- New Zealand Rugby aimed to enhance its commercial strategy through data mining technology to understand and monetise its global fan base.
- Despite a compelling investment thesis from Silver Lake, doubts arise regarding promised data mining capabilities and the effectiveness of the content hub, NZR+.
- NZR faces pivotal negotiations for its broadcast contract, crucial for financial sustainability, with Sky likely to be the sole bidder. Challenges include the collapse of Spark Sport, revenue sharing with Sanzaar partners, and evolving media landscapes.
- Potential strategies may involve bundling major international content for sale, but challenges such as varying interests among participating nations and equity partner influence need consideration.
- Financial distress at NZR underscores the importance of future broadcast deals, with innovative strategies needed to maximize revenue and engagement amidst complex market dynamics.
They came in their trainers and hipster jeans and from their iPads they promised riches. An audience of mostly older males were mesmerised by the slick presentations that showed powerful video clips from the UFC and English football giants Manchester City.
Then there were the promises of connections to big tech in Silicon Valley, which would enable a sophisticated data mining process to begin where consumer information from ticket sales, merchandise purchases and content viewing would be harvested to create an enormous database of intelligence about fans – where they lived, what they liked and what they wanted.
This audience of mostly older males was the New Zealand Rugby board, and they were hooked, as one of the great weaknesses in its commercial armoury was data collection.
They knew they had a powerful brand in the All Blacks but were failing to maximise its financial value as they had limited data on their domestic fan base and almost none on their overseas fans.
There was an All Blacks Facebook page with one million followers and a website, allblacks.com, that pumped out in-house interviews with the team, but the situation of the world’s best-known rugby team having such limited knowledge of its fan base was of enough concern for the Rugby Players’ Association to write to NZR in 2019, proposing they work together, and possibly with a third party, to build a comprehensive strategy on how to fix the problem.
The directors, who had various degrees of understanding about the corporate and private equity worlds, nodded along with the presentation, and especially liked the bit where it was said that there were as many as 60 million potential All Blacks fans scattered around the world, just waiting to be found and monetised.
And better still, there was a plan on how to find them and persuade them to become paying fans.
The story was being told by US fund manager Silver Lake as it pitched its investment thesis in its efforts to become an equity holder in NZR’s commercial assets.
It was a thesis which projected that NZR income would more than double from about $200m to $400m-plus by 2030.
Critical to this vision was the creation of a content hub – an all-encompassing streaming app that would go behind the scenes with teams in black, pump out fly on the wall documentaries, carry highlights packages and archival footage of tests and serve as a platform for the players to be sold to a global audience as relatable and inspirational.
The hub would initially be free to access and serve as another tool in which consumer data could be mined, but more importantly, it would build an engaged, global audience which would enable NZR to use in broadcast and sponsorship negotiations to significantly up the prices.
It was a thesis that was borrowed heavily from Formula One, which saw enormous growth in the value of its global broadcast rights between 2013 and 2021.
It was growth fuelled largely by private equity investors taking control of the sport, one of whom, Liberty Media, hit on the idea of producing a compelling reality series called Drive to Survive which has been instrumental in hiking audience interest in the sport.
The pitch was compelling, but in the two years since Silver Lake came on board, some of those who heard it are unsure if they are seeing the sort of sophisticated data mining NZR was promised.
Of greater concern, has been the failure of the content hub, NZR+, to serve as the central plank of the fan engagement investment thesis.
Launched last year on the eve of the World Cup, NZR+ was hoping to win one million registrations by the end of the tournament.
By the week of the quarter-finals, it had just 60,000 and that was after spending an estimated $2m plus on content that featured Hollywood director Taika Waititi and various former All Blacks such as Dan Carter, Richie McCaw, Andy Ellis and George Bower.
After such an underwhelming launch, Craig Fenton, who in January started as chief executive of New Zealand Rugby Commercial – the company formed to house the game’s commercial assets – cut the channel’s operating budget and told the Herald that he was initiating a new content strategy.
“NZR+ is fundamentally about fan engagement both at home and abroad,” he said.
“And in that sense it is a content play. Yes, we have a player that we have built, but this is about pushing content out over multiple platforms for broadcast all the way through to TikTok, Youtube, reels on Meta and why is that?
“Because we need to meet the fans where they are and not have the hubris to expect them to watch only where we would like them to watch.
“You should expect more of that and I would expect for the foreseeable future that most of that consumption will occur on Youtube and on a shorter slice form on TikTok.”
The decision to effectively decommission NZR+ as the weight-bearing pillar of the content strategy is an indication that neither the audiences nor the associated data have yet been generated – which is just one of many issues that Fenton will be wrestling with when he begins renegotiating NZR’s broadcast contract in the next few months.
How NZR secured a record broadcast deal in 2019
One of the stranger arguments to reconcile during NZR’s public relations campaign to sell the merits of doing a private equity deal with Silver Lake was its lack of confidence in its own commercial acumen.
NZR kept saying it needed help to run its business, yet in October 2019, it had negotiated a record five-year $535m broadcast deal with Sky.
The deal, when it began in 2021, would annually net NZR $100m in cash, and $7m in kind from Sky, as well as landing the national body a 5 per cent shareholding in the broadcaster that was worth around $20m at the time the agreement was made.
It was believed to be the best per capita broadcast deal struck in history, and it is understood that the AFL used it as the basis to renegotiate a monster contract of their own a few years later.
To extract that sort of money from Sky took patience, planning, skilled negotiation and in-depth knowledge and experience of how broadcast contracts work.
NZR played a smart hand, using chief executive Steve Tew to build a relationship with Sky chief executive Martin Stewart, who only joined the company in late 2018.
NZR broadcast media manager Ged Mahony did the analysis on potential values and market trends; NZR board member Richard Dellabarca, who had extensive mergers and acquisitions experience across a vast range of sectors and is commercially savvy, worked with external financial analysts to unpick Sky’s balance sheet and determine just how much they could pay; and NZR chair, Brent Impey, who had been chief executive of MediaWorks – where he negotiated TV3′s winning 2007 World Cup bid – and who had also been heavily involved in NZR’s previous broadcast deal in 2014, worked the relationship with Sky’s chair Philip Bowman.
By October 2019, NZR was sitting on a $400m - $80m-a-year offer from Sky, with a strong indication from Spark Sport that it would also pay $80m if given the chance.
NZR had considered but rejected the option of going it alone through the creation of its own streaming platform, and around the board table, there was some concern that while Spark Sport had significant capital, not all parts of the country were serviced well by Wi-Fi and that the telecoms operator’s technology had not yet proved it was ultra reliable.
Sky was the board’s preference, and it had an exclusive negotiation period in which to reach an agreement.
Tew and some board members were ready to accept Sky’s $80m-a-year bid, but on October 10, the last day before the exclusive negotiating window closed, Spark Sport won the rights to New Zealand Cricket’s content and Sky CEO Stewart was reeling – knowing that the company would be in dire straits if it couldn’t keep the rights to rugby.
Dellabarca’s research told him Sky could go to $100m-a-year if it had to, and so on October 11, NZR asked for that figure and after an emergency board meeting that day, a broadcast deal was agreed.
As Tew would reveal in the book Black Gold: “We did a huge amount of research between us and we had two advisers giving us different inputs into what we could expect to attain in the market, what the various options were and the consequences of taking A or B.
“The pivotal moment in that decision-making process was Spark picking up cricket. That was announced at a really important time in our discussion, and I am sure Martin got surprised by that announcement and that just made it more important for him [to keep the rugby rights].
“We had to make a decision with a partner we knew. We did a very, very good deal including an equity stake.”
In 2019, NZR would bank $57.4m in broadcast rights, a figure that would almost double under the new deal.
The challenges in securing an improved deal
Some time in the second half of next year, NZR will begin the negotiation of its next broadcast contract.
It is a deal that sits as critical to the game’s financial future. The broadcast agreement makes up 38 per cent of NZR’s current income and as the Herald has revealed, the national body is currently experiencing financial distress.
At the end of last year, it was forecasting that it could have burned its way through the $200m of Silver Lake cash by the end of the decade.
The Herald also revealed last week that NZR has had to cut the distribution it pays to provincial unions by $1.8m this year and by the same figure in 2025.
Revenue hasn’t grown in line with forecasts and costs are higher than anticipated.
But just as importantly, this next broadcast deal will serve as the strongest evidence yet of whether Silver Lake can deliver the value it promised.
This is the time for the US fund manager to shine – to deliver on the presentations it made in 2021 and play an influential role in helping NZR secure a much-improved broadcast contract.
Since Silver Lake came on board, it has produced no new or innovative ways to grow revenue and increasingly, those who supported bringing the US fund manager in as an equity partner, have told the Herald that they are beginning to think that significantly upping the value of the broadcast deal is the only trick in the investment house’s playbook.
But several sources have said that the difficulty of improving the current deal, can’t be underestimated.
To start, Silver Lake’s 7.5 per cent equity stake means that NZR needs to up the next deal to $108.1m just to have the equivalent amount of money.
And of course, it will only take 92.5 per cent of any increased fee it does manage to negotiate.
Maths aside, the bigger factors to consider are the collapse of Spark Sport which means New Zealand no longer has a competitive broadcast market.
Sky will be the sole bidder, and as has been seen in recent months, it has been willing to play hardball with sporting codes now it has no competition, cutting netball’s deal from, it is believed, $8m-a-year, to slightly less than $4m-per-year.
The balance of personnel power may also have shifted in Sky’s favour, too.
Sophie Moloney has taken over as Sky’s chief executive – she was appointed in 2020, although she joined the company in 2018 as chief commercial officer – and has ample experience in broadcast rights negotiations.
Her right-hand man, chief content and commercial officer, Johnny Errington, was also involved in the last rugby negotiation.
NZR’s four-strong team of Tew, Impey, Mahony and Dellabarca have moved on, and negotiations on its side will be led by Fenton, who although an experienced lawyer and commercial executive, has no experience in broadcast rights negotiations.
It’s not apparent who on either the NZRC or NZR boards could be utilised to help Fenton, which is why several sources have told the Herald that the decision to part company with Mahony earlier this year was ill-advised.
It hasn’t helped that NZR+ hasn’t produced the sort of audience numbers and data that Silver Lake had projected to help strengthen the case to up the value of the rights.
Moloney has been clear that she doesn’t want to get drawn into negotiating the deal via the media, but she has said that Sky is an entirely different position now to the one it was in five years ago.
She told Media Insider in February this year: “There’s always a premium for exclusivity and we will be going into a renewal understanding what our customers really enjoy and about what they’re watching.
“That’s the data that should dictate the value. Whereas in 2019 we were in a very different place.”
There are other factors that Fenton, who says he has been meeting with Moloney on a weekly basis since he began in the role in January, will have to consider.
The previous deal was struck with no agreement to share revenue with the Sanzaar partners.
In 2019, the four member countries – New Zealand, Australia, South Africa and Argentina – were allowed to “eat what they killed” which meant NZR pocketed the full $100m.
Subsequently, NZR has agreed to pay $8m this year and next to Rugby Australia as a retrospective revenue sharing agreement now that they are joint-owners of Super Rugby Pacific and the latter was only able to strike a A$29m-a-year rights deal with Channel 9.
A longer-term revenue sharing formula between the two will be agreed for the next broadcast deal, which means that almost certainly given the low profile of rugby in Australia, New Zealand will end up subsidising its Tasman partner.
Historically NZR has been able to limit the amount of Super Rugby and Rugby Championship money it shares with its Sanzaar partners, by working with Sky to inflate the book value of the NPC.
It is believed that the current deal has attributed a nominal value of $45m-a-year to the NPC, but NZR has endangered its ability to continue with this practice by wrongly telling its provincial unions in late March that Sky had indicated it wouldn’t bid for the competition’s rights in the next broadcast cycle.
“Future broadcast revenue values for the NPC will be significantly lower than previous broadcast agreements, on the basis that Sky TV is not expected to wish to bid for rights to broadcast every NPC / FPC [Farah Palmer Cup] game moving forward,” the communication said.
The information was wrong, Sky has not made any indication it will pull out, but it has told investors it wants to reduce production costs from 52 per cent of its total costs to 47 per cent, suggesting that the NPC may in future be filmed with fewer cameras and potentially with remote commentary, making it hard to credibly present an inflated value to Australia as a ploy to share less Super Rugby revenue.
What format the NPC will be in is another question that NZR needs to answer so it knows what it is selling, while the same is true of Super Rugby and Rugby Championship.
The last deal sold Sky a Super Rugby format that had 15 teams – five from New Zealand, five from Australia, four from South Africa and the Jaguares from Argentina.
This deal will be offering a Super Rugby format that will likely only span New Zealand, Australia and the Pacific Islands – which makes the competition more fan friendly in terms of kick-off times, but with a much smaller overall audience reach.
The Herald understands that the Sanzaar partners have all but rejected an application for Fiji and Japan to join the Rugby Championship in 2026 and so in terms of international content, the trump cards for Fenton will be the launch of the bi-annual Nations Championship which is slated to begin in 2026, and the possibility of the All Blacks and South Africa rekindling old fashioned tours and three-match test series’ against one another.
Dangle the carrot of teams in black
The climate doesn’t look favourable for Fenton managing to increase the value of the domestic rights.
NZR chief executive Mark Robinson has, however, said that audience numbers for the early rounds of Super Rugby Pacific are up about 25 per cent on last year and Sky has never hidden the fact that rugby continues to help it win and retain subscribers.
But without the fear of losing the rights, few analysts expect Sky will be willing to offer anywhere near the $100m it currently pays.
There is an assumption that Sky will be looking to reduce the price to around $80m-a-year, leaving Fenton having to find close to another $30m-a-year just to hold the current financial position.
He’s all but ruled out using NZR+ as a live broadcaster to drive revenue higher, telling the Herald recently: “Switching on a subscription service is not in the immediate gameplan and we have been clear that this is about engaging fandom and building reach.”
As the Herald understands it, Fenton will target winning a major uplift in the price of the international rights to off-set any reduction in the home market.
It is thought that the current value of the international rights is only about US$10m – through deals with the UK and France which Sanzaar negotiated.
Most experts believe there is potential for this to be significantly increased, given the allure of the All Blacks, the potential value of the Nations Championship and the interest major players such as Discovery and Amazon have shown in acquiring live rights.
The Six Nations this week announced that they had sold the broadcast rights to the November tests to Discovery, with Amazon having previously held them.
Netflix has not yet dipped its toes in the live rights market, but it is currently airing a behind-the-scenes documentary series about last year’s Six Nations
These big content houses have deep pockets and live sport is proving attractive to them, which is why in 2019 when the idea of the Nations Championship was first aired, Swiss marketing agency Infront was guaranteeing the 12 countries involved US$8bn of broadcast revenue over 10 years.
At the time, if that money had been split evenly between the 12 competing nations, it would have netted NZR around $108m-a-year in broadcast revenue.
That never came to fruition as the concept collapsed when there wasn’t unanimous agreement about relegation and promotion.
But now that the plan has been resurrected and details all but signed off, Robinson has said that there have been discussions about bundling all the game’s major international content – Six Nations, Rugby Championship, July and November Tests and the Nations Championship – to sell to one or multiple bidders.
Selling all the rights in a collective bundle is one option open to Fenton, but there are suggestions out of the UK that the indicative prices are not as high as anticipated, and that it may be too hard to gain a unanimous approval from all 12 nations.
The Six Nations also have an equity partner – CVC – which owns a 14 per cent stake in the tournament’s commercial assets and any broadcast deal has to factor the dilution that comes with having to share revenue with the investment house.
When Fenton spoke with the Herald in March, he was asked about whether he felt the international rights were the best opportunity to drive a higher broadcast fee in the next negotiation.
He said: “There is headroom available to produce a product and package that is better for international consumption.
“Media markets change the whole time and there is always a sense of dynamism in the FTA versus the paid TV part of it. The media market in the North has been well documented as going through a cycle in that sense both ITV and BBC have been clear about the changing landscape which is influenced by advertising.
“Although new in the job I have been in Europe for a long time and I am plugged into the key players on this and we are getting interest.
“Our focus as a code as a collective of unions is to make the product compelling and easy to buy. People love watching their home nation.
“They love watching their side play the All Blacks and if they are not able to do either of those things, they are keen to watch the All Blacks play anyone else.
“So I think we have a real treasure and that extends to the Black Ferns as well.”