SA rugby’s equity investors demand a say
Private investment has buoyed the South African Rugby Union, but at a price. The new power brokers want a shake-up in how the money flows. By
The old saying goes, “be careful what you wish for”, and that is proving to be true in the South African rugby ecosystem with an increasingly tense relationship between the major players.
And it’s in large part down to the introduction of new, powerful voices in the game in the form of the private equity investors at the Bulls, Lions, Sharks and Stormers.
Additional sources of money were desperately needed to alleviate the financial burden on the South African Rugby Union (Saru), especially in the wake of the pandemic. Private equity partners were, and are, the logical way to go.
The major teams now all have private backers who have injected much-needed cash reserves and business plans.
But the trade-off, at least from a Saru perspective, is that these new power brokers come with strong voices and demands. They no longer simply accept the status quo of the business model by which most of the finances in the game pass down to the unions at Saru’s discretion.
They want more money, more say, more transparency and a stronger voice in how Saru’s business deals are managed.
It has led to an understandable bumping of heads because Saru does not only represent the needs of four unions, but of 15.
New model
Regardless, the big four are flexing their muscles. This is not a battle over Test match fees, but about the entire model of how funding works in Saru.
The Sharks union, through its American-based MVM Holdings headed by New York-based, South African-born Marco Masotti, has been particularly strident.
Its leadership and willingness to question Saru on several issues has emboldened others. Lions backer Altmann Allers and the Bulls’ Patrice Motsepe and Johann Rupert, through their board chairperson Johan van Zyl, signed a letter in February for an urgent meeting and a long list of detailed demands.
And the Stormers union, which recently concluded an equity sale to Red Disa Investments, a consortium headed up by financial services magnate Johan le Roux, has now also joined the “uprising”.
There is now a unified approach from the major unions in their dealings with Saru.
An insider at one of the unions told Daily Maverick: “We need a proforma income statement where we can say to Saru, please tell us how much we should be spending on players, how much we should be getting from sponsors and tickets sales, etc, then determine the broadcast revenue distribution according to the proforma model.
“The business model, at the current level of broadcast income, simply does not make enough money.”
This attitude has led to some anger at Saru, which as an organisation is not run for its own profit, but to facilitate the running of professional rugby in the country.
Almost all of its roughly R1.2-billion annual income is spent on funding national teams, competitions such as the Currie Cup, the United Rugby Championship (URC) and European Professional Club Rugby (EPCR) tournaments, insurance, image right fees and disbursements to the 15 unions that make up rugby’s ecosystem.
Antiquated structure
In another anachronism from the amateur era, Saru’s hierarchy is constitutionally only required to deal with the unions, such as the Bulls Rugby Union, and not the professional companies that fund them.
That means there is a layer of amateur officials between Saru’s top table and the equity
partners at those four unions. It’s hardly an ideal structure in a modern world. It’s also a source of irritation for the money people at the unions, because they don’t have direct access to Saru president Mark Alexander and chief executive Rian Oberholzer.
“There are ongoing conversations with Saru. The big unions are on the same page, and we’ll continue to engage them,” said Le Roux, the Stormers’ newly appointed CEO.
“We operate in an environment where a large part of our revenue, specifically through the URC and EPCR, flows back to SA Rugby (Saru) rather than to us.
“This creates financial uncertainty when we’re looking for stability. I look forward to continued engagement with SA Rugby ... to debate a financial model that allows us to field competitive sides in Europe without the onus of having to fund continued losses.
“What we don’t like is the uncertainty. A very big part of the broadcast revenue flows via Saru in different forms. It’s not contractual and it can change. It’s very difficult to invest in a business and keep funding losses if you’re not sure about almost half of your revenue – including the Test match, the players of national interest payments, insurance and distribution,” Le Roux said.
Saddle up
In their letter to Saru, the unions raised several issues. Although fees for hosting Test matches have been in the spotlight, the dissatisfaction runs deeper.
Despite being asked a collective fee of R85-million to host the Springboks’ six home Tests in 2024, the unions will all make substantial income from those Tests.
That has been a good headline, but the real battle is about fundamental issues.
The payment of players of national interest is a real source of unhappiness. The idea is that a union contracts a player who is on the Springbok radar and, depending on how valuable he is viewed to be, Saru pays a contribution to his salary.
The gripe is that Saru is providing these deals without proper contracts in place. In their letter sent to Saru in February, the unions claimed these agreements are “ambiguous” and “poorly drafted”.
For instance, Daily Maverick knows of several players of national interest who were signed on three-year deals on the basis that their club salaries would be topped up by Saru. But after a year their deals fell away, or were significantly reduced, after it was communicated by a sudden email from Saru that circumstances had changed. That leaves the union having to cover the shortfall.
The unions claim there is no binding contract in place between Saru and themselves about its contribution to and the length of these players’ funding, and they want to change that.
Saru has dismissed concerns that its approach to contracting these players is done on a whim, so for the moment it’s a he said, she said scenario in the public domain.
Equity and competition money
Saru itself is in the final stages of concluding an equity sale to Ackerley Sports Group, an American consortium. This is no lightweight operation, as it is also a shareholder in the San Francisco 49ers, one of the most successful American Football teams.
But the clubs are also demanding more information on that deal, especially how it relates to how they can plan for the future.
And they want clarity on when Saru will start earning revenue from the URC and EPCR competitions. Saru pays R300million annually so that the four clubs, as well as the Cheetahs, can play in Europe.
Saru has provided these details to its general council and doesn’t have to engage with the equity parties at the four big unions. But it might be time for it to change its approach in the best interests of South Africa rugby.