CVC’s influence may not be in the best interests of clubs
TWICKENHAM is the jewel in English rugby’s crown, and there are grave concerns that the mismanagement of the RFU’s finances is putting the future of the stadium at risk. The risk in question is that all, or part, of the stadium’s assets – which are valued at c. £270 million – could be acquired by a private equity company like CVC, leaving the RFU’s control of its main source of revenue either redundant or severely compromised.
This scenario is given increased weight by our front page news exclusive today that the RFU is forecasting a loss of more than £40m next season, on top of the likely £10m deficit this season.
Those figures can be massaged and finessed by chief executive Bill Sweeney, but it will not fill the hole, and the danger for the RFU is clear and present because the banks with which it has loan arrangements will not miss the warning signs.
The bottom line is that the RFU’s failing finances could prompt banks to call in the debt if the net worth covenant between them and English rugby’s governing body looks as if it will be broken. The covenant states that the RFU’s net worth must not drop below £160 million. If it does, the banks will call in the debt, and this will force the RFU to sell assets to repay it.
The most worrying outcome is that Sweeney and the inept RFU board, which governs RFU financial policy, will then go cap-in-hand to private equity giant CVC for the bailout money by using Twickenham as collateral.
The obvious question with Twickenham is whether CVC’s best interests are those of the RFU, and more specifically its 1,400 member clubs. They would have to vote on any changes to their ownership of the ground – and the thunder of a deafening ‘no’ can be heard already.
This projection is based on precedent because CVC has acquired a significant stake already in northern hemisphere rugby. It has a 14.3 per cent annual share of the Six Nations commercial revenue due to the RFU, as well as a 27 per cent holding in Premiership Rugby, and a 28 per cent holding in PRO14/URC Rugby.
The downside is that after pocketing the buy-out cash all of these organisations have started to feel the financial squeeze from the deals they have struck with CVC.
The financial clout of CVC is huge, with over £115 billion of assets under management, and there are clear signs that after Covid stalled the company’s initial strategy, it remains determined to make a healthy return from its investment – which a buy-out of Twickenham would guarantee.
CVC has invested £685m so far, but there are indications that it is prepared to speculate further in order to harvest a bigger profit margin from rugby union. Although CVC has refrained from making any detailed public statements about its rugby union strategy, there is little doubt that it has become a key influencer where Sweeney, the RFU Board, and other key administrators in the Six Nations, Premiership, and URC are concerned.
There have been murmurings in the months since Wasps and Worcester went into insolvency that CVC has commissioned a feasibility study to look at the total valuation of all Premiership clubs, with a view to a total, or partial, buyout.
Given a Premiership debt mountain which is still around £370m, and the current lamentable state of the finances of most clubs, CVC will be motivated by the concept of being able to acquire clubs by settling their debts, but paying very little over and above that.
The Premiership’s problems are tailor-made for a private equity company which has built its success by buying low and selling high.
The list of woes includes the owners of London Irish and Newcastle stating publicly before Christmas that they would sell their clubs for £1. This was followed in February when Premiership champions Leicester called on shareholders/ supporters for an emergency injection of £13m to avoid going into administration. On top of that, the billionaire owner of Bristol Bears, Steve Lansdown, stated last month that he was prepared to sell the club – which has debts of £50m – if he can get the “right deal” with investors.
The idea of CVC buying out the Premiership and packaging it as a rugby union version of a ring-fenced NFL-style franchise league, from which it could leverage much higher broadcast and sponsorship revenue, is a clear option.
CVC and its partner companies are in familiar territory because they are heavily invested in the NFL’s growth strategy, including its ‘Game Pass’ streaming service.
It is a track record with which past and present RFU and Premiership administrators are very familiar. In 2018, the former RFU chief executive, Ian Ritchie, who was allowed to jump ship to become Premiership chairman, brokered the selling of the 27 per cent holding to CVC.
A few months later Mark McCafferty, the Premiership’s chief executive for 14 years, joined CVC as a consultant, and he remains in that role.
It is also a matter of record that the incumbent RFU chief executive, Sweeney, is a big fan of US franchise sports, in particular NFL and College American football. This might explain why the Premiership, despite Sweeney’s protests that he is a supporter of promotion-relegation, already resembles a ring-fenced franchise, with promotion for those outside the cartel extinguished on his watch.
At the same time Sweeney has presided over RFU funding to the Championship being cut to the bone, and finance to the community club game being slashed to an all-time low of 27 per cent – down from 50 per cent in 2010 – while 11 Premiership clubs are awarded over 70 per cent.
Sweeney is now involved in negotiating a new league/funding structure as part of a combined RFU/ Premiership/Championship panel. However, it has emerged during the increasingly heated negotiations that a sports marketing agency involved in the process is part of the CVC group.
The RFU and the Premiership have become increasingly dependent on CVC’s investment in rugby union, largely because of their own financial mismanagement.
The issue that is now most pressing for the RFU’s member clubs and their Council representatives, is this: How objective are the senior administrators in the RFU, and the Premiership, at distinguishing between the best interests of their employers from those of CVC – including protecting key assets like Twickenham?
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