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?
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.
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.
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.”
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?” firstname.lastname@example.org
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