More than most pro sports, rugby depends heavily on gate receipts to thrive. So COVID-19’s toll on the sport has been particularly acute. With many teams now going on 500-plus days with attendance restrictions in place, the pandemic created a host of distressed investment opportunities. But as the dust begins to settle, it is apparent the hardship has also been the catalyst needed to further professionalize a game that still lags economically behind less popular sports. As a result, venture capital-like investment opportunities (i.e. low risk, high reward) within rugby have emerged for sports and entertainment-focused private equity investors. Sharks South African Rugby Club control partner Marco Masotti, whose group bought into the club in January, said smart money is seeing the potential for rugby—and thus, the value of their investments—to grow very quickly. “If you package it right, sell it right, get the calendar right and run it in a more professional way, there is a lot of opportunity for the sport around the world,” he said.
JWS’ Take: Rugby is awash in smart money right now. In addition to Masotti’s group, Silver Lake bought a stake in an entity that will control the All Blacks’ (New Zealand’s rugby team) commercial rights, and CVC Capital acquired minority interests in Premiership Rugby, Six Nations Rugby and the United Rugby Championship. It is also said to be closing in on an investment in the South African Springboks club. Silver Lake declined to comment. CVC did not respond to request for comment.
The investment interest in rugby is driven by the perceived opportunity for growth. According to World Rugby, the sport’s governing body, 338 million people globally claim to be fans. And yet, despite its popularity, professional clubs have not commercialized the sport as teams in other sports have.
Historically speaking, the best rugby has been played at the international level. The sport wasn’t even professionalized until 1995, just after the first Rugby World Cup. But that only partially explains why the sport lags on the commercial end. Challenges with the international competition calendar (which can force top players into an unfair club-or-country decision) and the practice in many countries of treating the domestic league more like an amateur organization than a business have prevented rugby from reaching its potential.
Private equity investors believe COVID-19 demonstrated the need for change. Masotti said there is a growing sense World Rugby, as well as the various national sporting bodies, now understand professionalization needs to occur—at a far greater level than in the past—to secure the sport’s future.
CVC’s investments into rugby should also be helpful in the transformation. “Once you have money at the table that has a vested interest, it has a way of making commercial decisions rather than decisions that are in other interests,” Masotti said.
The Sharks play in the Currie Cup, an annual domestic tournament in South Africa. But it is their place in the United Rugby Championship—a new league that includes the best teams from Scotland, Wales, Ireland, Italy and South Africa—that made investing in the team attractive. Masotti said it is generally accepted that the best players in the world and a large portion of the future economics in and around the sport will end up in the URC. The eight best teams from the closed league (i.e. no promotion/relegation) will qualify for the European Cup, along with top clubs from the English Premiership and the French League, “which is where the dollars are going to be,” he explained.
Remember, if the Sharks qualify for the European Cup on an annual basis, they will have the benefit of paying the low labor costs associated with playing in Africa, while being able to command sponsorship and broadcast revenues equivalent to a team based in Europe.
There are also opportunities to increase sponsorship and broadcast line revenues, though the latter would require some structural changes within South African Rugby Union, which currently controls all broadcast revenue. Masotti entered into a strategic relationship with Roc Nation at the outset in an attempt to help “Americanize and professionalize the Sharks and their brand, and to introduce [the club] to Europe and the United States in sort of a repackaged way.” It’s worth mentioning Jay-Z’s entertainment company has also been contracted by the URC.
Of course, the greatest upside exists in the opportunity to grow the game—and the popularity of the Sharks franchise—across Europe and in North America (Major League Rugby debuted in the U.S. in 2018). That is, in part, why Masotti—a partner at law firm Paul, Weiss—built out an ownership group full of stakeholders that can and want to grow the game internationally. Among those individuals: Milwaukee Bucks owner Marc Lasry and Florida Panthers owner Doug Cifu—both longtime private equity clients of his. The collective intends to bring a URC matchup between the Sharks and the Premiership club Saracens F.C., to the States; they jokingly refer to it as “Super Bowl I.”
While there is a demographic in South Africa very interested in basketball, and there should be some organic cross-promotional opportunities for the Sharks and Bucks, Lasry looks at the South African rugby club as a standalone investment opportunity. He said investments in pro sports teams are ultimately about the ability to grow club revenues and whether or not the popularity of the sport will continue to grow globally. We covered the former above. As for the latter, “If you look at high schools and colleges across the U.S., there are more and more of them that are playing rugby,” Lasry said. “And if [the sports does grow internationally], then it’s a phenomenal investment. If it doesn’t happen, then it’s a good investment.”
Cifu is also bullish on the globalization of the game. “Rugby, much like soccer, has a true global appeal,” he said. “You can have people in South Africa, Ireland, New Zealand and Japan, and they are equally excited about it. So, with the right collaboration, with the right product, [the sport] definitely can grow in prominence.”
As for why the investment in the Sharks specifically, he said: “Marco identified a great team. The entry price was very attractive, and I think we can make some money on this and have some fun.”
Terms of the investment were not disclosed. But the club valuation is said to be in the “multimillions of dollars.”