Gregor Paul: The truth behind NZ Rugby’s $47m loss

New Zealand Rugby chief executive Mark Robinson speaking during a media conference announcing Scott Robertson as the next All Blacks coach. Photo / Mark Mitchell

OPINION:

When it comes to evaluating private equity investment in professional sport, the trick is trying to determine whether the storytellers or financial managers are the real stars of the show.

Investments of the scale and nature such as the one into which New Zealand Rugby has entered with Silver Lake carry a level of complexity that makes it difficult even for financial experts to pick through the numbers in the annual report and fully understand what they are reading.

It ends up being an exercise in trust almost – that everyone simply has to hope that NZR’s upbeat, everything is on track response to the record $47m loss posted in 2022 is a triumph of strategic planning and investment nous, and not a victory for its communication team which managed to at least partly blame Covid and inflation for causing some of the deficit, while explaining that $21m had also been invested in the women’s game to support “ongoing participation growth”.

With a further $37m having been distributed to provincial unions as part of the Silver Lake investment, and $95m now parked in reserve, it seems more accurate to view the $47m gap in the accounts as a massive investment in the future growth of the game, rather than a massive loss.

And with the Black Ferns having won the World Cup at the end of last year, a 10-year strategic plan to grow women’s rugby having been signed off, and a further $100m coming from Silver Lake in July, there is enough evidence to suggest that the annual accounts are indeed a victory for the financial acumen of NZR and vindication of its decision to sell a stake in its business.

But to believe that NZR has made a major investment in the game, there has to be confidence that a return will be forthcoming.

And this is where it’s hard to be confident the financial results of 2022 are part of a long-term master plan that will save the game and not in fact a sign of a looming catastrophe, hidden by clever spin-doctoring.

All Blacks players during the national anthem. Photo / Photosport

Of all the arguments NZR made to support its proposal to sell equity to Silver Lake, the least powerful was the fact it would deliver an immediate provincial union cash windfall.

There’s little to no evidence to suggest that the $37m that has been pumped into the provincial game will deliver any significant increase in participation or profile.

Previous cash dumps, such as the one that the unions received from hosting the 2017 British and Irish Lions tour, have proven that money is not the panacea to the issues impacting community rugby.

No matter how much money has been thrown at the provinces, it hasn’t been able to arrest the decline in participation, which dropped another nine per cent in 2022 according to NZR’s financial statements, to 147,847.

That’s partly because money can’t stop kids from being scared of injury or feeling like the person coaching them is overbearingly intense, and partly because the unions haven’t been brilliant at investing strategically.

The Deloitte Sports Review: State of the Union report for 2017 showed that provinces only increased their spending on growing the game by 1.5 per cent after taking possession of their Lions windfall.

The $37m payout to the provinces will likely disappear with no tangible legacy benefits for the community game, and it should be seen for what it is - a sweetener from NZR to help gain approval for the equity sale to Silver Lake.

The communications team may have scored another victory in the presentation of the participation numbers as they pertain to the women’s game.

For all the positive statements made in the press release about growing female participation, the numbers posted tell a different story.

According to the financial statements, female participation declined nine per cent in 2022, from 27,562 women being involved in 2021, to 25,298 in 2022.

The growth story being promoted is based on registrations this year, which according to NZR projections, are likely to be 40 per cent up on last year, with the forecast that as many as 35,000 females will play rugby in 2023.

That’s a figure to be celebrated, but while it’s a 40 per cent increase on last year, the impact of Covid regulations must be considered as lockdowns and stricter protocols saw female participation drop from 31,000 in 2019 to 25,000 by 2022.

The numbers posted in 2023 represent only a 12 per cent increase on the pre-Covid peak in 2019.

The word only is being applied because everyone hoped that the Black Ferns World Cup victory in November last year would generate a huge participation boom, but a 12 per cent leap is in line with the annual growth rates that were posted between 2016 and 2019.

The Black Ferns were brilliant, the World Cup was brilliant, but they may not have inspired the next generation to take up the game in the sort of numbers NZR was hoping for.

One clear win for the communication team was in the promotion of now having $95m in cash reserves.

Some super anxious types will sleep easier knowing that there is a stack of cash tucked away in case of disaster, but this desire to take $262m of private equity money and mostly use it to build an enormous rainy-day fund has never made sense.

Presumably that money will be invested at short-term deposit rates, which will almost certainly deliver NZR less interest than the distribution payment they will have to return to Silver Lake next year.

Next year NZR will have to pay Silver Lake and other investors if they take up a capital raise offer later this year – up to 8.7 per cent of net commercial revenue.

And if revenue numbers are similar to this year, that means an estimated $20m will be flowing out to equity stakeholders, which is why it seems that NZR has given itself expensive access to an overdraft – one way bigger than it actually needs.

It would be great to sit back and trust that a $47m loss is all part of the grand plan, but there are too many red flags flying to be sure whether it’s the financial team or storytellers driving NZR’s commercial operation.