- National governing body files for Chapter 11 bankruptcy with debts of over $6m
- Organization could become liquidated, USA Rugby chief executive Young admits
- USA still confident of putting in strong bid to host 2027 or 2031 Rugby World Cup
USA Rugby, the national governing body for rugby union in the United States, became the first major casualty of the global Covid-19 pandemic in North America in late March, when it filed for Chapter 11 bankruptcy protection with debts of more than $6m (€5.5m).
While the move was not a complete shock, due to USA Rugby’s financial strife over the past two years, it nevertheless sent shockwaves throughout the US sports industry as well as the global rugby community.
USA Rugby announced the bankruptcy filing was “a result of compounded and insurmountable financial constraints” which had been “accelerated” by the ongoing health crisis that forced the organization to indefinitely suspend all activities, hitting multiple income streams.
In court papers, USA Rugby listed $1.13m in assets against $6m in liabilities. Global governing body World Rugby holds about $3.6m in unsecured claims following a series of seven-figure loans in the past two years, while sole secured creditor JPMorgan Chase Bank has a $467,8290 claim. The remainder of the debt is unsecured credit card and legal bills, hotel and travel expenses, and trade and vendor debt.
As a direct result, USA Rugby has been forced to operate with a significantly-reduced staff and budget from its headquarters in Lafayette, Colorado, as costs are cut to the bare minimum and debts are renegotiated. Going forward, the organization will need to prove to the US Bankruptcy Court for the District of Delaware that it will be a sustainable business going forward. World Rugby, the sport’s global governing body, and other creditors will also need to review and endorse final court-approved restructuring plans.
The next court hearing is set for May, when USA Rugby must provide a viable business plan stating how it plans to operate and fund itself in the future. The aim is to finalize the process by the end of June.
“We need to almost get a certificate of fitness to exist as an organization,” USA Rugby chief executive Ross Young tells SportBusiness.
In something of a boost, USA Rugby has been placed in the Subchapter V process of Chapter 11 of the Bankruptcy Code, which aims to make small business bankruptcy proceedings more expeditious and less costly. Subchapter V is available to companies with up to $7.5m in debt under the CARES Act.
“[Subchapter V] crams things into a 90-day process to get you out of [bankrutpcy],” adds Young. “In those 90 days, we have to prove that we have put a handle on our outgoings, get rid of the debt that is sitting around our shoulders, and there is properly-accounted commitments from the likes of the United States Olympic & Paralympic Committee and World Rugby, who are our major funders.
“That funding has already been agreed for this year, although it has been held back for the time being. We can say with a fair degree of certainty how much money is coming in and we’ve just got to prove to the judge that we’re not going to spend more than what we’ve got coming in,” he says.
The prospect of USA Rugby going under and being liquidated remains a possibility, Young admits, but he remains quietly confident that will not happen.
“As always when you go through these processes, there is a risk and a danger of [liquidation],” he says. “We were on the very knife-edge of that at the start of this process because of the nature of the organization and how we operate. It would be very foolish of me to say that we’re completely in the clear. Until we get through the other side of this, there are far too many factors at play to say that that is not a possibility.
“The longer it goes, the more confident we are that we can navigate our way through it. Even the fact that the judge has approved the motion for us to go into Subchapter V gives us a degree of confidence that he also thinks that we can get through this,” Young says.
No choice but to go into bankruptcy
Financial troubles at USA Rugby are nothing new, a subject which SportBusiness examined in detail last year.
The collapse of for-profit subsidiary Rugby International Marketing (RIM) and the Rugby Channel, a subscription-based online streaming service which offered exclusive live and on-demand coverage of top-tier domestic and international rugby matches, almost bankrupted the union in 2018. USA Rugby lost more than $4m that calendar year.
In November, USA Rugby revealed it expected significant financial losses for 2019. This, the national governing body said, was due to over-expenditure in its high-performance program leading up to and during the 2019 Rugby World Cup (a $750,0000 sum), legal fees in two ongoing lawsuits, and revenue shortfalls.
“We as a board are of course discouraged to be facing another year of financial challenges,” USA Rugby said in a statement at the time.
This perilous situation, which USA Rugby was in the process of trying to address, was brutally exacerbated by the coronavirus crisis, which cost the organization events revenue, sponsorship pullback and spring and summer membership dues in its pay-to-play system. USA Rugby has around 120,000 members.
According to Young, there was no choice but to go into Chapter 11 bankruptcy.
“It’s been almost catastrophic,” he says. “We were in a tough spot and we had pretty good plans on how we were going to attack that in the long term, with potentially World Rugby supporting us as part of a strategic plan, but that was obviously scuppered. When Covid came along and we had to suspend play, it basically put a big [dent] in our cash flow which pushed us into a form of bankruptcy.
“Budgets are pretty much reverse-engineered to get to break-even every year so there is not a lot of scope for margin for error as we’re not a big commercial entity within the US environment with an annual turnover of around $12m,” he says.
The bankruptcy filing is a much-needed wake-up call for USA Rugby which could ultimately prove beneficial in the long run, according to James Kennedy, the outspoken majority owner of Major League Rugby team Rugby United New York.
“It’s no secret that USA Rugby have been financially f—ed for years,” Kennedy recently told RugbyPass. “It should have happened at least a year ago, if not two years ago when [former USA Rugby chief executive] Dan Payne was leaving. Bankruptcy is what they needed to do.”
Kennedy added: “It is a good thing. I say that with respect to people that have lost their jobs, people that are not getting paid, but it’s a good thing for rugby in the US ultimately. If it cleans up the World Cup bid which is going on right now…anything without USA Rugby involved is a better situation than having them at the table where they swear they are good when everybody knows they are not good. This is a good opportunity.”
There is wider support in global rugby for USA Rugby to emerge from this crisis intact, however. World Rugby chief executive Brett Gosper recently told L’Équipe that he hoped that what has happened to USA Rugby “will not break the momentum of rugby in the United States”.
Young adds: “There has been lots of support from other unions, because people realize that if rugby is a success in the US and it takes a hold here, it will be good for the sport worldwide.”
‘We now have to live within our means’
Moving forward, assuming USA Rugby emerges from Chapter 11 bankruptcy, it is unclear how the organization can ensure that this situation does not happen again. Rugby union remains a niche sport in the US and there is a general understanding that it will take time for the sport to take a hold in the crowded North American market.
Furthermore, it remains unknown when the coronavirus crisis will end and to what extent commercial revenues will suffer going forward as current and potential sponsors try to emerge from the pandemic with their businesses intact.
There remains hope that the US could win the rights to stage the 2027 or 2031 Rugby World Cup – most likely the latter – which would prove a game-changer. Until then, USA Rugby has vowed to avoid the repeated mistakes of the past and become fiscally prudent.
“What we have to do is to build into a long-term plan a contingency fund and build reserves within the organization and live within our means,” Young says. “We’ve put some very strict financial controls in place in the past couple of months. We were planning to put a lot of this in place before Covid hit us.
“We just have to make sure that we don’t live beyond our means and that in everything we do, we look to build up a reasonable amount of reserves that allow us some contingency to be able to move forward,” he says.
The fortunes of USA Rugby will also likely depend on the outcome of the upcoming election for World Rugby chairman, which is being contested by Agustín Pichot and the established incumbent Sir Bill Beaumont. The more radical Pichot has pledged to help developing rugby nations as well as the sport in the Americas, including pushing for the British and Irish Lions to tour the region for the first time.
Young refuses to reveal who USA Rugby will vote for in the election, the result of which will be declared on May 12. But he says of the process: “Both Bill and Gus [Pichot] have been openly supportive of the US over this past period, which has been fantastic. They both talk in their manifestos of more meaningful tier-two [nation] fixtures, with the ability to test yourselves on a yearly basis.
“Between these last two World Cups we ended up having just three tier-one Test matches. That balance has to change if you are really going to expect the emerging nations to get stronger and play more consistently. They have been both been very supportive of it, they both talk about it in their manifestos. For us it’s important that whoever wins it sticks with what they are saying in their manifestos and really support structured change within the global calendar and events for the men’s and women and sevens and 15s,” Young says.
The coronavirus has delayed the bidding process for the 2027 and 2031 Rugby World Cups, with the bidding criteria now expected to be revealed to interested parties either late this year or in early 2021. This works in USA Rugby’s favor, says Young.
“We’ve got some time to get through this to reestablish ourselves and give everyone a bit of comfort that we can put things in the right direction,” he says.