Kings into administration again after union loses patience with investor

EPRU president Andre Rademan. (Photo: Michael Sheehan / Gallo Images)

By Craig Ray

23 Jun 2020

The rocky road of professional rugby in the Eastern Cape took another twist into the unknown this week as SA Rugby took over the administration of the Southern Kings franchise.

SA Rugby (Saru) has taken back a 74% stake in the Kings, acquired by the Greatest Rugby Company in the Whole Wide World (GRC) in March 2019 after the GRC failed to meet its financial commitments relating to the acquisition of the shareholding.

It’s the second time in five years that Saru has had to take over the running of the franchise following intervention in 2015 when ex-president Cheeky Watson ran the entire union into the ground. This time around, the administration only extends to the professional team, the Kings. The Eastern Province Rugby Union (EPRU) is in good standing again.

Southern Kings chairman Loyiso Dotwana. (Photo: Richard Huggard / Gallo Images)

GRC, a consortium of locally-based investors – Loyiso Dotwana (chairman)‚ Gary Markson‚ Rory Stear (deputy chairman)‚ Kenny Govender and Vuyo Zitumane – took on the Kings’ debt, apparently with good intentions. They have fallen foul of rugby’s tough trading environment exacerbated by the Covid-19 pandemic and an emerging picture of management and operational shortcomings.

The deal was structured in such a way that GRC would service the Kings’ debt of R45-million, in annual R5-million instalment payments. Sponsorships and disbursements from SA Rugby’s broadcast rights (approximately R34-million) would service the annual running costs of the team.

But GRC missed its first instalment payment last September and was given an extension until February 2020 by SA Rugby to honour its commitments. They missed it again. At the end of April, players and staff at the Kings were paid salaries 10 days late because the GRC required an emergency loan from the Port Elizabeth municipality to cover those costs. The growing picture of financial instability was enough to force Saru’s hand.

“I cannot stress enough how reluctant we are to resume control of the Southern Kings,” Mark Alexander, president of SA Rugby said in a statement.

“It is our last resort and we are keen to explore ways to return the shareholding to another’s hands, in conjunction with the EPRU, the minority shareholder, who have given the required approval to the decision.

“The next step is to appoint a new board to oversee the franchise’s affairs and ensure the team is match-ready for when we are able to resume playing.”

But Dotwana told Daily Maverick that GRC was in a position to meet its commitments to Saru.

“Yes, there was a delay in the payments, but we were in a position to honour our commitments at the end of this month [June],” Dotwana said. “Saru had already received R4-million by the end of May and the rest was scheduled to be paid.”

It was a case of too little, too late because the warning signs were ominous after several missed payment deadlines. In May, GRC required a R6-million loan from the city to service the Kings’ costs, R500,000 of which was supposed to be paid to the EPRU, which never happened.

The GRC’s claimed “repayment” to Saru was actually a deduction, after the mother body withheld disbursements intended for the Kings’ operational costs.

EPRU president Andre Rademan. (Photo: Michael Sheehan / Gallo Images)

“The main reason this entire relationship broke down was that GRC never fulfilled their contract,” EPRU president Andre Rademan told Daily Maverick.

“The condition under which they [GRC] acquired a 74% stake in the Kings was that they would take over that debt and pay it back to Saru. GRC have not parted with one cent of their own money. Even the ‘R4-million’ they claim to have paid Saru in May, is just withheld disbursements.”

By Dotwana’s admission, the GRC’s first foray into rugby ownership was fraught with difficulties and according to him, mostly stemming from a tense relationship with the EPRU.

“I’m actually relieved to be out of it,” Dotwana told Daily Maverick. “The first question is: what went wrong? It’s simple. At best, we had a tenuous relationship with the EPRU.

“This stems from very differing views of how to run the Kings between the GRC and the EPRU. When we took over the equity in the franchise the EPRU felt betrayed by Saru. They felt, as the custodian of rugby in this region, they should have acquired 100% ownership of the franchise, which is the case in most other unions.

“We were very conscious of that, so we tried to build a collaborative relationship with them, and to that end I personally held many meetings with senior executives to build that relationship. I would say, to no avail.

“We endured public attacks from the EPRU, which culminated in the ‘Nick Mallett affair.’ These attacks created a total lack of confidence in the franchise from potential sponsors, which had a material effect on the business. That eroded the little trust that existed between the Kings and the EPRU.

“As a consequence, sponsorship negotiations between a number of businesses that expressed interest in the Kings ceased. As far as we could see, no brands wanted to associate with the Kings because of the negative press stemming from the EPRU. It reached a point where our headline sponsor, Isuzu, put us on notice. The Covid-19 pandemic has been another unforeseen issue that has impacted on the business.”

EPRU blame the GRC for not meeting its obligations

But Rademan paints a very different picture from an EPRU perspective.

“When the EPRU came out of liquidation and administration following the Cheeky Watson era we reopened this union in 2017 with R31 in the bank,” Rademan said.

“The EPRU was a destroyed organisation. We worked relentlessly to rebuild and have had three years of clean forensic audits.

“Actually, within two years we were liquid, out of administration and had a positive bank balance. The franchise [the Kings] could not be sold without our permission because the EPRU are the members of Saru [as per the SA Rugby constitution which governs membership and competition structures.]

“The EPRU together with Saru agreed to sell 74% shares in the Kings to GRC. Their end of the agreement was that they would make the Kings a profitable franchise by selling sponsorships and bringing investors to the table. Like all setups of this kind, money should’ve then flowed down from the franchise – the professional side – to the amateur side [the EPRU].

“The deal was signed and a board with five GRC-appointed members and two from the EPRU was constituted. Subsequent to that, the breakdowns of communication started almost immediately.

“Board meetings weren’t held regularly and sub-committees [such as finance and contracting] were not set up, or did not provide the function they were supposed to carry out.

“The fact that GRC only had 74% was significant because they didn’t have a two-thirds majority and therefore couldn’t take decisions unilaterally, although they tried. We as the union became increasingly worried because they ran the Kings franchise like they owned it, even though we as the union, were partners.

“We had meetings to try and save the Isuzu sponsorship and in February we asked to meet the GRC to discuss all the issues, They didn’t even respond to the EPRU’s letter. The same happened in March. In April we, the EPRU, were called to a meeting with the city because GRC had gone straight to the DA and ANC caucuses, without talking to us, and asked for R6-million to pay salaries. They actually asked for R9-million but received R6-million.

“At that point we had had enough and asked for the Kings’ financials and the cash flow statements. If the GRC were asking for loans from the city, it was clear we were heading back to the same situation we had a few years before.

“It was agreed that R500,000 of that R6-million would be paid to the union to assist with Covid-19 relief. That money, which is taxpayer money, still hasn’t been paid over by GRC. The GRC later claimed we tried to stop the loan being paid to them, which is simply not true.

The latest situation has left the Kings team in a precarious position with PRO14. They were already on shaky ground with PRO14 after a string of poor results. When the GRC bought their share of the Kings, the team had won only three of 44 PRO14 matches. Under GRC ownership, it won once in 13 games before the current season was suspended due to the coronavirus pandemic.

“The GRC skipped another scheduled meeting with us in May and then last Thursday [17 June] they failed to attend yet another scheduled meeting to discuss financials. At that point we wrote to Saru to ask them to intervene, because if the Kings collapse it will come back to hurt the union. We are very grateful that Saru has intervened.”

Despite the setback, all the players and staff at the Kings franchise have been retained, although they are taking salary cuts as per a recent industry collective bargaining agreement.

SA Rugby has appointed a finance team to work with franchise administrators on ensuring salary payments are made and business needs are addressed.

The decision ensures the Southern Kings will participate in PRO14 and/or any other competitions that may be established within the constraints of the Covid-19 pandemic lockdown.

“This was a decision we took with extreme reluctance and after allowing GRC considerable leeway in which to meet the contractual commitments they made on the acquisition of the shareholding,” said Alexander.

“We appreciated the vision and intentions of the GRC, but unfortunately we are operating in an unforgiving business environment.”

The latest situation has left the Kings team in a precarious position with PRO14. They were already on shaky ground with PRO14 after a string of poor results. When the GRC bought their share of the Kings, the team had won only three of 44 PRO14 matches. Under GRC ownership, it won once in 13 games before the current season was suspended due to the coronavirus pandemic.

When the GRC bought its stake in the franchise last March, Dotwana told this reporter that PRO14 had issued the club with a thinly veiled threat:

“Perform better or risk being ejected from the competition.” That statement could be extended to mean performing better off the field, as much as on it. DM

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