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Saracens’ relegation and the knock-on effects

Saracens scraped through into the quarter-finals of European rugby’s Champions Cup after a win over Racing 92 this weekend.  However, even if the three-time European Champions were to retain their crown, the club will not be competing in the competition next season.  This is because, after reaching agreement with the governing body of Premiership Rugby, Premier Rugby Limited (“PRL”), to accept automatic relegation, Saracens will not be a Premiership club next season (a requirement for Champions Cup eligibility).  Instead, they will be playing the likes of Coventry, Jersey and Doncaster in the English Championship. 

Background

The Salary Cap Regulations (“Regulations”), which were first introduced in 1999, impose a hard cap on a club’s annual player salary spend (with the Salary Cap Year running from 1 July to 30 June each year).  Currently, the cap is £6.4m, with each club entitled to player credits of up to £600,000 for ‘Home Grown Senior Players’ (players who played for the club prior to their 18th birthday and for at least two Salary Cap Years prior to the current year) and various other credits, most notably two Excluded ‘marquee’ Players.

Following an investigation, PRL brought charges against the club in June 2019 related to breaches to the Salary Cap Regulations in 3 years:  2016-17, 2017-18 and 2018-2019.

A Disciplinary Panel, chaired by Lord Dyson, was appointed to hear Saracens’ case. The Disciplinary Panel held that Saracens had:

  1. exceeded the ceiling for payments to senior players; and

  2. failed to disclose payments to players.

The original decision of the Disciplinary Panel was to dock 35 points and impose a fine of over £5.3million.  As the Panel had reached its decision prior to the end of the current season, the points penalty was applied in this season (Regulation 14.3(c)(i)).  As per the confidentiality provisions under Regulation 16, the full decision remains unpublished, with PRL only releasing a summary.

In November, Saracens accepted the points and fine sanction and looked to re-focus from the foot of the table. Today, the club are still adrift on -7 points but are anticipated to catch up quickly.  How far Saracens could rise up the table is now immaterial, following the statement from PRL on 18 January 2020, which confirmed that Saracens will be relegated at the end of this season.

Relegation

The decision to relegate seems to have been a settlement reached between the club and PRL, with PRL’s statement outlining that the decision has followed “the conclusion of dialogue with Saracens about their compliance with the Salary Cap Regulations”.

The agreement to relegation appears to be anticipatory of another breach of the Regulations by Saracens in the current Salary Cap Year. However, there is no provision in the Regulations for relegation from the Premiership as a possible sanction. If a club exceeds the Salary Cap threshold, the sanction is a fine plus points deduction depending on the amount of overspend.  The maximum points sanction set out in the Regulations is 35 points (the amount Saracens were docked by the Disciplinary Panel).  However, the sanction levels are expressed as a starting point and the Disciplinary Panel do have the discretion to increase or decrease the points deduction based on certain mitigating/ aggravating factors (Regulation 14.3(d)).  The Disciplinary Panel also have the ability to reduce a club’s Salary Cap for the subsequent year, if the club in question were found to have recklessly or deliberately committed the breach.

In the normal course of things, Saracens might have expected to have their books audited in September 2020 in relation to the current Salary Cap year (1 July 2019 to 30 June 2020).  Then, if they were suspected of having breached the Regulations again, the club would be charged and another Disciplinary Panel would be convened.  Another possibility is that Saracens would admit all the charges and seek to agree a plea bargain, avoiding the need for a disciplinary hearing.

By agreeing to be relegated, no doubt Saracens had recognised that they were in danger of breaching the cap again for the 2019-2020 Salary Cap Year. Assuming the club is operating as far over the cap as they were found to be in the previous seasons for which they were investigated, the club would likely find it difficult to make the changes needed to reverse the overspend situation in the remaining 6 months of the 2019/2020 Salary Cap Year. The agreement to be relegated may be a sign that Saracens think it best to ‘write-off’ this season and indeed, as much as they can from a PR point of view, the whole saga.  Relegation, however, is an unprecedented outcome.

It is also possible that the original finding by the Disciplinary Panel included a requirement for Saracens to make progress on this year’s compliance within a certain timeframe, absent which further sanctions would be applied.  However, there is no express provision in the Regulations for such an ‘unless order’ and the summary of the decision published by PRL did not indicate this to be the case.

It remains to be seen what the precise mechanism will be for the relegation.  The Premiership Regulations 2019-20 state that the lowest placed club in the Premiership League is to be relegated (Regulation 3.2(a)).  This is subject to Regulation 3.2(d), which provides for situations where a club ceases to be a member of the Premiership (e.g. by the club terminating its membership or by expulsion or suspension).  In these cases, “such alterations and/or additions shall be made to the provisions of this Regulation 3.2 as the RFU (acting on the advice of the Professional Game Board) may think fit so as to achieve a situation where, at the beginning of the next Season, there are 12 Clubs in the Premiership”.  However, from the limited information available, it appears that Saracens will be relegated rather than ceasing to be a member under Regulation 3.2(d).

Although some Premiership clubs may be breathing a sigh of relief, the lack of a relegation battle in the Premiership this season is lamentable from an entertainment standpoint and may well impact on ticket sales and viewing figures at the tail end of the season. Perhaps this season will prove a trial run for those who champion ‘ring-fencing’ in England’s top flight.

What’s next?

The ramifications of the club’s breaches and relegation are numerous.

Saracens will likely escape further punishment for not meeting the cap in this cap year.  However, the club still need to get themselves into a compliant position for the next cap year (1 July 2020 to 30 June 2021).  Although the club will be in the Championship, which does not operate a salary cap, in effect, Saracens must comply with the £6.4million cap if they have any hope of returning to the Premiership without further charges being brought.  If Saracens were promoted back to the Premiership for the 2021-2022 season, the club would need to provide the same certification for the previous Salary Cap Year and a declaration for the current year, in line with the other Premiership clubs (Regulation 15). Promoted clubs also need to provide all documents relating to payments to players within 28 days of receiving confirmation of promotion.

No doubt, much of the playing squad will need to be disassembled to meet the cap and prepare for a season in the Championship. This will involve careful negotiation of the early termination of players’ contracts, avoiding any potential employment law claims. The club should be aware that “any payment or benefit in kind paid in respect of a Player in connection with his redundancy or the termination of his playing contract with the Club” counts as Salary under the Regulations.   For the players, it may be difficult to find a new club which will pay the same salary as they are used to at Saracens.  Many clubs will not be in a position to take on players at the moment, having their own salary caps to consider.  Furthermore, moving abroad (e.g. to France, with its higher salary cap) in the search for higher pay may not be an option for Saracens’ star English players, as this will likely result in them not being eligible to play for England.

Saracens will need to ensure they do not weaken their side too much so as not to be competitive in the Championship. Although there may be grumblings in some quarters that next year’s Championship will be a foregone conclusion, England’s second tier has some strong teams battling for promotion, including the likes of Ealing Trailfinders and Cornish Pirates. It may not be a given that Saracens come straight back up into the Premiership, although it will of course be surprising if that doesn’t happen. The club will need to adjust to lower revenue (ticket sales, sponsorship deals, and broadcasting revenues), which is part and parcel of life in the Championship.  An unfortunate side-effect of this is likely to be many non-playing staff redundancies as the club look to scale back.

Despite the undoubted challenges ahead for Saracens, there are also some positives.  Relegation will provide the club with the chance to start again and to build up a squad based on young English talent. For PRL as well, there is an opportunity for reflection, as an independent review of the Salary Cap Regulations has been announced.  For now, we will wait to see the fall-out in these exceptional times for English rugby.

© Copyright 2020 Squire Patton Boggs (US) LLP

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