There has been a lot of conjecture and questions recently. Is Springbok rugby for sale? This is no different from what is happening in New Zealand, with New Zealand in consultation with possible equity partner Silver Lake.
The history
Both countries have a rich history in the game. Their national rugby teams are revered and regarded as an asset and a source of national pride. In New Zealand Rugby, the players’ association has already raised their concerns regarding the $465 million private equity deal on the table from Silver Lake. This has yet to happen in South Africa, but some former players have voiced their opinions in the media.
SA Rugby has been negotiating with CVC Capital Partners for more than a year. The message has been fairly common in both countries. Both brands have an inherent value, based on a few factors. They have both existed for more than 100 years. They represent success and the pinnacle of the sport around the world.
What would equity partners bring to the table?
The first and most obvious contribution is the cash injection. However, there is much more than that on the table. They bring world-class management to the organizations they invest in. As investors, they are not in it for brand exposure or charity. They need a return on their investment. They will therefore be hands-on in ensuring that their investment has the best chance of giving them a return. Television rights have always been the life-blood of national rugby unions and competitions. Equity partners of the type considering investing in top-level sport have realized that there has been a shift in media consumption as well as revenue streams. It would be foolhardy of any business to ignore these changes and be left behind.
To use a cliche used in business, if you do what you did last year, you have gone backward.
What would equity partners not do?
Although there is a lot of negativity and suspicion from fans who fear the changes investment companies might make to the game they love or the teams they support. The only time this would be a real concern is if an equity partner bought out a team or franchise that is struggling financially with the intent of completely re-skinning it and creating a completely new entity. Usually, they buy into more than that though. They would buy into an organization with an already strong brand that could be enhanced by handling the business side of the operation. It would make no sense to buy into a strong brand and then change the nature of the brand or get involved with team matters.
The one thing any potential equity partner would do well to observe is to alienate the amateur club system that exists below the professional level. In South Africa, the relationship between amateur clubs and the professional arm, can be very fractious.
Is Springbok Rugby for sale?
The reality of facts: Cash flow
The reality for South African rugby is that the local currency is weak in international terms. The biggest eye-opener would have been the years around 2016 when long-time sponsors ditched both the Springboks and the Currie Cup competition. South African viewing audience ensures that SA Rugby earns a sizeable chunk of its income through television rights. As mentioned earlier, revenue streams are changing, so relying on television rights and sponsorships is probably not sustainable.
The rugby unions remain in control
CVC is looking at around a 20% stake in SA Rugby, nowhere near a controlling interest. MVM Holdings did buy a controlling stake in the Sharks. Marco Masotti, though, is a KZN man and a rugby lover. His understanding of the Sharks positioning in terms of community involvement, transformation and access to the Eastern Cape talent pipeline makes this a great investment for both parties.
Looking to the future
It makes total sense for SA Rugby to follow the European financial model. All recent indications point towards the South African game aligning with the Northern Hemisphere competitions. Teams not looking to tap into new revenue streams are going to find it very difficult to compete in the UK competitions using local sponsorships based in South African Rand. The continued loss of playing resources to Europe and Japan bears testimony to that.
The current status of the South African top four teams
Cell C Sharks
The Sharks effectively lucked onto their equity partner, MVM Holdings. The failed negotiations between the Western Province Rugby Football Union and MVM Holdings left MVM with a war chest of cash and no one to give it to. When approached, Sharks CEO Eduard Coetzee scooped up the offer within a week.
DHL Western Province/Stormers
The WPRFU appear to be the big losers here. Their protracted negotiations with MVN fell flat and they did not appear to be overly serious about getting a deal done. MVM moved on to the Sharks and WPRFU has nothing to look forward to other than defending a court case lodged by Flyt Property Investment, who are claiming R112-million from them in a damages claim. It will take a lot of convincing to attract another gilt-edged offer from a new investor.
Emirates Lions
The Lions do not appear to have an equity partner lined up just yet. It would not be impossible for them to attract investment as they are based in South Africa’s financial hub with the largest population. Their tenacity in fighting back from relegation from Super Rugby to playing in consecutive Finals might appeal to a punter.
Vodacom Bulls
The Bulls are ahead of their local counterparts in terms of attracting independent investment. In 2019, they adjusted their shareholder stakes. They were already in a 50/50 agreement with Remgro. The Bulls reduced their share to 26% and Remgro reduced theirs to 37%. This made space for a 37% share to be held by the owner of Mamelodi Sundowns football club Patrice Motsepe.
Is Springbok rugby really for sale?
The answer to that has to be no. SA Rugby is not selling a controlling stake. They are looking to sell a minority portion of their commercial business, at a price, to a company that sees an opportunity to make a profit out of the business relationship.
If the overall business doesn’t generate a profit, they won’t. It is therefore in their best interest to work with SA Rugby for mutual benefit. Whoever the final investor turns out to be, they would need to be mindful of the fact that Springbok rugby is not a simple product like a bar of soap. It is far more than that and getting involved in playing affairs or changing what the brand stands for would alienate the paying customer.
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