Australia could be final piece in the global rugby puzzle

An NZR private equity deal might lead to a pot of gold for RA. But at what cost?

Australia could be final piece in the global rugby puzzle

Wayne Smith, Senior Sport Writer
25 minutes ago November 3, 2020

New Zealand Rugby is reportedly close to announcing a deal with a private equity group that could only result in a win-win position for the game in Australia, Rugby Australia chairman Hamish McLennan said on Tuesday.

It is understood that NZ Rugby has been in negotiations with private equity giant Silverlake for some time and if reports on social media prove correct and they do formalise an arrangement in the coming days, it may work to Australia’s advantage.

Asked by The Australian if a NZ deal would make Australia – which is set to play a limited amount of trans-Tasman Super Rugby-style football next season before embarking on a full-scale, fully integrated competition with NZ in 2022 – a more tantalising target for private equity groups, McLennan replied: “Yes. Absolutely. I think the Australian component is the last piece of the global jigsaw, so we are in a win-win, no matter which way we go.”

Silverlake is manoeuvring to become a major player in global rugby, but at the moment it is CVC Capital that is the ruling private equity giant on the world rugby stage.

It already owns 27 per cent of the English Premiership, worth $365 million, and 28 per cent of the Pro14 competition, worth $219 million, while its $548 million offer for 14 per cent of the Six Nations championship is reportedly in jeopardy because the Home Unions had turned to the British governments for coronavirus bailouts.

It remains the most powerful third-party player in the game and is set to become even more influential if, as seems highly likely, it also strikes a deal with South African Rugby.

There is a possibility, if NZ does proceed with Silverlake, that CVC will then step up its attempts to buy a slice of Australian rugby to head off a Silverlake monopoly of the two neighbouring countries. It would only heighten competition that already exists. Both firms and indeed others – Providence, for example – are believed to have already come knocking on Rugby Australia’s door.

New Zealand’s private equity deal appears to be happening against a backdrop of trans-Tasman negotiations to turn a loose alliance into a powerful ANZAC bloc in world rugby. The All Blacks and the Wallabies are the two strongest, most marketable southern hemisphere touring sides in Europe and it is understood that NZ and Australia are investigating how that can translate into global influence and ultimately dollars.

“The massive opportunity for us is working in concert with NZ to create an ANZAC bloc which would have massive leverage globally,” McLennan said.

While NZ has already completed its broadcast deal, Australia cannot proceed down the private equity line until it finalises its negotiations with rival media groups, Foxtel and Nine. Although there have been reports that a deal could be announced as early as this week – with Nine reportedly offering $30m annually but with a considerable free-to-air component while long-term partner Foxtel is believed to have put forward an offer of between $35-40m – RA is downplaying that suggestion.

But until RA knows precisely how much money it has at its disposal – news that the Super Rugby clubs are desperately waiting for – it will have no real idea how much of a stake it would need to offer a private equity buyer. Even then, the RA board would need to reset RA’s cost base and look at all its commercial partnerships, possibly including sponsorships, before it entered into any talks.

“I’m very interested in private equity as a way of putting cash back into the game as well as bringing additional IP, which would be useful,” McLennan said.

Any private equity deal would involve selling a piece of Australian rugby’s soul, and there is no question that RA would need to go into any deal with its eyes wide open.

But if the slice was the equivalent of no more than 15-20 per cent, a minority interest, then it would allow RA to gain access not just to much-needed cash but to some of the best and brightest financial minds. The goal of the private equity firms, after all, would be to drive up the value of their investment, which would be no bad thing for RA.

But at what cost? That is the question Australian rugby must keep permanently in mind.

Wayne Smith
Senior Sport Writer

https://www.theaustralian.com.au/spo...11d7b6f276441f

So, hypothetically, imagine they come up with a Super 18 that increased the value of the broadcast rights by 148%. With a private equity partner whose only interest was "to drive up the value of their investment", how do they unwind the deal when it becomes apparent that the audience is tuning out? Their partner is only interested in the money, and RA would have a fiduciary responsibility to protect their partners interests.

Or for that matter, how free would they be to, say, select a broadcast deal that was worth less cash, but gave FTA coverage...?

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Originally Posted by AndyS

So, hypothetically, imagine they come up with a Super 18 that increased the value of the broadcast rights by 148%. With a private equity partner whose only interest was "to drive up the value of their investment", how do they unwind the deal when it becomes apparent that the audience is tuning out? Their partner is only interested in the money, and RA would have a fiduciary responsibility to protect their partners interests.

Or for that matter, how free would they be to, say, select a broadcast deal that was worth less cash, but gave FTA coverage...?

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It is worthwhile raising hypotheticals and I'm not particularly enamoured by these PE prospects. Those sharks do have teeth...

Unfortunately, what I might like (and, I suspect, what you might like) doesn't have much bearing. At best, we might attempt to shine some light on what is happening.

Still ... perhaps I might start by making a statement to see if you agree, or can knock it out of the water.

"A fiduciary responsibility does not neccessarily entail maximising shareholder value."

(A quick note: I tend not to stay logged on here for long. It's a slow-moving forum and other things beckon. So it may at times resemble "correspondence chess".) ;)

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Originally Posted by AndyS

So, hypothetically, imagine they come up with a Super 18 that increased the value of the broadcast rights by 148%. With a private equity partner whose only interest was "to drive up the value of their investment", how do they unwind the deal when it becomes apparent that the audience is tuning out? Their partner is only interested in the money, and RA would have a fiduciary responsibility to protect their partners interests.

Or for that matter, how free would they be to, say, select a broadcast deal that was worth less cash, but gave FTA coverage...?

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Hypothetically they are very fair and warranted questions.

But why can't we look at this possible investment as a good thing? The possibility of the ANZAC Bloc being the leaders of World Rugby excites me.

Sure we may be looking at a small broadcast deal this time around. But I think that an AUS/NZ based SuperRugby Competition will see a much larger broadcast deal from the UK and Europe.

OK - I may be a Glass half full kind of guy. I accept that. But it's time Rugby. Especially Australian Rugby had a period of growth

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Originally Posted by Ham105

"A fiduciary responsibility does not neccessarily entail maximising shareholder value."

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As a statement, that only tends to highlight that in most instances it specifically does mean maximised shareholder value...it is merely noting that are some instances where it might not. But that doesn't mean this is one of those instances, and as the original report notes, a maximised return is likely to be the only measure PE has. If it were otherwise, they would be calling them sponsors, not PE.

Considering the Wallabies is a national representative team and the RA is responsible for administering a national sport any PE investment in RA directly would be inappropriate IMHO.

But investment in a professional competition run as its own commercial entity (and out of the mismanagement of RA) is a good idea. RA would be shareholder and receive dividends etc.

A couple of months ago there was an article about investment from Private Equity.

It mentioned that "generally" Private Equity investment looked at a short-term gain, however new Private Equity Investment such as the group managed by Andrew Forrest was looking at gains over a much larger period of time.

Can anyone else recall this? I can't seem to find it.

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Originally Posted by AndyS

So, hypothetically, imagine they come up with a Super 18 that increased the value of the broadcast rights by 148%. With a private equity partner whose only interest was "to drive up the value of their investment", how do they unwind the deal when it becomes apparent that the audience is tuning out? Their partner is only interested in the money, and RA would have a fiduciary responsibility to protect their partners interests.

Or for that matter, how free would they be to, say, select a broadcast deal that was worth less cash, but gave FTA coverage...?

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No, there always constraints and protections, but banking on fiduciary duty hasn't reliably provided strong protection at law given recent proscriptive versus prescriptive judgements. Any PE investment would be framed under contract.

In any case, events have progressed since last week, Andy; most likely a portion of FTA coverage is a given constraint now moving forward.

Puts a lot of faith in everyone being aligned then, doesn't it? Both initially, and against every and all possible future outcome. Unless you believe every single future possibility can be covered in the contract...

For starters, expect at least one PE director should it all come to pass. Little chance they will hand over any money without some measure of control over their investment.

As an aside though, fiduciary duty may only provide an arguable protection, but would provide certain grounds for action. After that, who then has all the money and lawyers, and can make any case too financially onerous for RA to risk...?