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The Wrap: Private equity can fix rugby, but only if rugby gets it right

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Expert
21st June, 2020
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It is a popularly held view that rugby sold its soul in 1995, and in the process, leached the spirit and essence from the game.

For the hundreds of players, coaches and administrators who have made a living from rugby, while still enjoying the fellowship and physical challenge that rugby offers, that’s not necessarily an agreed proposition.

What is not in question however is that the unregulated way in which money embedded itself into rugby, and the commercial imbalances that arose have led to outcomes detrimental to the sport – challenges for rugby that today appear almost insurmountable.

In its insatiable thirst for more grease to keep the professional wheels rolling, rugby has recently embraced private equity investment as its salvation. Or, depending on where one sits, its damnation.

In 2018 CVC Capital Partners paid £225 million (A$406 million) for a 27 per cent stake in the English Premiership, followed earlier this year by £120 million (A$217 million) for a 28 per cent stake in the Pro 14. It is believed that pre-COVID-19, talks were well advanced for CVC to acquire 14 per cent of the Six Nations for an estimated £300 million (A$542 million).

In 2019, World Rugby put in place a deal with Swiss company Infront worth a whopping £6 billion (A$10.8 billion) to bankroll a global nations championship.

The deal ultimately foundered for two reasons – the home unions wanting to keep their powder dry with respect to the CVC/Six Nations deal, and nations like Italy and Scotland running scared at the possibility of future relegation from the championship’s top division.

Finn Russell

(Photo by Stu Forster/Getty Images)

With the fiscally challenged NZ Rugby and Rugby Australia open to discussion with any potential cashed-up investment partner, it is evident that private equity is set to become a permanent fixture in rugby’s future in both hemispheres.

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In the process, mistakes of the past risk being repeated, and the real opportunity for private equity to transform the game are being missed.

Let me explain.

COVID-19 initially presented as a nail in the coffin for those rugby clubs and administrations already in a parlous position. Certainly, for Rugby Australia, the timing was appalling, the pandemic scuttling a new broadcast rights deal, and laying waste to the final year of its existing one.

More optimistically, COVID-19 was also seen as an opportunity to forge something new and great out of crisis. From Global Rapid Rugby to Super Rugby, from the Pro 14 to the home unions reliant on a November payday from visiting southern hemisphere Test sides, from the Top 14 to the English Premiership, the financial damage is deep and wide and – rare in the professional age – applied evenly across the board.

In that context, an international professional rugby forum aimed at aligning global rugby seasons, breaking up last week with nothing more than a commitment from World Rugby to make a definitive statement about the 2020 season on June 30, is said to represent a missed opportunity.

It is, but the real wonder is why anybody expected any different. As well intentioned as the forum might have been, participants weren’t even attempting to solve the right problem.

Tevita Kuridrani fends off Beauden Barrett

(Phil Walter/Getty Images)

To use a word popular in today’s rugby lexicography, the learnings from the failed forum were that it not only failed to resolve a calendar for 2021 and beyond, there wasn’t even agreement on what is left of 2020. And there was no attempt made to address the elephant in the room with ‘Top 14’ stamped across its hide.

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The year 2020 is not really an issue. Ongoing travel restrictions alone will override all other factors, and determine what rugby will be played and where. But in the process of getting bogged down in the tree by tree detail of a compromise here and a concession there, the forest has been lost sight of.

Rugby’s crippling conflict is not north versus south, as it is so often painted in these parts. Rugby’s crippling conflict is squarely a country versus club matter.

With France’s Top 14 season, including pre-season, effectively spanning 11 months, it is clear that no amount of calendar massaging will ever provide enough room in the calendar for a solution that adequately provides for Top 14 rugby, and Test rugby, and an off-season for international players.

What the forum should have focused on is whether or not the national unions are genuinely determined to band together and, with due respect to club/franchise rugby, maintain the primacy of Test rugby? And if so, are they prepared to align their actions to ensure that this occurs?

The last time a similar process was attempted, a slew of working parties and committees met across a period spanning almost three years, before World Rugby president Bill Beaumont triumphantly announced in 2017 that for the period 2020-2032 international rugby would adopt a new global calendar, whereby the existing June Test window would be shifted to July.

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NZ Rugby CEO Steve Tew acknowledged to me that it was “a tortuous process” for what amounted to precious little return.

Indeed, the immediate response of the English Premiership was to trumpet an extension of their season to consume the newly created space. The French clubs, meanwhile, merely wondered what all the fuss was about, and continued on with their business.

New NZ Rugby CEO Mark Robinson appeals as a smart and likeable consensus operator. But his comments in the wake of this latest talkfest strayed disconcertingly into Neville Chamberlain-like diplomacy.

Mark Robinson New Zealand rugby

(Photo by Hannah Peters/Getty Images)

“We’d have hoped that they (the clubs) might come to the table with a little more compromise,” he said, noting how the best hope to get movement from club owners would now be through direct negotiations with the respective English and French national unions.

“We just have to trust they have very good people at those national organisations that will keep working in the greater interest of the game.”

These are words deliberately tailored not to offend, but guaranteed to ensure continuation of a status quo that frustrates everybody and satisfies nobody.

There are two important factors working in favour of the nations (and by definition, World Rugby), should they be willing to seize the moment.

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One is how the effects of COVID-19 have brought the English Premiership clubs and the RFU closer together than at any stage in the professional era. The reality of losses accumulating, year upon year, has begun to bite.

Club owners previously prepared to fund their hobby as in-perpetuity vanity projects have been forced to shore up their other business interests. Anyone whose name isn’t Ellis Genge, or isn’t a poorly advised player, knows that for the Premiership to remain viable, operating costs are going to be savagely chopped.

With player salaries far and away the biggest expense, never has there been a better opportunity for the RFU to lighten the burden for clubs, and bring the players back into their fold.

The other new factor is private equity investment. To what extent is CVC prepared to increase the scope of their investment? Not in terms of offering money for minority stakes in other competitions around the world, cash that will be gone within a year. But, more importantly, to the extent that their investment can be the catalyst and mechanism to unite the game, and – through sheer weight of money and influence – bring about a global season.

And if it is not to be CVC, another player, like Infront, Silver Lake or others, who potentially have the scale and appetite for huge-scale investment.

(Brendan Moran/Sportsfile via Getty Images)

For people nervous about private equity money and influence coming into rugby, the solution may seem counter-intuitive. But there is real danger only if there are multiple competing investments in different parts of the game.

For example, there are obvious short-term benefits for Australia and New Zealand to independently pursue their own private equity solution. But without an overarching outcome in mind, in the longer term, this might potentially make things worse, pushing nations and competitions deeper into their own corners, each with their own financial backer scrapping hard to obtain the best return for themselves.

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The optimal private equity solution is for a single company, or allied investors, to go hard and go large.

Large enough not to destroy the Top 14, nor the burgeoning Japanese Top League, but through the sheer scope of the investment and the combined intent of all rugby’s nations, to refocus the attention of elite players and their managers, through equalisation of salaries in order to re-balance all of rugby’s competitions.

It’s a position not far removed from what World Rugby presented last year. And note how in February this year, it was reported that World Rugby and CVC were planning new talks, including whether funding could be provided to resurrect the Nations Championship concept.

“Private equity is a reality,” said chairman Brett Gosper.

“We are where we are. [World Rugby] has to deal with reality in the most constructive way.”

It is true that COVID or not, the Italys of the rugby world are unlikely to have developed a new appetite for placing their seat at rugby’s top table at risk.

But the world has changed – substantially – in a very short time. Rugby can no longer afford to be the dog that has its tail wagged by Italy or the French clubs.

COVID is hastening SANZAAR’s demise, and as poorly as the game is travelling in Australia, there are looming disasters where an isolated Argentina and South African rugby are concerned. In New Zealand, the excitement generated from the opening two weeks of Super Rugby Aotearoa cannot hope to be maintained into 2021 in a sustainable commercial sense.

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Sean Wainui

(Photo by Teaukura Moetaua/Getty Images)

Investment from CVC notwithstanding, strains in the Premiership and Pro 14 are obvious. The home unions still have their prized Six Nations competition, but no in-bound Tests this spring blows a massive hole in their budgets.

There are valid questions to be asked around the objectives of prospective private equity partners. Their money alone isn’t enough, it is essential for all parties to be transparently aligned. But in truth, the time for that concern was in 1995.

Rugby is professional, it is a business. A generation on, it is now time to make it the best business it can be.

The French Top 14 and the divisions below have provided an opportunity for players from all around the world – many of them Pacific Islanders from impecunious circumstances – to earn a decent living from the game and provide financial support for their families.

Towns and cities right across France benefit from the largesse of club owners and the way in which their communities procure identity and bind together around their rugby clubs.

But none of this is sufficient reason for the rest of the rugby world to be held to ransom.

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Rugby has shown itself incapable of talking its way to a solution that will reset the global game for the overall good. It is time to lock into a global private equity partner on a grand scale, and buy the game back.

Meanwhile, the weekend saw the continued resurgence of the Blues, 24-14 winners over the Chiefs at a slippery Waikato Stadium. With big men Patrick Tuipulotu and Hoskins Sotutu commanding the pitch, it can now only be the blind or certified who no longer believe that this Blues side isn’t the real deal.

In Wellington, it was the turn of the Crusaders to ignore the referee’s instructions and suffer on the end of another large penalty count. It was not enough, however, to prevent them from scoring five tries on their way to a 39-25 win over the Hurricanes.

Vaea Fifita is a talented rugby player, but with his side having all the momentum after halftime, in possession and on attack, and the Crusaders down to 14 men, Fifita’s decision to leg trip Sam Whitelock – who had no impact on play – was inexplicably daft.

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Private equity money coming into the game might help construct a proper global season, and make nations and players become richer. But there can be no guarantee it will make players any smarter.