On Saturday 18th January 2020, Saracens were condemned to relegation from the English Premiership. Two days on, I can scarcely believe that I have just written that. In spite of the £5.36 million fine, the 35-point deduction and the difficulties I knew Saracens would have in complying with the salary cap this year, it is somehow still shocking that the five-time Premiership and three-time Champions Cup winners have been relegated to the Greene King IPA Championship.

Rumours began circling last Thursday last that Saracens’ fate had been decided, but it was not until 19:20 on Saturday that Premiership Rugby (“PRL”), the league’s governing body, confirmed the news:

“At the conclusion of dialogue with Saracens about their compliance with the Salary Cap Regulations, it has been decided that Saracens will be relegated at the end of this season.”

In Part IV of my series of articles on Saracens and the salary cap, I concluded that Saracens’ CEO Edward Griffiths had an “unenviable task” to reduce the club’s wage bill to comply with the Premiership Rugby Salary Cap Regulations (the “Regulations”) before the end of the season. However, I did not expect it to be impossible. At the time of writing that piece, it was unclear how much over the salary cap Saracens were – indeed it is still not certain – but reports now indicate that the figure may be around £2 million. Against the background of that discussion, concerning the limited “injury exemption” and “termination payments”, it appears that Saracens’ non-compliance this year was, ultimately, inevitable.

This article will try to explain how and why Saracens have been relegated, and what the implications of the decision might be. It will also strongly criticise the approach taken by PRL and call for greater transparency.

How and why have Saracens been relegated?

Since November, when Saracens were initially sanctioned for past breaches of the Regulations, the club has been in a dialogue with PRL about its compliance this season. Saracens’ then-CEO, Nigel Wray, unequivocally stated that the club was compliant. However, it now appears that was false.

According to reports, Saracens were given an ultimatum by their rival clubs: open your books for a mid-season audit and hand back the trophies you won when in breach of the Regulations or be relegated to the Championship. It appears that Saracens chose the latter.

This ultimatum appears to have been tabled at a meeting of the league’s shareholders – i.e. the other Premiership clubs plus Newcastle Falcons and private equity firm CVC – last week. The decision to relegate Saracens therefore appears to have been procured through some sort of shareholders’ agreement, or a settlement in respect of potential Regulation breaches. Either way, the decision has been taken outside of the Regulations: relegation is not provided for as a punishment in the 2019/20 Regulations.

This raises a number of issues.

What about the Regulations?

Firstly, the ultimatum given to Saracens is rather odd. Nothing in the Regulations allows for Premiership titles to be removed, nor trophies handed back in consequence of salary cap breaches – and relegation is not an option either. The decision seems to ignore them altogether – assuming the reports are true.

Moreover, there was no real need for PRL to give Saracens the ultimatum in order to investigate the club’s spending. Regulation 4.9 specifically provides PRL’s Salary Cap Manager with the power to order an Investigatory Audit. If Saracens failed to co-operate with such an investigation, they could be charged with a “Failure to Co-operate” under Regulation 11.2 which carries a potential £100,000 fine and a further 6-point deduction (Regulation 14.5(a)), which is designed to procure compliance.

PRL could thus have forced Saracens to open its books regardless and proceeded to charge the club with any breaches discovered, as in the earlier proceedings. The definition of “Salary” as including amounts which are “payable…or to be provided” within the relevant Salary Cap Year” (Regulation 1.1), along with the wording of Regulation 14.3(c), which allows points deductions to take effect in the current season, suggests that it is possible for a club to be charged with a breach of the “Senior Ceiling” (i.e. salary cap) mid-season. If the rumoured amount of the breach is true, such proceedings would likely have seen Saracens handed another significant fine, as well as a 35-point deduction – resulting in inevitable relegation.

Given PRL’s extensive powers, it is thus somewhat strange that the clubs resorted to an old-fashioned ultimatum. Perhaps they were concerned that the disciplinary proceedings might become drawn out and that any points deduction would not take effect until next year? With round 22 – the cut-off date for sanctions to be applied this season – being played on 6 June 2020, there are almost 6 months for the Regulations’ procedure to be carried out, and for a sanction to be imposed. The previous charge against Saracens was brought in June 2019, with the Independent Disciplinary Panel hearing the case in late September/early October, suggesting this ought to have been enough time.

Yet PRL – or at least its member clubs – must have considered this too risky. If the investigation took more than a couple of months, Saracens challenged the Panel’s decision, or if the Panel could not decide until after 6 June, any points deduction would have been applied next season (Regulation 14.3(c)(ii)). There was clearly a desire to inflict the greatest possible punishment on the club – i.e. relegation – and thus an ultimatum must have been considered the most effective way to procure that.

From PRL’s perspective, it may also have seemed advantageous to resolve the issue as quickly as possible. Rather than another drawn-out investigation and disciplinary process, settling the matter now might, in their eyes at least, help it to blow over – like ripping off a plaster. The lack of transparency, though, means the wound is unlikely to heal any time soon.

Nonetheless, Saracens will benefit from knowing where they stand. They now have the best part of 9 months to prepare for life in the Championship, and their players have time to find new clubs. Indeed, had Saracens been charged, they might have found themselves in even greater bother – unless they could have delayed the disciplinary process until the end of the season. A further 35-point deduction would have been accompanied by another huge fine; meaning financial hit as well as relegation. Accepting relegation may have been the lesser of two evils.

From a commercial perspective, therefore, the relegation settlement does seem to make sense.

A lack of transparency

However, the most glaring issue raised by Saracens’ relegation is that of transparency – or, rather, the lack of it. As the guardians of sport, governing bodies are increasingly expected to adhere to the principles of “good governance”. The position they occupy, regulating an area of great public interest and often holding a monopoly, demands that they meet certain universal standards.

It is against this background that UK Sport developed “A Code for Sports Governance” (the “Code”). One of the Code’s founding principles is “Communication”, which requires sports organisations to be:

transparent and accountable, engaging effectively with stakeholders and nurturing internal democracy.

Though PRL are not strictly bound by the Code (as it only applies to organisations seeking funding from UK Sport or Sport England), its importance to sports governance is clear. Indeed, “transparency” is typically seen as a fundamental principle of good governance; including by the UN and by administrative lawyers. A transparent organisation is one which will avoid acting improperly and will thus build trust among those interested in it. This openness allows the organisation to be held accountable – which is itself another key principle of good governance. The Sport and Recreation Alliance, which also includes transparency among its “Principles of Good Governance for Sport and Recreation”, states that transparency allows stakeholders to “understand and scrutinise” the organisation’s actions.

Transparency is thus a central feature of modern sports governance – and yet it was distinctly lacking from PRL’s decision to relegate Saracens.

There has been no explanation as to how or why the relegation decision was reached, or as to the process followed in arriving at that point. By circumventing the Regulations, PRL has behaved like an amateurish old boys’ club rather than a modern sporting organisation and, in doing so, has destroyed any semblance of transparency that the salary cap had left. Indeed, this also conflicts with Principle 5 of the Code, which requires organisations to comply with all applicable regulations.

Of course, PRL has still not released the Panel’s decision from November, in spite of Saracens apparently agreeing to its publication and the comments of Lord Dyson encouraging PRL to do so.

Failing to be transparent only serves to undermine certainty and trust – the trust of the public, players and also investors. I would call on PRL to release the original decision, and to clarify why Saracens have been relegated.

The Regulatory, Rugby and Commercial Implications

Aside from the foregoing, there remain many unanswered questions about the effect that Saracens’ relegation will have.

What will happen to the players? The RFU has signalled that players remain eligible for England in the Championship, but would they really be at their best playing outside the top tier? And what about the Lions tour in 2021? Presumably, some will wish to exercise relegation release clauses in their contracts, but does that mean Saracens will lose their stars for good? Or might the club seek to retain their services in the long-term by sending them out on loan to a Premiership rival? If they do go on loan, will it be to another Premiership club, who have their own salary cap obligations to deal with, or will it be abroad? If it is abroad, will the RFU exercise the “special circumstances” rule to allow them to remain eligible for England selection?

What about the club? Will Nigel Wray be able to withstand the financial hit of dropping down into the Championship? And what happens if it does lose most of its players? Will Saracens be able to bounce straight back, or might this be the beginning of the end?

What about the Premiership? Will Saracens continue to earn points this season? Can they take points off other clubs? Could they play in a semi-final and even win the title? None of this has been explained by PRL. It is a shambolic state of affairs.

And what of the Championship? Might this be an opportunity for the RFU to invest, and for a new TV deal to be negotiated to capitalise on some renewed interest? The questions abound.

One thing is for sure, though: many players have been caught up in this scandal and are now facing some incredibly difficult decisions. I sincerely hope that they are being supported by the RPA, and that they are all taking independent advice.

The “Promoted Club” Rule

A particularly interesting question that emerged in the immediate aftermath of the relegation announcement relates to the effect of Regulation 15 of the Regulations. It states:

15.1 A Promoted Club shall, within 28 days of receiving confirmation of promotion to the Gallagher Premiership from PRL, comply with the requirements of Regulation 4.4 by providing to the Salary Cap Manager the documents listed in Regulation 4.4.

15.2 A Promoted Club shall provide copies of its Declaration for the 2018-19 Salary Cap Year and its Certification for the 2017-18 Salary Cap Year as required under Regulations 4.2 and 4.3.

Many immediately interpreted this as a requirement that a promoted club must comply with the Regulations for two consecutive seasons in order to qualify for promotion. Of course, given that Saracens must be in breach this season (2019/20), this would mean they would need to comply with the Regulations for two seasons before being allowed to return to the Premiership. On such an analysis, the earliest Saracens could return to the Premiership would be September 2022.

However, I do not agree with this view. Firstly, Regulation 15 places no obligation upon any Championship club to comply with the “Senior Ceiling” (i.e. the salary cap). It simply requires them to provide certain documentation. A “Certification” may state that a club has or has not complied with the Senior Ceiling. This in itself does not amount to an obligation to comply with the cap.

Secondly, Regulation 15 is not a condition for promotion, per se. To be promoted, a club must comply with the Minimum Standards Criteria (“MSC”). These cannot be found on Premiership Rugby’s website – another indictment of their commitment to transparent governance – but the “FAQs” suggest that “adherence to the Salary Cap” is one such requirement. As such, the MSC and Regulation 15 combine to create de facto salary cap regulation for the Championship. Still, there is no reason why Saracens’ non-compliance this season would prevent their promotion at the end of next season – as long as they adhere to the cap from next year.

Thirdly, it is my view that Regulation 15 is not designed to punish clubs relegated as a result of Regulation breaches with two years of exile. If this had been the intention, it is far more likely that relegation and a period of exile would have been specifically provided for in Regulation 14.1 (Penalties for Breach of the Regulations). Instead, Regulation 15 exists to complement the MSC and to ensure that Championship clubs with Premiership ambitions are operating in a sustainable and fair manner.

In any event, it is likely that this issue was specifically addressed in the settlement agreement between Saracens and PRL.

The Future of the Salary Cap

Lastly, it is worth addressing the wider impact Saracens’ relegation will have on the Premiership and the Salary Cap itself. Such a scandalous story will inevitably tarnish the league’s reputation which, at a time when it is seeking greater investment, is potentially quite harmful. However, PRL have already announced that Lord Myners – a former Financial Services Secretary in HM Treasury – will be carrying out an independent review of the Salary Cap, suggesting that change may be on the horizon.

This is not the place to detail how I think the Regulations should be reformed, but PRL would be well-advised to read “Unholy Union” by Michael Aylwin, with Mark Evans. It explains, in Part 3 Chapter VII, how the Regulations are deficient, and why ring-fencing, a salary collar, a collective bargaining agreement, a fixed squad size and independent governance are all necessary to properly equalise the league. Though I don’t agree that a collective bargaining agreement is necessary, Aylwin and Evans make a convincing case for a radical overhaul.

The Saracens case may be over for now, but English rugby will never hear the end of it.