Full private equity: 'It is a conversation SA unions must have'

Much has been said about the Western Province Rugby Union’s unwillingness to concede power in negotiations with American investor MVM Holdings, headed by leading South African lawyer Marco Masotti.

Masotti first broached the subject when he said: “The sport of rugby is stressed and needs change to survive and then flourish.”

The WPRFU have their reasons – which may all be valid – for not wanting to relinquish control of the company (professional arm of the union).

However, it is not a view that is universally shared.

A quick glance at the six main franchises in South Africa shows the vast chasm in opinions and attitude on the subject.

The Lions and Bulls companies are the closest to ‘full equity’ status – both sitting at or near the maximum (allowed by SA Rugby) of 74.9 percent.

The Lions’ 74.9 percent (and control) rests in the hands of Altmann Allers (through his company Foxbell Investments). The Golden Lions Rugby Union has the other 25.1 percent.

Allers is a strong advocator of a 100 percent equity model and we will get to his view soon.

The Blue Bulls’ private equity is shared between two partners – Patrice Motsepe (African Rainbow Capital) and Johann Rupert (Remgro), at 37 percent each. The Blue Bulls Rugby Union has the remaining 26 percent.

The Southern Kings were also sitting at the maximum when the oddly-named The Greatest Rugby Company in the Whole Wide World (Pty) Ltd (GRC) held control – before SA Rugby reclaimed the 74.9 percent because it became another big financial flop. The Eastern Province Rugby Football Union has the other 25.1 percent.

The Sharks still have control of the company, with equity partner SuperSport at 49.9 percent and the controlling 50.1 percent with the union.

The Free State Rugby Union also have SuperSport as an equity partner, but only with 24.5 percent of the company (professional arm) and the union holding the other 75.5 percent.

The Western Province Rugby Football Union has all 100 percent of the company in its control and according to informed sources unwilling to give away a controlling share – not even for a cool US$6-million (ZAR99-million) from MVM Holdings.

The problem is the breakdown of the initial offer. Just US$2-million (about ZAR33-million) of the US$6-million price tag would be invested into the WPRFU, while the remaining US$4-million (ZAR66-million) would go into the balance sheet of the company.

This is in stark contrast to the Lions and Bulls, who willingly gave up control of the company to equity partners that invested gazillions of their own money into the franchises.

Allers is open about his view on full private equity.

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“We should not be scared of foreign investment,” he told @rugby365com, when asked about the differing approaches of the Lions and WPRFU.

“It shows there is interest in our product [rugby] and our industry,” he said of the attempts by companies like MVM Holdings to buy a controlling share in the Cape Town-based franchise.

The Lions Rugby Company Chairman, Allers, said funds will not be as readily available as before the COVID-19-enforced crisis and the market is going to become increasingly more competitive.

“There is no room for sentiment,” he said of any potential partners from outside the borders of South Africa, adding: “We need to get funding from wherever we can.”

He reiterated his previously stated feelings about private equity, saying that the professional side of any union or franchise should be run by a CEO that takes full responsibility for all ‘rugby matters’ – issues such as players, coaches, medical and support staff, as well as securing sponsorships and organise other income streams.

However, he feels the union (amateur arm) and company (professional entity) should support each other – even though they are two separate entities.

“At the Lions, the union and company personnel sit right next to each other in the same offices. They support and assist each other.

“On match day the amateurs work as hard as the people on the professional side of the company.”

While he admits that full private equity will not work at every union, he is adamant it is “a conversation we must have” in South Africa.

“If a company from the United States want to invest, they will obviously have their terms,” Allers told @rugby365.

“If you buy into a risky business, you want to have control,” he said, pointing to the great ‘working relationship’ between the company and the union at the Lions.

“If you come into a business with limited knowledge of the environment [franchise] and business, you may doubt if it is the right decision. That’s why control of and trust in those running the company [franchise] is important.”

Allers said the success of a soccer team like Manchester United and rugby club Saracens on the European and domestic stages had a lot to do with private equity.

“They [private investors] were central to developing those strong brands,” he said.

“New Zealand are now also talking about 100 percent privatisation and that is a clear indication where the rest of the world is moving to.

“It is about the ability to carry the franchise through tough times.

“Right now we are in some very tough times.”

He said the need for change is obvious.

“We can’t afford to go into 2021 with something that did not work before,” Allers said.

“We have to look at what we can do different.

“The Lions are in a similar position than the Bulls and Sharks. Everybody is very concerned about the future.”

Given the ongoing uncertainty about the future of the game, unions and franchises must be creative in their planning.

“I can’t speak about other unions, but at the Lions we try our damndest to limit the shortfall.

“Since the COVID-19-enforced lockdown, the income streams have dried up.”

He said broadcasters and sponsors have been very professional, accommodating and incredibly supportive while there was no product to put on television.

“That is why it is vital that we return to the field,” he said of plans to stage an eight-team Currie Cup competition from mid-September to late December.

“There is an eagerness to get back onto the field and put a quality product up for consumers.”

@king365ed
@rugby365com

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