Beauden Barrett of the All Blacks. Photo / Photosport
OPINION:
A few years ago, the world’s leading rugby nations almost signed-off on launching what they were then calling a World League.
They had secretly hatched a plan to create a mini-World Cup that would involve the Six Nations, Rugby Championship, USA and Japan, and net the 12 teams $833m of annual broadcast income to share.
They knew how much TV money they were likely to bank because they had an offer on the table from Switzerland-based Infront Sports and Media which guaranteed $10bn over the next 12 years.
The concept collapsed when Scotland and Ireland refused to back it as they didn’t like the idea that there would be promotion and relegation with a second-tier competition running concurrently.
Perhaps most interesting, and likely to prove most poignant, were the words of Infront’s vice-president, Dr Christian Müller, who urged the people running the game to see the creation of a World League as a better long-term solution to the sport’s financial woes than selling off equity stakes in their commercial revenue.
“It is important the unions do not look for a short-term fix and we are prepared to address any of their concerns. This plan puts international rugby into a competitive framework and would make it more attractive.
“Everyone would enjoy a substantial rise in income.”
No one listened, though, and the following year, the Six Nations sold a 14 per cent stake in its commercial income to private equity firm CVC, and in 2022, New Zealand Rugby took $200m from Silver Lake in a deal that has given the US firm a roughly five per cent shareholding.
Müller was trying to get rugby executives to recognise that broadcast income will always be the largest revenue stream for professional sports bodies.
It’s the same point that the Herald has made in its series which has run this last week about the future of rugby broadcast rights in New Zealand.
New Zealand Rugby wants to believe that within its midst are all sorts of untapped revenue streams, such as e-sports licensing and its Performance Labs initiative which sells All Blacks leadership skills to corporate executives.
But these are, at best, only ever going to provide relatively small returns and there is no escaping that rugby has three things to sell – broadcast rights, sponsorships and match tickets.
And of those three, broadcast rights will always be the most significant asset, and for the last 20 years there has been unanimity across the rugby fraternity that revamping the July and November test windows to give them greater meaning and cohesion, would vastly increase the value of TV contracts for the whole sport.
Which is why back in 2019, Müller was no doubt flabbergasted that having got themselves over the try line so to speak, these 12 nations didn’t touch the ball down, but instead booted it into Row Z by rejecting the easy money on offer for the more complicated, debt-burdening uncertainty that comes with private equity investment.
If that thinking was difficult to fathom back then, it’s even harder now that the World League concept has been revived and is expected to be shortly signed off to begin in 2026.
It will be a 12-team competition, featuring the Six Nations, Rugby Championship, Fiji and Japan and will effectively see the six teams from the South play the six in the North in July and November, with a final between the two highest-ranked teams.
The mad part being that the Six Nations will have to pay CVC 14 per cent of whatever share of broadcast they are allocated and NZR will have to give anything from 5.7 per cent to 8.6 per cent to its private equity partners.
The justification for bringing in private equity partners is that they bring expertise, knowledge, people with connections and ideas and that they open up revenue avenues that sports bodies, under their own steam, can’t.
But in this case, the hard work had already been done by the sports bodies. They had the deal sitting there in 2019 – one they had managed to negotiate for themselves.
CVC and Silver Lake are now going to be significant beneficiaries of that hard work and bank millions of dollars for doing practically nothing.
It’s the easiest money they will ever make and plays to Müller’s point that it would not be a wise long-term plan for rugby bosses to be seduced by the short-term capital injections that come with private equity offerings.
He, like many others, must be wondering how it’s good business to reject a $10bn dollar deal in which the 12 teams would have kept all of the money, to now say yes to one where CVC could take as much as $400m over the lifetime of the contract and Silver Lake as much as $75m if the TV rights are still valued at the historic price.
But no one will admit the terrible mistake they have made by transferring so much of rugby’s future value from themselves, the custodians of the sport, to private investment firms whose real skill may be in identifying management mugs daft enough to let them in.
Instead, over the next few years we will be sold a fictional narrative – one where private equity investors are cast as the heroes, the smartest people in the room who saved the sport from ruin.
We will be told about the immense value they bring – the opportunities they identified and the clinical and professional way they capitalised on them.
It will be a great story, but not much of it will be true and when Silver Lake has cashed out in five years or so, its stake most likely bought by a passive overseas investment fund looking after the pensions of state employees, that’s when the enormity of the decision to go down this road of selling equity will hit home.
Every new deal NZR strikes, there will be this obligation to pay 8.6 per cent of its commercial revenue to a third party who will most likely have done next to nothing to earn it, and only then will the words of the erstwhile Dr Müller be heard.
OPINION: Sport, with its fine margins such as this, can be beautiful and brutal.