The Business of Sport: Investors join rugby's ruck and maul

In the third instalment of this monthly series, The Straits Times examines how the coronavirus pandemic has reshaped the sports industry and its future.

Investing in rugby assets is a tantalising option as teams appear attractively priced compared to those in other sports.
Investing in rugby assets is a tantalising option as teams appear attractively priced compared to those in other sports.PHOTO: AFP

LONDON - Rugby's crown jewels are proving to be attractive to investors seeking to exploit the untapped potential of the market as struggling governing bodies try to replenish their coffers.

United States private equity firm Silver Lake is reported to be offering around US$340 million (S$457.5 million) for a 15 per cent stake of New Zealand Rugby's (NZR) commercial rights and negotiating merchandise and broadcast deals worldwide.

The focus of the deal is the All Blacks - the ultimate brand in the sport. The three-time world champions are globally recognised for their style of play and famed haka pre-match challenge.

In the northern hemisphere, CVC Capital Partners - which formerly owned a controlling stake in Formula One - last month acquired 14.5 per cent of the commercial rights for the Six Nations for £365 million (S$679.2 million).

The expectation is that CVC will grow their investment through improved broadcasting deals. In the United Kingdom, the Six Nations is still shown on free-to-air television rather than on a paid-for service.

Sea change seen

Phelan Hill, a senior consultant at Nielsen Sports, said the corporate battle for premium rugby rights was "alive" and that an All Blacks deal could change the dynamics of southern hemisphere rugby.

Silver Lake already has a 10 per cent stake in the City Football Group, owners of Premier League giants Manchester City.

"What will be most interesting is how Silver Lake's investment in NZ Rugby aligns with Sanzaar, the governing body of southern hemisphere rugby," Hill said.

"Super Rugby's financial model is under huge pressure - both the competition and its individual teams - due to Covid-19 and they need to plug the revenue gap."

He also believes rugby could be a tantalising option for US investors. He said English Premiership clubs could be an attractive low-cost choice compared with US sports outfits, which are "reaching a tipping point in terms of price, with the average franchise value in the NFL (National Football League) exceeding US$3 billion".

US investors have already piled into English football with high-profile investments in Premier League clubs Liverpool, Manchester United, Leeds and Fulham.

James Paul, portfolio manager at Blackstar Capital, said if investors switched their attention to rugby, the nature of the involvement would be different from football as the sport is a lot less mature as a brand.

While an investor acquiring a Premier League club would be thinking about merchandising and revenue streams on a more micro level, he believes rugby's aim is to gain a greater reach locally and globally.

This room to grow makes rugby an attractive proposition. For cash-strapped NZR, a deal would be "transformative", its chief executive Mark Robinson has said.

But senior All Blacks have raised concerns about the proposal's potential impact on rugby in the country and threatened to block "the largest transaction of this nature in New Zealand sports history", the New Zealand Herald reported.

Provincial rugby unions are due to vote on the deal at NZR's board meeting this month.

The New York Times' global sports reporter Tariq Panja told the SportsPro Podcast that governing bodies and sports properties can expect some pushback over investment deals, particularly from fans, who see these organisations as social enterprises rather than commercial properties that should be sold to the highest bidder.

Still, the interest in private equity is "unparalleled", he said.

Some models not viable

Rugby aside, private equity companies are monitoring rights for Italian and German football too.

Luca Ferrari, head of law firm Withers' sports practice worldwide, told The Straits Times that many sports are "at a turning point".

The traditional ownership model, he added, can sometimes lead to "chronic loss-making" due to sentimental, public relations-driven or political reasons.

"A new breed of investors and club owners are taking the game to the next level, where planning, efficiency and sustainability are key drivers of a business strategy," he said.

"Once a significant number of properties are seized by this type of new investors, often becoming part of the owners' sports-media-entertainment group, it becomes evident that established but under-performing clubs represent good investment opportunities."