premium ticket quotas: ‘Like it or not, national
stadia are financed by premium tickets not sold at face value but via the
corporate box hospitality package. Otherwise you’re under-using your assets. We
sell Twickers out maybe 10 times a year but it would be a bit like opening a car
factory and only opening it 10 days a year. Economically it doesn’t work so you
have to finance it through the route of premium tickets.’

Tax issues are also high on Eastwood’s agenda: ‘How long have you got? We
have major tax issues. We are significantly disadvantaged under the current tax
rules.’

A significant amount of the RFU’s investment in grass roots is not tax
deductible because it’s not deemed to be part of its trade.

‘If we had a £10m surplus from our operational activities and invested the
whole amount in the grass roots we’d have a £3m tax charge because that £10m
isn’t deemed to be for the purposes of trade. Our bulk profits would be zero and
our tax profits would be £10m. It’s an absolutely crazy situation to be in. The
reason is that there’s no special framework for tax in sport, the business
framework is used to tax us. It’s trying to bash a square peg into a round hole,
and it doesn’t fit.’

Eastwood has approached the Treasury on the matter but ‘like anything in
government it takes a long time for the wheels to turn’,

he says. Two years ago, the RFU asked its accountants Mazars to launch an
impact study on possible IFRS implementation but quickly decided that the
onerous accounting standards wouldn’t be suitable. The major change would be to
the reporting of debenture packages, which run for 75 years. IFRS would have
imposed a significant change to the accounts.

‘We’d have had to “net present value” them and build them up over the time of
the debenture. The main criteria for a set of account is it’s got to be
understandable to your main stakeholders – rugby guys in rugby clubs- nobody
would have a hope in hell of understanding them if you’ve got one set of
accounts with debentures with a value of 100m and next year they are worth £3m,’
Eastwood says.

The year ahead looks choppy for the RFU but as long as Eastwood keeps his eye
on the ball and his passion for the sport stays intact, the game should return
to form in the future.

Turning England around

Winning the the World Cup in 2003 was a real high point for English rugby, but
the foundations of that success were laid much earlier. In 2000, the RFU had
sorted out its finances, which meant it could invest in Clive Woodward’s plans
for building infrastructure and developing the England team.

‘That’s the famous virtual circle that everyone in sport talks about. Success
on the field leads to commercial success off the field, meaning you can reinvest
in the game. We had that circle turning. That circle’s been broken and one of
the things we’re trying to do is fix it,’ Eastwood says.

For now the FD has adopted the approach to keeping investment in the game
flat and cut out the ‘nice-to haves’, such as rugby festivals and club
recruitment campaigns.

What the RFU has done over the last four years is to develop commercial
opportunities around the England team and the brand ‘which were very much under
exploited’.

‘We’ve driven all the revenue streams especially hospitality. It was one of
our smallest before.’

The RFU established a subsidiary, the Twickenham Experience in 2000 and sold
a 47.5% stake, 40% to the catering group Compass, and 7.5% to another sta
keholder.
‘The stadium is our single biggest revenue stream so we now use it for concerts
which can contribute £1m- £1.5m in good years. We’ve also driven the
merchandising and licensing business.’

Eastwood puts the progress in a nutshell. ‘Revenues were £2.6m when I
arrived, they now be more than £100m’.

Follow the latest England rugby developments at
www.rfu.com, read more about
auditors Mazarsa at
www.mazars.co.uk, check
out player stats at
www.rugbyworldcup.com

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