BUILD­ING THE BUSI­NESS OF RUGBY

The state of rugby in the coun­try is dire. Spec­ta­tor num­bers are dwin­dling and spon­sors are tight­en­ing their belts. But could a new rul­ing by SA Rugby mean a re­vival for one of the na­tion’s most loved sports?

Finweek English Edition - - FRONT PAGE - By Lloyd Gedye

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 rug­byview­ing 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 macroe­co­nomic 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.”

ARE SOUTH AFRICAN UNIONS LOOK­ING TO EUROPE AND ASIA?

Mean­while, SA Rugby has an­nounced that it will be culling two South African teams from the Su­per Rugby com­pe­ti­tion next year, and spec­u­la­tion is rife that the Chee­tahs and Kings will be axed. These de­ci­sions are, how­ever, still pend­ing.

SA Rugby CEO Jurie Roux has sug­gested that there was a good chance that South African rugby unions could com­pete in com­pe­ti­tions in Asia and Amer­ica. He said an ideal world would see eight unions com­pet­ing glob­ally, four in Su­per Rugby and four else­where.

Roux told the me­dia that he hoped the play­ers at the two axed Su­per Rugby unions would be dis­trib­uted across the re­main­ing four unions in the tour­na­ment to make sure that these teams are strength­ened.

“We need to keep all our best play­ers in the coun­try,” he told The Star.

Roux has also stated that the unions’ cur­rent fund­ing model is be­ing de­bated. There is a push to­wards a sys­tem where money gen­er­ated from a tour­na­ment goes to the teams that are com­pet­ing in it and divvied up among all the South African unions. How­ever, a fi­nal de­ci­sion re­gard­ing this has not yet been made.

Gri­quas pres­i­dent Jan­nie Louw says the pos­si­bil­ity of South African unions play­ing in for­eign com­pe­ti­tions in Europe and Asia in the com­ing year is very strong and that his team is gear­ing it­self for such a devel­op­ment.

“Gri­quas will never have enough money to com­pete in San­zaar [South Africa, New Zealand, Aus­tralia and Ar­gentina Rugby] Su­per Rugby,” he com­ments. “But that doesn’t mean we can’t com­pete in a first league in Europe.”

Louw says key to these de­vel­op­ments is the agree­ment on a com­mon cal­en­dar for world rugby at the In­ter­na­tional Rugby Board. This move, he main­tains, could pave the way for South African teams to com­pete in new in­ter­na­tional leagues.

The Chee­tahs’ Ver­ster ex­plains that while South African teams could com­pete in a few tour­na­ments over­seas, he has doubts about this kind of ap­proach: “I don’t think that is the fu­ture.”

Louw adds that with the rugby unions able to sell up to 74% of their com­mer­cial arms, it makes sense that they take their spon­sor­ship deals with in­ter­na­tional brands to the next level as eq­uity part­ners.

The Gri­quas’ re­cently an­nounced a spon­sor­ship deal with Namib­ian Brew­eries’ Tafel Lager, which was as much about the much-needed rev­enue, ex­plains Louw, as it was forg­ing a part­ner­ship with an in­ter­na­tional com­pany: “Their brand is a ve­hi­cle to ride on in­ter­na­tion­ally.”

THE PLAYER EX­O­DUS

Pu­mas CEO Pi­eter Burger says that all the roads in rugby have con­verged to this point. Provin­cial rugby unions fac­ing “big chal­lenges” and the in­creased com­mer­cial­i­sa­tion of rugby will mean dif­fer­ent things for dif­fer­ent provin­cial unions.

“Our big­gest as­sets are our play­ers, so re­ten­tion of your play­ers is key. But a lot of our unions can’t com­pete against for­eign clubs,” he com­ments. “We will never be able to com­pete.”

Ac­cord­ing to him, if a Su­per Rugby fran­chise were to pay a squad of 42 play­ers the kind of salaries they could earn over­seas, the bill would be over R250m.

“Is this sus­tain­able? I highly doubt it.” He adds that he doesn’t blame the play­ers as they have a short time in which to build their ca­reers and cap­i­talise as best they can. “It’s their busi­ness,” he says. “Their bod­ies are on the line.”

Speak­ing about po­ten­tial new eq­uity part­ners in the sport, Burger says that one po­ten­tial pit­fall for unions could be that com­pa­nies use this as an op­por­tu­nity to buy the play­ers that make up the team.

“Unions should be care­ful of sell­ing off their big­gest as­set,” he cau­tions.

An­other source with close ties to the busi­ness of rugby says that while there has been some talk of US in­ter­est in South African rugby, these deals may be set up to cre­ate a feeder sys­tem into US rugby. The rand-dol­lar ex­change rate may make the de­ci­sion more at­trac­tive to some US in­vestors, the source points out.

Most in­vestors do not see their in­vest­ment as a busi­ness trans­ac­tion: “It’s a feel-good thing in their lives – know­ing they are sup­port­ing rugby in the coun­try.”

BOARD­ROOM EGOS

The Chee­tahs’ Ver­ster says the team’s late 1990s eq­uity deal with Su­perS­port wasn’t as much about the cap­i­tal in­jec­tion as it was about tak­ing a fresh look at the busi­ness, through an in­vestor’s eyes.

He ex­plains that this was a “great ben­e­fit”, adding that the Free State union has a veto on rugby is­sues and Su­perS­port has a veto on fi­nan­cial is­sues. While the deal has been good for the Chee­tahs, he says the union has no plans to sell off any fur­ther stakes.

“Rugby be­longs to the peo­ple, to the sup­port­ers,” he states. “I would pre­fer that the largest stake of the Free State union re­mains in the hands of rugby peo­ple.”

Ver­ster ex­plains that there is not a lot of “fi­nan­cial gain” in rugby, in­sist­ing that of­ten in­vestors put their money into the sport for other rea­sons.

One provin­cial rugby union ad­min­is­tra­tor who agreed to speak on con­di­tion of anonymity main­tains that in­vest­ment in South African rugby unions has been very con­cen­trated un­til now.

Ac­cord­ing to him, most in­vestors do not see their in­vest­ment as a busi­ness trans­ac­tion: “It’s a feel-good thing in their lives – know­ing they are sup­port­ing rugby in the coun­try.”

An­other union of­fi­cial termed these in­vest­ments as “emo­tional old money” trans­ac­tions.

Burger says in­ter­na­tional ex­pe­ri­ence has shown what hap­pens when in­vestors with big pock­ets and huge egos de­cide to in­vest in a team. He de­scribes them as peo­ple who, when asked why they own a sports team, would re­spond: “Be­cause I can.”

He men­tions ex­am­ples in the Euro­pean rugby leagues where teams suf­fered slumps in form dur­ing pe­ri­ods where eq­uity in­vestors in­ter­fered in the run­ning of the team.

“You need to ask how a ma­jor­ity share­holder with no back­ground in rugby will be­have in the board­room,” says Burger. “Will they at­tempt to in­ter­fere in team se­lec­tions?” ed­i­to­rial@fin­week.co.za

Mark Alexan­der of SA Rugby presents the Spring­bok jer­sey to min­is­ter Thu­las Nx­esi dur­ing the Launch of Su­perS­port Rugby Chal­lenge at Bill Jar­dine Sta­dium in Jo­han­nes­burg on 10 April.

Pi­eter Burger CEO of the Pu­mas

Jurie Roux CEO of SA Rugby

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.