Interim Welsh Rugby Union chief executive Nigel Walker says rugby bosses had no choice but to slash player wages and reset the game's finances.
Walker told a group of MPs the "uncomfortable" situation has arisen because the game's administrators in Wales "got carried away", leading to player salaries spiralling out of control.
He said without the deep cuts that have been brought in, Wales would be facing the same situation as England, where three teams, Wasps, Worcester and London Irish, have gone bust this season.
Walker was grilled on a number of topics at a Welsh Affairs committee debate in Parliament about sports broadcasting.
He said: "None of us in Europe are immune to the challenges. The game has to reset, the funding models have to change and the salaries paid to players have to be reviewed,
"We've been going through that process, it's been an uncomfortable process. We announced a six-year framework for regional rugby in Wales and that reset started then. As I say it's uncomfortable.
"Many will say why should the players bear the brunt of it. It's not the players' fault, it's simply the administrators, if I may use the expression, have got carried away and the wages have spiralled out of control."
Walker maintained the WRU and Professional Rugby Board were still committed to four regions, admitting cutting the number of teams was "the other option" debated before eventually being dismissed by the PRB.
A huge number of Welsh rugby players have been released by the regions this summer, while the Wales v England Six Nations match was almost called off amid the threat of strike action from disgruntled players over changes to contracts. The dispute was eventually settled before the new six-year framework was agreed, but many players remain unhappy with how they have been treated.
The regions' playing budgets have been reduced for next season and will be cut further the following season as the game tightens its belt
Walker admits the situation is difficult but maintains there was simply no other option.
"It's tough, it's going to be tougher in the short term," he added.
"Money is important, the amount of money you've got to spend on your squad is important, but that doesn't necessarily guarantee success either.
"Our regions have been well funded as far as squad sizes have been concerned, certainly in the last two to three years, and that hasn't guaranteed success. Which is why we're going to work hand in glove, the union and the regions, to come up with a formula, if I can put it as crudely as that, which gives us a better chance of success.
"I personally have been criticised for the reset, but if we don't have this reset we'll be in the position that they have experienced in English rugby this season It's as simple as that, we don't have the choice.
"The other option of course was to cut one of the regions. We've had that debate. The regions, as part of the PRB decided they wanted to stick with four. The WRU was happy to stick with four, and we're going to try to make that work."
READ NEXT:
Alun Wyn Jones attracts interest from England following Ospreys exit
Nigel Walker defends decision to ban Wales international from playing at World Cup
The huge Welsh rugby changes which are about to come into force
The Welsh sporting legends whose kids have followed in their footsteps
