Building the business of rugby

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South African rugby is in the doldrums. Last year the Springboks looked like the whipping boys of international rugby. At a provincial union level, stadium ticket sales are down. Sponsorship money is drying up and television viewership is shrinking. Further, there is a player exodus for more lucrative foreign rugby fields and many of the provincial unions are struggling financially.

There is also increased pressure, both from government and from an impatient rugby-viewing public, for the sport to transform.

At the moment it seems there is nowhere to hide for rugby administrators.

But the sport may soon undergo some drastic changes. In December SA Rugby announced that its general council had taken a number of decisions which its president, Mark Alexander, said would have far-reaching effects on rugby in the country.

The headline-grabbing decision was the one allowing 74% shareholdings in commercial arms of rugby unions by private equity partners. Previously equity partners had been restricted to a 50% ownership. Could this mean that money is going to flood into the sport, with a host of new equity partners jumping on board?

The SA rugby private equity landscape

As world rugby turned professional in the wake of the Springboks’ 1995 Rugby World Cup victory, new private equity investment flowed into the sport.

The Free State Cheetahs was the first South African rugby union to sign a deal with a private equity partner, says managing director Harold Verster. In the late 1990s SuperSport bought a 24.5% stake in the union. SuperSport has also invested in the Sharks, with an initial stake of 24.9%, which was upped to 50% in 2016.

In 1998 SAIL, a subsidiary of Remgro, purchased a 24% stake in the Border, Valke, Eagles, Griffons and Eastern Province rugby unions. In 2006 it would go on to sell its shares in Border and the Eagles to SA Rugby.

According to the Valke website, another stake was sold to Unitrade back in the late 1990s, but that the combined Unitrade and SAIL 50% shareholding is now owned by a global sports marketing company based in Hong Kong called Action House International.

Remgro is also a shareholder in the Blue Bulls (50%) and Western Province (24.9%). There has been speculation that Remgro could up its share in Western Province to between 50% and 74%, after the union’s liquidation. Remgro has already made “bridging loans” to Western Province to pay the salaries of players and staff. This puts it in a powerful position to secure a bigger shareholding.

Over at the Lions, Foxbell Investments, a company in the Glasfit Group, became a 49.9% shareholder in 2011.

Why now?

The membership of SA Rugby decided to open the door for greater private equity investment in the sport to provide greater business involvement and expertise and to help recapitalise the game, says Alexander.

“A number of our members have existing equity partners with strong business credentials and we shared our thinking with those entities before any decisions were made,” he states.

“They had an appetite to take a greater stake in rugby and there was a clear business need for a cash injection into our sport.”

Alexander adds that the relationship between rugby unions and equity partners will be governed by the constitution and  new licensing, which will govern the unions’ participation in SA Rugby’s competitions.

“Work is not complete on those licences quite yet,” he explains. “But it is well advanced.”

He adds that locally rugby is a tough market at the moment.

“[This is] partly brought on by macro-economic conditions and partly by our own offering and perceptions around the game,” he explains.

“But we have recognised those failings and are making changes – such as the introduction of equity shareholding, changes in our governance procedures, increasing independent representation on what is effectively our board and changes to our competition structures.

“We’ve been at the bottom of the market and are on our way – but we’re definitely still a very good buy,” he argues.

Investor appetite

Alexander is confident that there is investor interest in the sport. “Rugby is a global business; one English club has a South African company holding a 50% shareholding and we could not close the door on foreign investment,” he says. “Rugby in South Africa offers unique experiences and business opportunities.”

After SA Rugby’s decision was announced, potential investors who had approached the body indicated their renewed interest. Alexander also adds that there are new players who are also keen to enter the local rugby market.

Glasfit’s Altman Allers tells finweek that, following the decision by SA Rugby, the GLRU and Foxbell have been in discussions. These negotiations should have been concluded by the end of April.

When contacted by finweek, SuperSport said it had no plans for further investment in any South African rugby unions. Attempts to get comment from Remgro were unsuccessful.

The Cheetahs’ Verster says the decision to allow greater private equity investment in the sport signalled the next phase in the development of “professional rugby”.

“There will be more capital to be used to retain and develop top players,” he states. “It will also bring expertise to the table in terms of marketing the franchises.”

Others are less optimistic. One rugby insider who did not want to be named says the rugby space is “very ugly” at the moment and has problems that SA Rugby needs to address. He observes that stadiums are emptying out and sponsorship money is drying up. “Who would want to invest in this?”

Why not 100%?

Despite the negative outlook prevalent in many  rugby circles, it appears there definitely is interest in investing in the sport. finweek has been told by numerous rugby stakeholders that the Blue Bulls have in fact made a proposal to SA Rugby lobbying for 100% sale of commercial arms to private equity partners.

A decision on this proposal was scheduled to be taken in April.

Rugby great François Pienaar questions the limit of 74%. “Yes, there are interested investors but they will question the limit,” he says. “I think investors should be able to own a franchise outright and also have a minority share in Saru [South African Rugby Union], the Springbok brand,” he adds. “Interests will be aligned and the cycle virtuous.”

Pienaar is the CEO of Asem, the company that runs the very popular Varsity Cup rugby tournament. He states that he would not be surprised to see interest from US companies.

“Sport in the US is run as a business and we have much to learn from them,” he says. “We will be exposed to sports business acumen, stronger competition and marketing nous.”

One source intimately involved in the business of rugby claims that South Africa’s rugby unions were bloated with staff count. According to this source, a New Zealand rugby union employs about 20 people, while a local rugby union could employ over 200 people. Private equity partners are likely to “trim the fat” and look for efficiencies, he says, adding that this could make South African rugby unions more viable.

Deal on the table

It seems the US is not the only region interested in South African rugby. Last month news broke that Carinat Sports Marketing, a Hong Kong-based company, which recently appointed former Springbok coach Heyneke Meyer as a managing director, has put a bid on the table to buy 74% of the South Western Districts rugby union.

The president of the SWD Eagles franchise, Hennie Baartman, has reportedly confirmed the transaction. “We have bounced the idea off the representatives of our senior clubs and they support the proposed buy-in by Heyneke 100%,” he told local media.

Meyer was SWD Eagles coach between 1997 and 2000, coaching the Eagles to the Currie Cup semi-finals in 1999.

Baartman has stressed that any deal has to be approved by Saru. This decision was also expected in April and the deal is being billed as a test case for SA Rugby.

But not everyone in the South Western rugby region is happy about the proposed equity deal with Carinat, the company behind the World Club 10s tournament and the Asia Pacific Dragons team.

Leader of the Independent Civic Organisation of South Africa in the Western Cape, Dawid Kamfer, who is also the coordinator of Supporters Against Racist Rugby Associations (Sarra), is wary.

“We haven’t got a problem with business people investing in rugby,” he says. “These days it’s all about money; with money you can buy the best players, your team can do well.

“What we want is to ensure that any deal sees an investment on the ground in club rugby,” he explains. “If there are no clubs, there is no union.”

He adds that rugby clubs in the region are far away from each other and struggle with transport costs to matches. “SA Rugby needs to do the right thing and make sure the people on the ground benefit.”

This is a shortened version of the cover story that originally appeared in the 4 May edition of finweekBuy and download the magazine here.

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