After the Bell: South African rugby needs to be shown the money

Yet, sports management is having a moment - particularly in investment circles - because sports clubs are becoming fabulous money-spinners (and, as it happens, money losers). This is not an investment arena for widows and orphans.

But when it works, the returns can be spectacular. The most recent investment which has private equity companies drooling around the world is Liberty Media’s decision to buy the rights to Formula 1 in 2017. A successful Netflix docuseries later (Formula 1: Drive to Survive), and we’ve seen the value increase from the $4.4-billion Liberty Media paid to $20-billion. The $20-billion price tag was established when the Saudi Sovereign Wealth Fund made a bid for a stake in the company, which Liberty turned down. I am not making this up. 

These kinds of successes are racking up all over the place, particularly now that sports-betting is taking off. The money that was washing into sport has now turned into a tidal wave. 

Anyway, back to Jerry Maguire. The film was author Cameron Crowe’s masterpiece in which he managed to juggle humour, irony, pathos and heartfelt emotion in splendid balance. In case you have forgotten, sports management agent Jerry Maguire has a crisis of confidence after one of his clients is injured multiple times on the field and he writes a mission statement proposing fewer clients, less money, and more personal investment in the players’ lives. 

https://www.youtube.com/watch?v=KUd3gwaf0KQ

Of course, he is instantly fired by both his employer and his girlfriend, but not before he manages to hold on to a single client, by (ironically) shouting repeatedly “Show me the money!” down the phone line.

The movie was replete with additional wonderful and memorable lines: you complete me; you had me at hello; twenty-four hours ago, I was hot and now I’m a cautionary tale; have you ever gotten the feeling that you aren’t completely embarrassed yet, but you glimpse tomorrow’s embarrassment?; that’s more than a dress. That’s an Audrey Hepburn movie.

But really the heart of the movie is revealed by a different plea: “Help me help you”, which is what Tom Cruise’s Maguire says to Cuba Gooding Jr’s character, Rod Tidwell, when he tries to get him to step up. In the tiny variances that often make all the difference in sport, motivation and character are right up there. And money. 

This brings me to the vote this Thursday by the South African Rugby Union (Saru) on whether to sell a 20% stake in the Springboks to US private equity firm Ackerley Sports Group (ASG) for $75-million. If you wanted someone to show you the money, there it is, in glorious technicolour detail, just waiting. 

I can almost hear people not familiar with the deal asking what exactly is the problem here? Do you have any idea what R1.3-billion could do for the sport? For a 20% stake? - take it and run. Well, it’s not quite so simple, because this is South Africa. And this is rugby. And the decision-makers are not the executives of Saru but the clubs. 

Saru has to get a ¾ majority of the 13 clubs when the vote goes down on Thursday. The problem is that the Big Four are divided, with, we think, the Blue Bulls on the fence, the Sharks definitively against and a lot of clubs in the middle wavering. And this is not just about the clubs, because the clubs have their own investors and behind those investors are some of the biggest names in SA business. 

For example, Aspen CEO Stephen Saad is the chair of the Sharks; Richemont chairman Johann Rupert and ARM chairman Patrice Motsepe are investors in the company that has a majority stake in the Bulls - and, as it happens, are investors in Ackerley. It’s all very - how does one put it? - inside rugby.

The deal seemed like it had a good chance of succeeding, but this morning Business Day put a spoke in the wheel by revealing some of the aspects of the confidential documents which underpin the deal. “It indicates that ASG’s ‘investment’ in CRC is more like a loan than an outright investment because ASG will have to be repaid its capital outlay over time, with it retaining its 20% stake, and control over decision-making until it has been repaid, while also playing a ‘big brother’ role on Saru’s board,” the newspaper reports.

ASG’s entry valuation of the SA rights is about a third of the $133-million US private equity firm Silver Lake paid for a 6% stake in the All Blacks’ commercial rights in 2022, with New Zealand Rugby retaining full control over the brand and the commercial entity, the paper points out.

Saru hasn’t formally responded to the report because there are non-disclosure agreements up the wazoo as part of this deal, as you can imagine, but it has been whispered that the leaked documents represent the proposals very early in the negotiation process.  

It is possible - and I’m just guessing here - that one of the unions against the deal, possibly in collusion with the organisation Saru dumped as the preferred bidder, CVC Capital Partners, might like to spike the Ackerley deal. Things get rough in the scrum. 

But the problem for the naysayers is that this deal took four years to negotiate and there is no alternative deal on the sidelines (although rumours have it that some are being put together chop-chop). Therefore, the choice for the unions is tough: money in the hand, or the possibility but not certainty of more later, or none at all. And for the smaller unions, this is crucial because many are in effect bankrupt and could do with the old readies.

Assuming the Sharks vote against the deal, they only need two other clubs to join them. If they are joined by, say, Boland and Border, the two money-starved unions will be ironically contributing to the sport - and themselves - by turning down a huge boost. 

There is a question about whether this is a good idea at all. Should SA be selling any part of something so precious as the one unequivocal success of the democratic order? Even the $200-million investment by Silver Lake in the All Blacks is amassing critics not only from outside but from inside rugby organisations in New Zealand. The buyers are not thrilled either because planned marketing improvements aren’t panning out as anticipated. 

What is undeniable is that without a financial injection, SA’s rugby administration is at risk. It would be ironic if clubs which themselves have taken on private equity investors deny that benefit to the mother body. And if they do, Saru would be perfectly entitled to retort, “OK, fine, but then would you please show me the money.” DM