New Zealand Rugby, which runs the world-renowned All Blacks national team, has voted to move forward on a $281 million investment proposal from private equity firm Silver Lake, the latest example of institutional investment in sports.
The deal faces one more hurdle, and it’s a significant one. The New Zealand Rugby Players Association must also give its consent to complete the deal, and the All Blacks players have been vocal in the past few weeks about the potential downsides of partnering with a foreign PE firm. The concerns, echoed by many fans, include worries about cultural appropriation, misaligned priorities, and a change in the relationship between the team and the public.
The NZR board met Thursday in Wellington for its annual meeting and unanimously approved the transaction. If finalized, Silver Lake will end up paying $281 million (NZ$387 million) for a 12.5% stake in a new entity that will hold the rugby group’s commercial rights. Up to $32 million (NZ$ 43.8 million) will be designated as working capital for the group, while a pool of at least $28 million (NZ$39 million) will be distributed to NZR stakeholders.
“The game has to change,” NZR chair Brent Impey said in a statement, “and Silver Lake’s capital injection would allow us to re-imagine rugby and invest in the areas of the community game that need it most, particularly teenage and women’s rugby, and to create better and more engaging experiences for our fans.”
An email sent to the players association director wasn’t immediately returned.
Concern over the deal was exacerbated last week after 12 of the world’s biggest soccer clubs, most owned by overseas money, tried to break away from the current European soccer structure to create their own continental championship. The Super League lasted less than 48 hours, and folded after intense pressure from fans and elected officials, many of whom criticized the team owners for putting their own profits above the history and health of the sport.
That’s a conversation happening across the sports world right now, as leagues and teams struggle with the financial pressures brought on by the COVID-19 pandemic. To cover lost revenue, owners have relied on capital calls and loans, but many have turned to institutional investors for help. The NBA, for example, changed its rules to allow private equity investors, and many European soccer leagues are actively courting groups like Silver Lake, CVC and Bain Capital.
Sports teams today must strike a delicate balance between adapting to the globalization of sports, and upholding the local traditions from their past, a phenomenon Syracuse University sports management professor Rick Burton calls “glocalization.” That challenge is running up against more general distrust in the profit motives of entrenched financial institutions—many people overseas, he said, look upon private equity as “dirty American money.”
“So the question is, Who owns the New Zealand All Blacks? Well, New Zealand Rugby owns the national team, but then who owns New Zealand Rugby? And eventually you get around to the people of New Zealand saying, ‘We own New Zealand Rugby, we are New Zealand, and if you sell off something that is near and dear to us, you’re selling off the people of this country,’” Burton said. “Bankers don’t necessarily need to worry about that, but you may find that the rugby board is being told, ‘You saw what almost just happened in Europe with the Super League, are you about to do that too us?’”
Private equity giant CVC owned Formula One for a decade, during which time the racing circuit’s business grew dramatically, but not without frustration from fans. Under CVC the F1 schedule grew to a record number of events, with a widening footprint that included lucrative stops in the Middle East and Asia, far away from the sport’s European roots. Fans also complained that CVC prioritized money over all else in its media negotiations, which resulted in fewer races on free-to-air channels.
New Zealand’s national rugby team, ironically, gained much of its initial popularity from a legendary 1905 barnstorming tour to Europe, where the team won 34 of its 35 matches, mostly in dominating fashion. The tour gave the national team its All Blacks nickname and established the haka as its pre-match ritual.
This method of moving commercial rights to new entity and selling investment in that company is becoming more commonplace (and more controversial) in sports. The Pac-12 Conference experimented with the idea a few years ago before it was jettisoned, and a similar investment in Italy’s Serie A from a private equity group that includes CVC was recently blocked by a few of the league’s clubs.
While the New Zealand government has been working to make foreign investment easier, its regulations on foreign investment could be an additional hurdle for Silver Lake, which has more than $79 billion under management and sports investments that include UFC and soccer club Manchester City. Under revised investment laws last year, the government’s Overseas Investment Office has veto power over deals where more than $72 million (NZ$100 million) is spent to carry on business in the country or in situations where intangible assets are acquired for more than $144 million (NZ$200 million).
Potentially, Silver Lake’s investment may fall under one or more of the review bars. The New Zealand government seeks to protect the country’s assets and heritage through the laws and typically serves as a backstop—that is, it could object but doesn’t need to assent, according to a review of investment law by the law firm Russell McVeigh. An email to the Overseas Investment Office seeking clarification on the agency’s role in the rugby transaction wasn’t returned.
New Zealand Rugby posted an operating loss of $13.6 million in 2020 on about $100 million in revenue, according to its new financial statements. Coupled with an additional $11.6 million write-down on its media deal with SKY Television, the total loss was around $25.2 million. The group projected to lose around $21.6 million (NZ$30 million) over the next five years, according to Reuters, largely because of the rising cost of player salaries due to competition from growing leagues in Europe and Japan.
Attention will now turn to the players themselves. Impey said it was disappointing the union hasn’t given its consent.
“The players are a critical part of this journey, but we have to look at what is right across all levels of the game, our whole ecosystem,” he said. “We hope the NZRPA will realize the significance of the opportunity in front of us and will continue to work toward an agreement in coming weeks.”