EQUITY UPDATE: How SARU compares with rest of the world

With the brothers Ted and Christopher Ackerley (Ackerley Sports Group) seemingly remaining on the fringes of the South African Rugby Union’s search for an equity partner (depending on who you talk to), now is a good time to take a ‘deep dive’ into some of the more nebulous facts around the deal.

To recap.

In December, the ASG ‘offer’ (SARU’s cherry-picked partner) suffered two mortal blows.

On December 4, during a briefing of the Portfolio Committee on Sports, Arts and Culture, the ASG deal received some serious pushback. Two days later, the brothers Ackerley were given a collective bloody nose when only six of the 14 unions voted in favour of the SARU-desired partner.

That leaves New Zealand as the only Rugby Union-playing country with an equity partner, Silver Lake – who had already raised an additional NZ$62.5-million (US$39.24-million) for the All Black brand.

The capital raise lifted Silver Lake’s stake in New Zealand’s commercial arm, known as ‘NZR Commercial’, to 7.5 percent from 5.71 percent. NZ Rugby sold the initial stake to Silver Lake for NZ$200 million (about US$114-million).

Compare this to the ASG deal, with the Ackerley brothers having made an offer of US$75-million (ZAR1.4-billion) for a 20 percent of the union’s commercial rights.

However, after the domestic franchises – Sharks, Bulls, Lions and Stormers, with support of some amateur unions – raised concerns over the lack of information and transparency in the ASG deal, government stepped in.

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In the wake of the outcome of the December 6 vote, the new players in the equity playpen were confirmed.

Johann Rupert’s Remgro group, with support of Patrice Motsepe’s African Rainbow Capital is set to table one alternative, while the Marco V Masotti-headed and New York-based MVM Holdings will also table an equity deal they believe ‘makes sense’.

The latest offer/proposal comes from the Warren Wheatley-headed Altvest consortium. The latter has put a ‘price tag’ of about US$375-million (ZAR6.7-billion) on the Springbok brand.

The Masotti group’s proposal also does not have ‘commission fees’ attached to it, which was a big sticking point for those opposed to the ASG deal.

It is worth noting that former Formula One team boss Eddie Jordan’s company, Jordan & Associates, would have been the beneficiary of the commission of 15 percent – later reduced to a mere eight percent.

That amounts to a handy US$6-million (about ZAR111-million).

It is also unlikely ASG would get another look-in, even though they are reportedly going to put a revised ‘proposition’ on the table.

So why the need for equity in Rugby Union, seemingly a high-profile sport that attracts millions of viewers and stadium attendances?

Perhaps a historical look will set the stage for this explication.

Let us start with the state of the game when the first World Cup took place almost three decades ago, 1987.

The game took its first tentative steps into professionalism only in 1995. In 1987 rugby union was a strictly amateur sport – certainly from an administrative perspective.

Rugby Union in the Shamateur era – the time of brown envelopes and boot money in the 1980s – is a far cry from the overly regulated game that is currently being played around the globe.

As full-time professionals, players are now bigger, stronger and better conditioned than ever before. Throw in the meticulous analysis of data to develop a team’s strategy and a team of match officials with television monitors scrutinising the action and the need to generate additional financial resources is obvious.

From the first random branding on the pants in the mid-1980s the game has evolved to an era where most teams have as many as 10 mainline and associate sponsorships.

However, even that is no longer sufficient.

It has also moved from an investment-based model to a distinctly private equity scenario.

Private investment involves a small number of major financial benefactors to a team. These investors usually number between one and three and are sometimes joined by a greater number of investors who each own a small ownership stake.

Such investors traditionally have a deep personal connection to the team or to the sport itself.

Their reasons for investing tend to be more personal than purely in search of business success.

The idea of having a wealthy benefactor who invests in a team or franchise purely for the love of the sport may sound like a fantastic solution to fans.

However, the past few years have shown that this is not a guarantee for success at all.

Premiership clubs with such investments have gone into administration in recent years – prime examples being London Wasps and the Worcester Warriors.

In South Africa, there is a well-documented example of the now-defunct Southern Kings’ bankruptcy saga.

Private equity will see an entity invest capital in a team/franchise from a purpose-built finance group that is not publicly traded. The motivation for these groups to invest in sports organizations is more slanted towards business, with profit being the chief objective of the investment.

Private equity investors, in particular, have been making big moves in recent years.

Apart from the traditional commercial opportunities that these sports offer, private equity investors are also looking to capitalise on future growth areas – such as streaming services, gaming/esports and the increased popularity of the women’s versions of the game.

The best-known private equity investor in Rugby Union is CVC Partners, which also has investments in Formula 1, Moto GP, French soccer, Spanish soccer, volleyball and IPL cricket.

CVC Partners holds a 27 percent stake in England’s Premiership, a 28 percent stake in the United Rugby Championship, in which South African franchises participate, and a 14.3 percent stake in the Six Nations.

We have already dealt with Silver Lake’s involvement in the All Blacks.

For Rugby Union, the involvement of private equity has many advantages.

One is access to large up front capital injections, which have been particularly welcome following the strained years of COVID lock downs and post-COVID when teams had to play in empty stadia.

Then there is the aggressive entry of Saudi Arabian investors into leading sports.

The launch of LIV Golf, backed by the Saudi Public Investment Fund (the country’s sovereign wealth fund), caused quite a stir. They have since agreed to merge with the United States PGA Tour and Europe’s DP Tour.

In football, a Saudi consortium bought Newcastle United for US$391-million in 2021, while the Saudi Pro League was launched recently, with big names like Ronaldo, Karim Benzema, Neymar and Sadio Mane among those who have joined Saudi clubs, which have splashed out about US$950-million on players.

Tennis is the likely next move for Saudi Arabia and its investment funds, with talks having already begun to buy into the United Cup, the mixed national team competition currently organised by Australia.

The question is, will Rugby Union be next on the Saudi investment radar?

The Rugby World Cup is now regarded as the third largest four-year sporting event in the world, behind the soccer World Cup and the Olympic Games.

Could Saudi investors see potential in the sport, in one of its existing tournaments or a new tournament?

* Finally, back to the Silver Lake deal and why there was so much opposition to SARU’s ASG proposal.

The New Zealand game’s financial health took a dramatic turn for the worse, with the national body having made high-level presentations to stakeholders which showed it is losing so much money that it will have burned through its US$200 million of Silver Lake cash by 2031.

These disastrous forecasts are being made because the transformational lift in revenue NZ Rugby projected to deliver once Silver Lake came on board as an equity partner in 2022 has not materialised.

It is also believed that the costs of winning new income through the company – New Zealand Rugby Commercial [read SARU/ASG’s WinBy1] – that was formed to house NZ Rugby’s revenue-generating assets, are significantly higher than forecast.

SARU’s is, by their own admission to parliament, a loss-making organisation with no cash reserves.

Given the All Black brand raised sponsorships six times more than the Springboks and are still going bust, it means SARU is on the brink of bankruptcy.

The Les Bleus, All Black, England and the Wallaby brands all rank higher than Boks in terms of financial pull.

And this is according to SARU’s presentation to parliament.

@king365ed
@rugby365com

Additional sources: investec.com & Eduard Coetzee, former Sharks CEO (as part of his DBA Research)

* Related articles

Time for the ‘real’ players to step up
SARU Equity – the fringe players
New party in equity playpen
We did #NOT vote in favour of Ackerley’
SARU vote: ‘Making a quick buck’
SARU lost at the ballot
Jurie Roux is still a consultant

* SARU, in their own words …