When the All Blacks next take to the rugby field to perform the prematch haka, a ceremonial dance invoking New Zealand’s ancient Maori culture, they will do so in a battle for sporting glory — while also, perhaps, pursuing profits for one of the world’s most powerful private equity groups.

New Zealand Rugby, the governing body which runs its successful men’s rugby union team and manages competitions, is holding investment talks with Silver Lake, a $75bn Californian buyout firm better known for its bets on technology groups from Dell to Airbnb.

The proposed deal is the latest sign of how rugby is following the trajectory of other sports, such as football, baseball, motor racing and basketball. A decades-long process, with teams once forged as local institutions morphing into major global businesses, is entering a new phase: the entrance of private equity firms seeking financial returns from the emotional highs sport can provide.

While the business of buying sports clubs is long-established, with super-rich individuals snapping up teams as trophy assets, the difference now is institutional investors not just acquiring individual teams, but stakes in the governing bodies that run the competitions. In the process, they are taking on the risk of a political and popular backlash in the countries where the tournaments are held.

Dan Carter, right, star of the victorious All Blacks side, lifts the Rugby World Cup in 2015. Silver Lake is seeking a 15% stake in the team as well as the sport’s governing body in New Zealand © Glyn Kirk/AFP via Getty Images

“There is increasing interest for many different private equity firms . . . and that interest is falling on receptive ears in the world of sport and rugby as well,” says Brett Gosper, the outgoing chief executive of World Rugby, the sport’s global governing body. “There will be more conversations and more deals that are done.”

Silver Lake, which is seeking a 15 per cent stake in a new entity that would hold NZ Rugby’s $2bn broadcasting, sponsorship and ticketing rights, has been among the quickest to pounce. It acquired a $500m stake in the parent company of English Premier League football club Manchester City in 2019 and is an investor in Ultimate Fighting Championship, the mixed martial arts competition.

But the pioneer in private equity investing in sporting tournaments has been CVC Capital Partners, a Luxembourg-based buyout group that previously owned Formula One and MotoGP and is in talks alongside fellow buyout group Advent International over a €1.6bn investment in Serie A, Italy’s top football league.

CVC has triggered the recent scrum for rugby deals. It has spent the past two years hoovering up stakes in club contests such as the English Premiership and Pro14, and is in the final stages of acquiring a £300m share in the Six Nations, Europe’s leading national team tournament.

Hamish McLennan, Rugby Australia’s chairman, says he has held exploratory investment talks with CVC and Silver Lake, as well as rival firms Providence of the US and Tattarang, the vehicle of Australian billionaire Andrew Forrest. The body behind world champions South Africa has also held talks with CVC.

Manchester City’s John Stones. Silver Lake acquired a $500m stake in the parent company of the English Premier League club in 2019 © Dave Thompson/Pool/AFP via Getty Images
Silver Lake is also is an investor in the mixed martial arts league Ultimate Fighting Championship © John Raoux/AP

Many of these discussions began even before coronavirus wreaked havoc on the finances of rugby’s authorities. They have looked enviously at the growth of other sports, such as football and basketball, and sought external funding to emulate their success at selling TV and sponsorship deals globally. Rival private equity groups, even those with little previous experience in sport, are now seeking to muscle in on the action.

Yet, if sports bodies end up being overtaken by commercial concerns, they could lose touch with the interests of fans, the audience that attracted financiers in the first place. There is form in this regard. While CVC made a healthy profit by selling Formula One in 2016 for $8bn, followers and industry executives complained the buyout firm’s 10-year tenure in charge of the motorsport led to its domination by rich teams, predictable racing results and a poorer sporting spectacle. Bernie Ecclestone, the former F1 boss who ran the sport for CVC, said in 2017 that he was “embarrassed” at “selling this shitty product”.

Mr Gosper argues that rugby union’s new owners must be asset builders, not asset strippers. If private equity’s goal is to “simply come in and milk what’s there over a period, and not contribute to the growth of the sport overall, that would be problematic,” he adds.

CVC Capital Partners sold Formula One for $8bn in 2016. Fans and former industry executives complained that its 10-year tenure in charge led to predictable racing © Ozan Kose/Pool/AFP via Getty Images
AC Milan vs Juventus in Serie A: CVC is in talks alongside fellow buyout group Advent International over a €1.6bn investment in Italy’s top football league © AFP via Getty Images

Real-time proposition

Private equity’s opening into sport has widened due to the drastic revenue crunch during the pandemic. Football leagues such as Italy’s Serie A, Germany’s Bundesliga and Spain’s La Liga have proposed creating vehicles that own their commercial rights, which can then be marketed to buyout groups as an investable proposition.

Sports investing “used to be quite a niche area” but more private equity firms are “looking at it now saying, maybe we can do that”, says William Jackson, chief executive of Bridgepoint and president of Dorna, the company that runs the MotoGP motorcycling championship.

Nikos Stathopoulos, a partner at BC Partners, adds that as traditional bank financing is hard to come by “private equity is now becoming the funder of choice” for sports bodies. For buyout groups “the focus here is around content . . . it’s unique and you need to have it real time, and that is what makes it valuable.”

Many buyout groups are also under pressure to get money out of the door. Years of low interest rates have led investors from sovereign wealth groups to rich families and pensions to allocate ever larger sums to their funds. The outbreak of the pandemic last year caused some to put the brakes on dealmaking in other sectors. “These guys can afford to be still for a year, but no longer,” says a banker advising the industry. This year, “they’re forced to put money to work”.

At the heart of such deals is often a power struggle. Buyout groups, whose traditional model relies on taking majority stakes in companies, can be reluctant to invest if they expect to have little say in the governance of leagues.

That forces sports’ governing bodies to confront a difficult question: how much control they are willing to relinquish in exchange for cash. Executives at two of the more than 20 private equity groups that initially considered investing in Germany’s Bundesliga say they have since been put off because they believe they would have little influence over the league itself.

Still, the chance to buy stakes in Covid-hit leagues has proven attractive because demand to watch games is “recession-proven”, says a senior dealmaker at a large private equity firm: “Previously, these assets were not available; [governing bodies] were self-sufficient and had no interest in our professional advice. Now, they’re still not interested in our advice, but they need the cash.”

Wasps and Exeter Chiefs play in the English Premiership. There is a belief that Rugby Union is undervalued by broadcasters
Former England player Steve Thompson, centre, and seven other former players last month began legal proceedings against governing bodies over claims that years of collisions and concussions had left them with brain damage © Malcolm Couzens/Getty Images

Winning brand

In October 2015, Dan Carter lifted the Rugby World Cup at London’s Twickenham stadium. Following a man-of-the-match performance in the final against Australia, the All Blacks fly-half led New Zealand to a then record third victory in the sport’s biggest tournament.

Such domination is nothing new. Since the All Blacks played their first Test match in 1905, they have a win rate of 77 per cent, among the highest in global sport and a source of deep pride in the island nation of just 5m inhabitants.

The Silver Lake deal appears to have generated little public opposition, with politicians such as prime minister Jacinda Ardern appearing silent on the move to cash in on one of the country’s cultural assets, although former All Blacks coach Laurie Mains said “the New Zealand rugby brand is sacrosanct” and should remain under the full control of the country’s rugby association.

“Just as the game itself has changed, so it is inevitable that the funding of the game will change also,” says Justin Murray, chairman of Murray & Co, an investment bank in New Zealand. “This is natural progression, not a sellout.”

What’s unusual about the Silver Lake deal though is that it will not just buy a stake in the All Blacks, one of the game’s participants, but also in NZ Rugby, one of its rulemakers.

The governing body runs the All Blacks team but also manages the sport across New Zealand and is a key shareholder in Sanzaar, a partnership that manages Super Rugby, a competition between many of the best clubs in the southern hemisphere, and the Rugby Championship, a national contest between New Zealand, South Africa, Australia and Argentina.

The scrum for rugby deals

15%

Size of stake Silver Lake is seeking in a new entity that would hold NZ Rugby’s $2bn broadcasting, sponsorship and ticketing rights

77%

The All Blacks’ win rate since they played their first Test match in 1905. The national team is a key cultural asset for New Zealand

£145m

Estimated value of annual media rugby union contracts in England. The figure is less than those for cricket and F1 in the country despite comparable fanbases

NZ Rugby is in deep financial trouble. It made a quarter of its 180 staff redundant in June, when it forecast a NZ$120m ($86m) slump in revenues caused by the pandemic, which shut down fixtures for months. Mark Robinson, NZ Rugby chief executive, said in November that “we know we’re in a fight for the survival of the game” and has forecast losses in 2020 would balloon to NZ$40m-45m.

Its financial challenges predate coronavirus, though. The organisation has notched up three successive years of losses and only reliably turns a profit in the years it hosts a Rugby World Cup or a British and Irish Lions Tour.

Similar issues have been seen across rugby ever since it turned professional in the 1990s. Many national “unions” are reliant on money gained from the quadrennial World Cup. Lossmaking clubs often need wealthy benefactors to stay afloat. Costs, such as player salaries, tend to outweigh income.

Despite these problems, rugby union’s authorities have found willing investors because of the newfound appetite for sports deals, as well as seeing growth potential in its affluent fan base in a handful of big markets such as the UK, France and Australia.

There have also been farsighted efforts to raise interest elsewhere, such as holding the 2019 Rugby World Cup in Japan, and successfully lobbying to enter the Olympic Games in an attempt to increase participation in the US, China and beyond.

People familiar with CVC’s thinking said its executives want to bundle together its rugby holdings, selling the commercial rights to broadcasters and sponsors collectively, or even launching an online streaming service that can screen matches from multiple different competitions.

The belief is the sport is undervalued by broadcasters in particular. In rugby union’s largest market in England, the total value of annual media contracts, including for club and national team games, is estimated at £145m according to Nielsen Sports, a market research group. This compares with the £180m a year earned by Formula One or the £220m earned by English cricket, despite rugby commanding “similar or higher interest levels” to those sports.

Private equity groups could be entering at the top of the market. Enders Analysis, the media research group, has warned that the pandemic-induced losses have led broadcasters to scale back spending on sports rights — particularly outside the most valuable leagues that command the biggest audiences, such as the US National Football League and English Premier League.

Meanwhile, Silver Lake’s proposed investment will need the All Blacks to retain their allure. However, many of the side’s recent greats, such as Dan Carter, have retired from international rugby. The team lost in the semi-finals of the 2019 World Cup and slipped to third in the global rankings behind South Africa and England. It could be investing in a side in decline.

“This is only a little blip,” says Alan Whetton, a World Cup winning flanker who played 65 games for New Zealand. “The All Blacks are the best known brand in world rugby and we are a bit of a factory here. We have talent. Let’s just wait for the next World Cup. Hopefully we can do it then and then people will be saying the buggers are back.”

With football facing a revenue crunch, Germany’s Bundesliga has proposed creating its own commercial rights, which can be marketed to buyout groups © Martin Meissner via Reuters
Barcelona defender Jordi Alba. Spain’s La Liga is also looking to make more money out of its commercial rights © Jose Breton/AP

Ask the audience

Rugby, then, will offer a case study on how sports groups are run once private equity groups have disrupted the sector. With its stakes in the English Premiership and Pro 14, CVC envisages using its investments to help create “Club World Cup”, a money-spinning tournament involving the best sides on the planet.

There are discussions over expanding the number of teams in the English Premiership, while also eliminating relegation from the division to ensure consistent revenues for top teams. Rugby executives say other big ideas are being floated, such as merging competitions to create a “British and Irish League” or South Africa abandoning the Rugby Championship to join the Six Nations.

Such grand plans jar with the debate over player welfare and an already stuffed global calendar. Last month, former England hooker Steve Thompson, alongside seven former rugby players, began legal proceedings against governing bodies over claims years of collisions and concussions had left them with permanent brain damage.

While taking large cheques today, sports groups also face losing control over their destinies. Private equity groups, which typically seek returns for their investors within five to 10 years, are likely to sell their holdings — meaning the likes of NZ Rugby and the All Blacks cannot be sure who will be their commercial partners in future.

Sports deals will force private equity to reckon with passionate forces not present in many of the leveraged buyouts that they are more used to: this time, the product is rooted in a sense of identity, community and shared histories.

“If you forget the importance of the quality of the sport, your investment won’t be worth much,” says Bridgepoint’s Mr Jackson. “Investors may have the share certificates, but nobody feels ownership of a club like a fan.”

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