Roula Khalaf, the esteemed editor of the Financial Times, curates her favorite stories in this engaging weekly newsletter. In the world of sports, rugby union leaders are currently engaged in critical discussions aimed at reshaping Premiership Rugby, which represents the pinnacle of men's rugby in England.

The motivation behind these discussions stems from the urgent need to address the financial challenges plaguing numerous rugby clubs and to attract new investments that could help elevate the sport's profile. In an effort to bring about change, Premier Rugbyco-owned by the clubs, private equity firm CVC Capital Partners, and the Rugby Football Union (RFU)is exploring alterations to both the governance structure and business model of the competition, according to sources intimately familiar with these plans.

Among the various options under consideration is a transition to a franchise-based system. This model draws inspiration from modern sports competitions, notably the Indian Premier League (IPL), which has successfully transformed cricket by securing substantial media deals and attracting significant investment. Under this proposed franchise model, new city-based teams would be able to apply for inclusion in the Premiership, provided they meet specific criteria. These criteria may include demonstrating financial robustness, presenting viable business plans, and adhering to geographic considerations.

The overarching objective of these proposals is to expand the reach of the sport and recover from the persistent financial losses that have afflicted clubs for several years. The 2022-23 season was particularly devastating, with three Premiership teamsLondon Irish, Worcester, and Waspscollapsing, resulting in the competition contracting from 13 teams down to just 10.

It's important to note that these proposals are still in the negotiation phase and would require regulatory approvals before any implementation can occur. As of now, the Premiership and the RFU have declined to provide comments on the ongoing discussions.

A troubling report from accounting firm Leonard Curtis indicates that seven out of the ten Premiership clubs could be classified as balance-sheet insolvent for the 2022-23 season, leaving them heavily reliant on their owners for continued funding. CVC Capital Partners initially agreed to invest 200 million for a 27 percent stake in Premier Rugby back in 2018. However, the funds that were intended to be used for enhancing the game were instead utilized by teams to navigate the financial fallout of the coronavirus pandemic.

During this challenging time, the UKs Department for Culture, Media and Sport intervened, lending approximately 124 million to Premiership teams to help them stay afloat. The proposed franchise system aims to alleviate the financial instability that is common in the traditional European sporting model, which features a system of promotion and relegation.

In a franchise model, clubs would essentially secure their position in the league, eliminating the threat of demotion due to poor performance. The expectation is that this would create a more stable financial environment, thereby attracting additional investors, sponsors, and a larger fanbase, all while fostering long-term investments in infrastructure and talent development.

However, the removal of promotion and relegation could stir controversy, particularly among clubs in the second-tier Championship, who may feel excluded from the revamped league structure. Nevertheless, sources familiar with the discussions have indicated that these clubs will also be considered in the reimagined framework.

For context, in the Six Nationsa prestigious annual tournament that features England, Wales, Scotland, Italy, Ireland, and Francethere is no relegation, which provides stability for the participating teams. Other sports have successfully adopted franchise systems as well; for instance, crickets IPL added two new teams to expand to a 10-team league in 2022, while Formula 1 plans to welcome Cadillac as a constructor starting in 2026, expanding the grid to 11 teams.

Moreover, in 2021, the England and Wales Cricket Board launched The Hundred, a new competition featuring eight city-based franchises. Earlier this year, this initiative garnered significant attention, sparking a bidding frenzy that attracted interest from powerful Silicon Valley executives, wealthy Indian billionaires, and private investment firms.