EQUITY LANDSCAPE: Why SA franchises could face 'funding fatigue'

South Africa has very contrasting equity models – from vanity projects to professional business models.

It remains an enigmatic conundrum.

However, the possibility of ‘funding fatigue’ is a consummate and profound peril.

Lions Rugby Company owner Altmann Allers has already ‘tightened the belt’ and high-profile recruiting at Ellis Park – in the face of well-documented departures – is nonexistent.

There are some unwanted, senior mercenaries that still make the Doornfontein stadium their home, but the scales are tipping in favour of the queue at the exit door when it comes to world-class players.

Fewer players are willing to risk running the gauntlet of the crime-infested suburbs around Ellis Park.

If you compare that with the Sharks’ and Bulls’ recruiting, it is like chalk and cheese.

Bulls Director of Rugby Jake White – with the support of benefactors Johann Rupert and Patrice Motsepe – makes no secret of the fact that he wants to lure as many high-profile South Africans back from abroad.

That approach has already netted an extensive list of internationals – Wilco Louw, Akker van der Merwe, Nizaam Carr, Marcell Coetzee, Marco van Staden, Johan Goosen, Lionel Mapoe and Willie le Roux.

The Sharks, with the Marco V Masotti-headed MVM Holdings in the lead, can list a host of double World Cup winners on their roster – Vincent Koch, Ox Nché, Bongi Mbonambi, Eben Etzebeth, Siya Kolisi, Grant Williams, Lukhanyo Am and Makazole Mapimpi. Now add in other internationals like Jaden Hendrikse, Jordan Hendrikse, André Esterhuizen and Aphelele Fassi, and you have the making of a player pool that is the envy of the entire country.

Then, there is the Stormers model.

Johan le Roux, the new Stormers CEO and head of the Red Disa consortium, arguably runs the most professional equity set-up in South Africa.

Based on a strict budget and stringent financial controls, they have stabilised a franchise that was on the precipice of bankruptcy.

It has not been easy. Steven Kitshoff (retired), Joseph Dweba (Exeter Chiefs), Adré Smith (Japan), Willie Engelbrecht (Pumas), Dave Ewers (England) and Herschel Jantjies (Bayonne) are all departing at the end of the season.

However, they have shown great restraint and have not been as industrious as the Bulls and Sharks, yet remained competitive.

Private equity, initially a dirty word in the South African landscape, is still a head-scratcher.

Avoiding running at a loss and going bankrupt has been embraced by at least one franchise, while accountability and building for the long term has not been embraced by another.

(The article continues below the Michael Yormark interview …)

Michael Yormark, President of Roc Nation Sports International, has spoken extensively about the challenges and opportunities within the sport, including the financial status of the Premiership.

London Irish, Wasps and Worcester all filed for administration in recent years and this week it was confirmed that Welsh giant Cardiff filed for administration, with the Welsh Rugby Union staging an emergency takeover.

It points to a global problem.

Although the RNSI boss admitted their focus is not centred on the ‘financial challenges’ the industry has in South Africa, he told @rugby365com that they work on setting up their clients for a career beyond rugby and to ‘take advantage of the moment’ in their careers.

He said they do believe that private equity should be used to ‘uplift’ different sports properties and assets.

“Some of the biggest equity firms are investors in some of the biggest teams and leagues in the world,” the RNSI boss said.

However, the approach of private equity investors requires ‘discipline’.

“You have to run these organisations like a business, having a true PNL [Profit and Loss statement], looking at both sides of the legers – revenues and expenses.”

These equity partners need to make ‘strategic’ decisions, not choices based on ‘gut feelings’.

Equity companies need to be involved in healthy investments and not vanity affairs because of the investor’s affinity for the sport.

“Historically, people were afraid of private equity, because they didn’t know what that meant,” Yormark told @rugby365com.

“In South Africa, private equity can assist rugby and other sports,” the RNSI boss said, adding: “It should be looked upon as something positive, not negative.

“Sports organisations that take private equity investments should not be concerned about losing control, but they will be expected to make the right business decisions for the right reasons.

“And they will be expected to run the business, like a business, to achieve sustained success.”

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