Monday, 16 March 2020
By Freya Riddel

Recent wins, followed by virus-related interruptions and a groinal-grab in the Six Nations Rugby Championship have moved the spotlight away from the drama unfolding in one of England’s leading Rugby Clubs.

The background

Saracens Rugby Club, based in North London, has an impressive scorecard: it has won four of five English titles and three of the last four European cup titles, and until a matter of months ago it had a reputation to match – heralded as the strongest team in the UK with some of the Sport’s finest talent in its line up (namely, England captain Owen Farrall, Liam Williams, and the Vunipola brothers).

Over the course of the last 6 months, Saracens have found themselves at the heart of a Melbourne Storm-esque salary cap scandal that has culminated in a £5.4 million fine and relegation to the (second tier) Championship. 

Three months after the Premier Rugby Limited (“PRL”) administered its punishment, the full decision of the independent disciplinary panel has been released. 1

The allegation, associated investigation, and the defence variously illustrate the role a Forensic Expert can play in a scenario like this.

The regulations

In March last year, Sportmail (the sports branch of the UK tabloid, Daily Mail) commenced a journalistic investigation into Saracens, revealing investment partnerships and property-sharing arrangements between Nigel Wray (the club’s owner) and players. It was alleged that these represented “deliberate circumvention” of the PRL Salary Cap Regulations.

The Regulations permit a “senior ceiling” of combined salaries paid to players in a club each season. 

These Regulations“…were introduced, and are maintained by PRL, to achieve the following objectives in an appropriate and proportionate manner:
a.)    Ensuring financial viability of all Clubs and of the Aviva Premiership competition;
b.)    Controlling inflationary pressures of Clubs’ costs;
c.)    Providing a level playing field for Clubs;
d.)    Ensuring a competitive Aviva Premiership competition; and 
e.)    Enabling Clubs to compete in European Competitions”.

Lord Dyson, who chaired the independent disciplinary panel explained that the decision, in summary, pertained to “whether or not transactions and arrangements the club had made for the benefit of their players amounted to salary within the very broad definition of the salary cap that is in the regulation.” Significantly, the role of the panel was to assess whether the position taken by the club’s Salary Cap Manager on this point was reasonable in the circumstances (not whether they would have arrived at the same conclusion).

Saracens were charged with breaches in Salary Cap years: 2016/17, 2017/18, and 2018/19.

The ultimatum

Corroborated, but as yet unsubstantiated, reports have indicated that Saracens were presented with an ultimatum: agree to a Forensic Audit and return the trophies won during periods of breach or accept certain relegation.2  Interestingly, there is nothing in the Regulations which provides for relinquishing trophies.

The club’s owner has said (in somewhat defeatist terms) “Perhaps we have done the wrong thing for the right reasons”.3 Indeed, it is not clear whether the actions of Saracens management amounted to deliberate disregard of the rules, or a misguided attempt to operate (albeit, as widely as possible) within their regulatory tramlines. It is equally unclear, whether any blame can be attributed to the benefiting players.

The keystone of good governance is transparency, both in the written policies and their application to an organisation. Perhaps implicit, or otherwise no less important, in the principle of transparency, is how accessible/ readily understood codes or conduct, policies, or regulatory frameworks are.

In most cases, a transparent application of such ‘rules’ will require targeted training for all employees and contracted staff (/players). An experienced Forensic Investigator can often be engaged beyond the context of known misconduct; to act in an advisory and/or training role to prevent the (re)occurrence of any breach.

The forensic audit 

We have previously written about ‘The use of ‘Forensic Audit’ to uncover organisational misconduct’– see blog here. In brief, a forensic audit is an independent, and detailed review of a company’s books and records. Forensic tools are used to image Computers and phones with all that they contain being processed and reviewed; Data Analytics techniques are used to analyse this information; and Interviews are conducted with relevant individuals. 

So why might an organisation want to avoid one?  It can be an unforgivingly thorough exercise and organisations may find it intrusive; it grants access to their most sensitive information.

That said, the benefit of engaging independent experts is the appropriate management of this information. In the furore that came with the non-publication of the Panel’s decision, a number of sensitive details were released into public forums (such as the names of players involved). A risk like this is minimised when an Expert, trained and experienced in the robust management of company and individual data, is used.  

The defence

The main line of defence brought by Saracens was on competition law grounds, challenging the validity and therefore enforceability of the regulations. The club argued that the Regulations prevented them from competing freely to attract the best talent. Of relevance is Paragraph 1 of Article 101 (TFEU)  which turns on whether the Regulations “have as their object or effect the prevention, restriction or distortion of competition”. In order to pursue a competition claim, it is therefore necessary to demonstrate said “object” or “effect”. 

This too is an area where an Expert could be engaged. While an argument of ‘object’ can almost be self-supporting i.e. an activity or behaviour can be determined to be so likely to have anti-competitive impacts that proof of actual effect is not required. Where this is not the case, it is necessary to illustrate a realistic counter-factual.

In the published Saracens decision, at Paragraph 57 is a reference to the Competition Appeal Tribunal decision in Racecourse Association v Office of Fair Trading [2005] – “the effect of the [salary cap in this case] has to be compared with that which would have prevailed had it not been entered into, an exercise requiring an assessment of the competitive landscape that would exist in its absence.”

The role of the Expert in this type of engagement is to formulate this counterfactual based on market information and relevant expertise. Unfortunately, in its assessment of the Expert report submitted by Saracens, the panel observed that it paid “relatively little attention to evidence or facts specific to English Professional Rugby” and there was a “complete absence of consideration of the counterfactual that would apply absent a salary cap” ; the Expert had also failed to address the relevant market definition.

The Expert engaged by PRL in contrast, “did address issues of market definition and counterfactual analysis by reference to specific evidence and data” and the Panel “found both of PRL’s experts to be careful and thorough in their evidence”.

The implications

This decision has prompted a figurative line-out for Premiership Rugby, who have launched a public consultation and independent review into the Salary Cap regulations being led by Lord Myners (former Financial Services Secretary). Some of the items which could be tabled for consideration include:

  • Whether the Regulations themselves are appropriate and fit-for-purpose - whilst one of the aims of the Regulations is to ensure the financial viability of the clubs, all but one in the Premiership is perennially loss-making 
  • Whether the Regulations are pro-competitive - whilst Saracens were unsuccessful in their defence on Competition grounds, this is not definitive in a broader legal context. Their evidence was not well-substantiated, and the decision was made by an arbitration panel, rather than court.
  • Whether the Premiership should become independent of the clubs – this would mirror Australian and American practice and ideally cultivate objective governance and decision-making. 

The takeaways

A Forensic Investigation brings many advantages, but the role of the Expert is not limited only to this exercise. Wider engagements might involve: 

  • advising on appropriate policies and procedures and their application, including training (this could avoid a tabloid investigation unearthing a breach);
  • undertaking and managing Forensic investigations (often in response to whistle-blowing, concern from an internal compliance function, or external allegations); 
  • submitting Expert reports and appearing as Expert witnesses in proceedings; and 
  • providing ongoing support to organisations to prevent reoccurrence of breaches.

For further reading on the role Forensic investigations can play in uncovering corporate misconduct in a sporting context, see Part 1 of our article here.

5 Paragraph 65