Silicon Valley investment firm Silver Lake Partners could take a 15 per cent stake in NZ Rugby for $465 million.
If the deal does go ahead, what will the impact be on NZ Rugby's local broadcast partner Sky TV (bearing in mind that the union is now a minority shareholder, after its latest five-year rights deal included 5 per cent of the pay-TV broadcaster's stock)?
Two analysts approached the potential Silver Lake buy-in from different angles, but both saw it as ultimately a negative for Sky TV - while a third saw it as a boon for the pay-TV broadcaster.
Jarden research head Arie Dekker said that while NZ Rugby had been more open to new platforms in recent times - witness its decision, as a Sanzaar member, to hand 2019 Rugby World Cup rights to Spark Sport - overall its tight finances have limited its appetite to take too many risks with new partners or new content-delivery technologies. A substantial injection of funds from Silver Lake could make it more adventurous.
"The negotiating leverage between Sky and NZ Rugby for programming rights turned in NZ Rugby's favour with the onset of more credible competition for NZ Rugby's rights," Dekker told the Herald.
"But NZ Rugby has remained somewhat constrained in its ability to take risks – something linked to the strength of its capital base. Were a deal completed that strengthened NZ Rugby's capital base – like one potentially mooted with Silver Lake – then we think that would turn things further in NZ Rugby's favour.
"For example, a greater risk appetite to consider a direct-to-consumer offering in the future would be a major issue for Sky."
Meanwhile, Craigs Investment Partners' senior analyst Wade Gardiner saw the deal as undermining the RugbyPass streaming service - Sky TV's vehicle for selling rugby content to an international audience.
"It's hard to see how a Rugby Union-SilverLake combination is positive for Sky," Gardner told clients this morning.
"Sky has a limited audience to monetise its local content rights" Gardiner said. And now, "It's difficult to see how Sky's Rugby Pass fits into the picture given the likelihood Silver Lake will have its own distribution plans ... Sky looks like a tricky investment at this juncture."
Sky bought RugbyPass in 2019 in a deal worth up to US$40m with a (presumably never paid) earn-out of US$10m. Last year, as Covid decimated the sports calendar, Sky wrote down its carrying value from $38.4m to $10.9m, noting the global service had incurred some $14.5m in accumulated losses with "no material synergy benefits to date."
When Sky bought RugbyPass, its former owner claimed it was heading toward 20,000 paid subscribers worldwide. No update has been given since (bar traffic figures for free content). The streaming service holds key rugby rights in countries outside NZ, Australia, South Africa, the UK and France, targeting expats and international rugby fans.
The 2020-writedown notwithstanding, Sky still has big hopes for RugyPass once the pandemic subsides.
One of four strategic priorities outlined in its 2020 annual report was, "RugbyPass: To develop and grow an international rugby content business and become the online destination for fans globally."
If it does hook-up with Silver Lake, then Dekker and Gardiner see NZ Rugby potentially pursuing global rights deals outside of Rugby Pass - which is still a minnow.
Fat Prophets analyst Greg Smith took the opposite tack, however, seeing potential upside for Sky and its RugbyPass business.
"With rugby still the main game for Sky I think a deal which promises to potentially globalise the sport more, and effectively help run it better, is a good thing," Smith told the Herald.
"More eyeballs looking for info and coverage of rugger on the web is something that RugbyPass could leverage."
The potential new dance partner
Silver Lake, which as a US$200b investment portfolio, invested purely in technology companies during its early years.
But since 2016, it has spent upward of US$4 billion on major stakes in a string of high-profile sports and teams, including UFC, NBA franchise the New York Knicks, and the table-topping English Premier League soccer team Manchester City - which runs its own TV and streaming services.
Silver Lake co-CEO Egon Durban thinks streaming services and social media have given high-profile sports teams new global reach and brand-appeal, and he things his tech-savvy firm is well-placed to match them with new media and technology partners to exploit new digital channels. Durban is not a passive investor. He joined Man City's board as his fund bought into its parent company.
Investors seem unfazed so far. Sky shares jumped 12 per cent to 17.9c on Tuesday after the Herald broke the news of the possible Silver Lake deal - although the situation was coloured by the pay-TV broadcaster releasing an earnings upgrade at around the same time.
Today, the stock was up another 0.6 per cent to 18c, but is still down 49.0 per cent for the year.