SA rugby needs a cash injection, and Saru members will have to work together for a sustainable future

SA Rugby president Mark Alexander. Photo: Getty Images

20 Oct 2024

With the equity deal that was supposed to be signed this week off the table for now, a collaborative effort is needed to boost South African rugby.

The search for an equity partner by the South African Rugby Union (Saru) faces an uncertain future after seven clubs and the sports minister blocked a pending sale to an American consortium this week.

With Saru pushing for a 17 October vote on a proposal to sell a 20% stake of its commercial arm to Ackerley Sports Group (ASG) for $75-million, strident opposition to the move emerged.

Representatives of the Sharks, Bulls, Lions, Stormers, Griquas, Free State and Boland were signatories to the letter, dated 14 October, that raised concerns about the proposed deal. In it, they requested that the vote be postponed and indicated they would consider tabling an alternative equity deal.

“We do not believe that ASG is the most credible and appropriate partner for Saru based on its track record and the apparent lack of tangible value-add it would bring,” the letter from the seven clubs stated.

“We are of the view that the process followed has been insufficient and flawed, especially when considering the impact of the transaction on rugby in South Africa.”

The clubs argued that the sources of ASG’s funding are unclear and that the structure of the deal and its deferred payment schedule are problematic. There are concerns about ASG being favoured and, even though a new commercial rights company (CRC) will be established, that too many variables exist.

Saru SA Rugby Union president Mark Alexander. (Photo: Getty Images)

The letter states: “ASG is set to recoup its entire capital investment plus a preferred return of 6%, out of 80% of the CRC’s profits. After the repayment period, ASG would continue to earn 20% of the CRC’s profits, raising concerns about Saru permanently relinquishing a large portion of potential upside from predictable revenue streams.”

Read more: Rugby unions demand more time before voting on Saru equity sale proposal, suggest alternative

A further concern is the transaction fees for a company that presumably brokered the deal. “The proposed fee structure of 10% net of transaction costs ($7.5m/R131-million) payable to Jordan & Associates is not market-related for a transaction of this nature,” the letter reads.

That was the death knell for the vote even before Sports Minister Gayton McKenzie asked Saru to postpone the vote, less than 36 hours before it was due to take place.

Alternative option

ASG might reconsider its position having seen first-hand the politics of South African rugby at play. But if it is truly committed to investing in Saru after a negotiation process that has taken more than a year, a few more months shouldn’t be an onerous request.

That said, by the time the general council is in a position to vote on an equity sale again, which won’t be before December, there might be another option to consider.

The big four unions – the Bulls, Lions, Sharks and Stormers – appear to be readying a new bid, which does raise some possible conflict of interest possibilities.

Because of Saru’s structure, in which the 15 union presidents are on the general council, the real heavy hitters – the private equity partners in the four major unions – are not at the table. But the idea that they and their investors will present a new deal in the best interests of all South African rugby provinces needs more interrogation.

Saru’s mandate is to govern all rugby diligently and with the sport and its members’ best interests front and centre. Obviously, at a club level, the best interests of the Sharks, Bulls, Stormers and Lions come first for their owners.

If they become the equity partners and dominate a new board, it could create a problematic dynamic for the rest of the South African rugby ecosystem. Would the big four put the interests of other, lesser unions on a par with theirs?

Workshopping ideas

Saru reminded naysayers that its members – the 15 provincial unions – had mandated it to deal with ASG with a unanimous vote in December 2023. Saru also insisted that crucial information about it had been shared.

That’s where it became contentious. Although there was a flow of information, those who looked more deeply believed they weren’t seeing the full picture and that there wasn’t enough time to ask questions and receive feedback before the vote.

And in terms of South African rugby politics there were also other issues at play. The big four have individually or collectively bumped heads with the Saru hierarchy over the years on a range of issues. Overall, they are resentful that, as the major teams in the ecosystem and the biggest drawcards, Saru still has to split its earnings 15 ways.

Essentially, they don’t receive much more than the smaller unions when Saru makes disbursements from its broadcast and sponsorship income. Saru, of course, is not structured to look after the needs of just a few unions.

Although these continuous power dynamics were not central to the ASG deal and the drama that unfolded this week, they are always adding pressure in the background.

Way forward

With the vote stalled and a possible new offer to consider from the big four’s own equity investors, there is still a possibility to salvage something from the situation.

All parties agree that rugby needs a cash injection and a prospect of growing future earnings. “We understand that Saru requires short- to medium-term liquidity and intends to pursue brand growth internationally,” the letter stated. “However, these objectives must be pursued in a commercially sensible and sustainable manner in the interest of all stakeholders and the continued strength of SA rugby.”

Saru has been portrayed unfairly as “selling off” the Springbok brand, when in fact it has been essential in making the Boks the best and most revered team in the world. Also, none of its members is objecting to an equity deal; the dissenting unions are just objecting to the ASG deal on the table.

Read more: Saru’s proposed equity deal – factions, egos, innuendo and deals in the shadows

“One of the principal reasons for such an equity transaction is to increase the value of the South African rugby business, which lags significantly behind its international peers,” a Saru spokesperson told Daily Maverick.

All parties will now have to come up with a way forward because, despite all the posturing, everyone knows that they need to monetise the organisation optimally while they’re on top of the world.

“We believe that the proposed partnership, along with our identified partner, offers an opportunity for organic growth rather than simply serving as a cash injection,” Saru president Mark Alexander said.

“Importantly, it ensures that the Springboks will remain under the control and direction of Saru, safeguarding the future of our organisation.” DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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Alternative option

Workshopping ideas

Way forward