Australian Rugby and private equity

[Adam84]

A lot to be said about this issue, whilst I believe it’s critical to continue to exist in the next 2-5 years, I also think the long term ramifications are misunderstood or underestimated.

NZRU private equity deal with Silver Lake provides Silver Lake with a 12.5% slice of NZRU revenue in perpetuity. Note it’s revenue not profit. Essentially this means NZRU will face a 12.5% decline in revenue, but no reduction in operation costs.

Additionally the PE is also grants Silver Lake additional voting rights, from what I’ve heard they hold a boycott vote so any future commercial dealings made by NZRU need to be supported by Silver Lake. Think sponsorships, broadcast, test match locations etc.

If RA were to agree to such a deal, there’s a real risk that any private equity injection would be eroded by ongoing and increasing deficits. It’s not sustainable if RA can’t find a way to ensure the game at least goes close to breaking even.

 

[Wilson]

I'm not sure how I feel about private equity, but it's a huge step to take so I'm reassured to see how carefully they're moving here.

One of the options the NZRPA floated as an alternative to private equity was a community sale of 5% of the game to the New Zealand public. I really hope RA are exploring this fan ownership model as well, the fan base here may have been in decline but there's still a rusted on core of fans, and it's one with more capacity to spend then most fan bases.

 

[WorkingClassRugger]

A lot to be said about this issue, whilst I believe it’s critical to continue to exist in the next 2-5 years, I also think the long term ramifications are misunderstood or underestimated.

NZRU private equity deal with Silver Lake provides Silver Lake with a 12.5% slice of NZRU revenue in perpetuity. Note it’s revenue not profit. Essentially this means NZRU will face a 12.5% decline in revenue, but no reduction in operation costs.

Additionally the PE is also grants Silver Lake additional voting rights, from what I’ve heard they hold a boycott vote so any future commercial dealings made by NZRU need to be supported by Silver Lake. Think sponsorships, broadcast, test match locations etc.

If RA were to agree to such a deal, there’s a real risk that any private equity injection would be eroded by ongoing and increasing deficits. It’s not sustainable if RA can’t find a way to ensure the game at least goes close to breaking even.

I understand you position and concerns with regard to PE investment. The revenue share arrangement is somewhat daunting. But I look at it as the potential kick in the pants the administration of the game needs in both countries to stop falling back on the old and safe and push to actually grow the game and its commercial footprint in namely our market and others within our region and beyond.

Losing 12.5% of your revenue while maintaining expenses is an issue. But part of the deal is the establishment of a commercial wing of NZR designed to generate and growth revenue streams. Which I think will be key in terms of how these kinds of deals pan out. From my perspective, the first and arguably most lucrative form of revenue expansion for Silverlake would be growing the TT competition into Australia. Which is something I think SANZAAR either never understood or intentionally neglected.

I think for it to work. It needs to be carefully structured so that the revenue streams are grown so that they don't just cover the overall lose but build to the point where the 12.5% is largely unfelt. And that it ensures that the grassroots and community game see's the maximal benefit from any deal.

 

[WorkingClassRugger]

I'm not sure how I feel about private equity, but it's a huge step to take so I'm reassured to see how carefully they're moving here.

One of the options the NZRPA floated as an alternative to private equity was a community sale of 5% of the game to the New Zealand public. I really hope RA are exploring this fan ownership model as well, the fan base here may have been in decline but there's still a rusted on core of fans, and it's one with more capacity to spend then most fan bases.

I'd be up for a community buy in model. If that ensured things like voting rights etc. But it would have to be substantial and sustainable. Structured in a way that ensures the most benefit to the community game and not just filling the pocket of players etc.

 

[dru]

I'd be up for a community buy in model. If that ensured things like voting rights etc. But it would have to be substantial and sustainable. Structured in a way that ensures the most benefit to the community game and not just filling the pocket of players etc.

I'm uncomfortable with RA taking an equity party on the basis put forward (guaranteed income). And actually I don't think it is necessarily the right approach.

Previously NSWRU arranged a licence for pro rugby in NSW with Waratahs Limited. Waratahs Ltd is where I see the opportunity for PE. Same at every franchise. I'd rather that the licence was purchased (original Waratah Ltd license was priced at $1M from recollection) and those funds then ploughed back into the grass roots.

Do the same in each state. If the Licensee fails, then license withdrawn and put back out to market.

I'm not convinced that RA and the State Unions should be taking the risk.

 

[Adam84]

The other thing to consider from a business sense, is there’s no point raising capital if you don’t have plan on how to invest that.

The value of the capital raising should be defined by the cost of how it’s intended to be invested, at the moment I fee as though many of these unions have it the other way around.

 

[mst]

I'm not sure how I feel about private equity, but it's a huge step to take so I'm reassured to see how carefully they're moving here.

One of the options the NZRPA floated as an alternative to private equity was a community sale of 5% of the game to the New Zealand public. I really hope RA are exploring this fan ownership model as well, the fan base here may have been in decline but there's still a rusted on core of fans, and it's one with more capacity to spend then most fan bases.

IMHO on of the distinct difference and the key issue for PE in Australian rugby is the monumental shift in implementing an business practise that will be new to anything RA related: Accountability.

Oh the horror. Boards being held to account by PE's.

If you interested in a motivated supporters PE group here is a good example: https://www.imust.org.uk/

 

[Adam84]

IMHO on of the distinct difference and the key issue for PE in Australian rugby is the monumental shift in implementing an business practise that will be new to anything RA related: Accountability.

Oh the horror. Boards being held to account by PE's.

If you interested in a motivated supporters PE group here is a good example: https://www.imust.org.uk/

What i will say, is the metric to measure success for your rugby supporter, may not be the same metric to measure success by a firm like Silver Lakes.

Your example of IMUST is an interesting one, because IMUST represent the supporters who opposed the Super League concept, yet the PE of Manchester United actually supported the concept because of the increased revenue.

 

[Adam84]

I understand you position and concerns with regard to PE investment. The revenue share arrangement is somewhat daunting. But I look at it as the potential kick in the pants the administration of the game needs in both countries to stop falling back on the old and safe and push to actually grow the game and its commercial footprint in namely our market and others within our region and beyond.

Losing 12.5% of your revenue while maintaining expenses is an issue. But part of the deal is the establishment of a commercial wing of NZR designed to generate and growth revenue streams. Which I think will be key in terms of how these kinds of deals pan out. From my perspective, the first and arguably most lucrative form of revenue expansion for Silverlake would be growing the TT competition into Australia. Which is something I think SANZAAR either never understood or intentionally neglected.

I think for it to work. It needs to be carefully structured so that the revenue streams are grown so that they don't just cover the overall lose but build to the point where the 12.5% is largely unfelt. And that it ensures that the grassroots and community game see's the maximal benefit from any deal.

My maths may not be accurate, however pre-covid NZRU was approximately $190million pa a 12.5% means Silver Lake receives $23.7million per annum. Based on their $375million outlay, this is an annual return of 6.3% without factoring in any future revenue growth.

6% is a bloody good rate of return for these large PE firms, are NZRU selling themselves short?

 

[I like to watch]

One thing you know about PE investing, is that funding grassroots is a looong way down their list of priorities

 

[Dan54]

One thing you know about PE investing, is that funding grassroots is a looong way down their list of priorities

Yes, but that's what RA (or NZR) would do with money that they inject into game.

 

[Rugbynutter39]

One thing you know about PE investing, is that funding grassroots is a looong way down their list of priorities

Hmm pondering the weekend Australian article about RA and twiggy, silver lake in PE discussions thinking who would be best for PE... your comment probably answered it. Twiggy it is then.

 

[I like to watch]

Yes, but that's what RA (or NZR) would do with money that they inject into game.

No.
they won’t be putting the PE $ into a capital account preserved for grass roots.

But instead of dedicating 12 or 15% of the bottom line for grass roots in future years, it will be going to the guys in suits.

 

[Derpus]

One thing you know about PE investing, is that funding grassroots is a looong way down their list of priorities

McLellan all but said he would prioritize building the grassroots above all else, specifically stating no big money contracts would be handed out.

No.
they won’t be putting the PE $ into a capital account preserved for grass roots.

But instead of dedicating 12 or 15% of the bottom line for grass roots in future years, it will be going to the guys in suits.

Correct. But as McLellan has said, this is far from an ideal situation and we likely need to do it just to keep the lights on.

 

[half]

The suggested form of PE is IMO the worst possible outcome...

PE is needed but first the model needs to be considered and then taken to the market.

RA should always have full control in the structure and future direction.

Most would be aware, I am a long time poster advancing PE, but based on the USA sports franchise models.

These models work by the governing body establishing a competition. Then inviting people and existing Stakeholders to enter the competition.

The clubs would operate the competition within the structure established by RA. The clubs would fund the competition and be responsible TV deals etc.

In Germany, all clubs in the various Football divisions, pay a percentage of their revenue to the governing body for the governing body to develop national training programs and fund the governing body. This could also be done to help ensure RA has adequate funding for the games development.

But to sell part of the game itself and part of the control especially when these groups will always have the money when things get tight is madness on a scale that makes previous administrations look smart.

 

[Set piece magic]

I don't think its madness because they're only selling 15%, the PE suits only get 15 % of the votes and if they try to do anything stupid won't come close to getting it up at a board room level. It's not some fire sale where they come in with a supermajority of the votes and move to shut down half the clubs nationwide, it's a capital raise

 

[Adam84]

PE value of the Super Rugby clubs would be peanuts right now, if anything you would be giving them away for free or paying someone to take them, with the value to the unions and RA been be the transfer of risk off their books.

But you only need to look at the Rebels to see that the risk can always be shifted back onto the governing body of the PE owner racks up too much debt.

Until a long term solution to super rugby is sorted, which it isn’t, it would be fools gold to try and sell the Super Rugby clubs. The true value of Super Rugby clubs may be realised in 5-10 years if a stable domestic/TT competition of value is able to be realised.

 

[I like to watch]

I don't think its madness because they're only selling 15%, the PE suits only get 15 % of the votes and if they try to do anything stupid won't come close to getting it up at a board room level. It's not some fire sale where they come in with a supermajority of the votes and move to shut down half the clubs nationwide, it's a capital raise

That’s how it always starts.
but the PE tail always wags the dog.

edit: I actually don’t have a position, on whether it should go ahead, or not.
im merely commenting that a PE with resources 100fold that of RA, have a shed load more influence than the 15% they have paid for

 

[liquor box]

I think PE is going to happen, what annoys me is why fans cannot buy into RA and get shares, maybe PE buys 11.5% and fans can buy 1%?

Why are fans less important than investing companies?

 

[liquor box]

https://www.brisbanetimes.com.au/sp...a-s-private-equity-pitch-20210502-p57o7f.html
‘This could be the best investment of all time’: RA’s private equity pitch

McLennan has admitted that in an ideal world, RA would not have to contemplate a private equity deal. But after recording a $27 million loss in the last financial year, the game has little choice.

However, that didn’t stop McLennan declaring the investment as having the potential to be “the best of all time”.
“We will debate the pros and cons of the private equity process and have a high-level discussion around percentages and potential returns and get their much valued input on what is right for the game,” McLennan said.
“Most in the know understand that we need external investment. It’s important to note that the decks are pretty well cleared - notwithstanding another COVID shock. We think it’s all upside from here. This could be the best investment of all time, as the game rocks on.”

It would be interesting to see what returns they are looking at. Best investment of all time is an interesting idea.