It’s no new phenomenon to see sports clubs, which tend to be at the heart of the community they serve, face financial challenges and ultimately go under. But why is this happening in rugby when the sport has benefited from a flurry of private equity investment which is shaping the future of the oval-balled game?
“Formula 1 has really set the blueprint for how equity investors look to structure deals,” Mike Preston, partner at law firm Cleary Gottlieb, said. “When we look at investments in sporting leagues for private equity investors, one of the things we look at is the original Formula 1 model.
“What investments [in leagues] are doing is trying to break away from the individual fortunes of individual clubs – you’re looking at the league as a whole – and in particular it’s the commercialisation of rights.
“One of the reasons why private equity investors tend to stay away from individual clubs is because there are so many variables; on the field, performances, the problems Saracens had [salary cap scandal].
“Where it would become an issue is if you had a series of these failures or insolvencies and then your private equity investors would have to take a look [at] the viability of the league.”
CVC Capital Investments is by far the largest private equity investor in rugby. The company paid £200m for a stake in Premiership Rugby, a further £140m in the United Rugby Championship and £365m for a slice of the Six Nations.
The private equity firm also has a £650m-plus franchise in cricket’s Indian Premier League, a £1.7bn investment in Spanish football’s LaLiga and a £250m investment in volleyball.
CVC has diversified its portfolio to maximise reach across sport, but private equity involvement hasn’t always been received positively.
American firm Silver Lake’s initial £110m venture into arguably rugby’s most marketable entity – the All Blacks – was met with anger from players, but this was resolved by reducing the stake being discussed.
Private equity was godsend
So with news of Premiership club Worcester Warriors in dire need of financial salvation and fellow club Wasps in a similar predicament, is this a new issue for the sport?
“English rugby was a relatively late starter in professional sport, certainly when you compare it to football,” Peter Millichip, sports law partner at Keystone Law, said.
“Right up until the ‘90s, it was still an amateur sport. Whilst rugby has developed greatly in that time, it has struggled to get to grips with the professional side of the game.
“The main revenues received by rugby are channelled through the RFU and come from Test matches, World Cups and the Six Nations, and the commercialisation and licensing of television rights to those matches.
“Both the RFU and the Premiership Rugby have entered deals with the private equity investment firm CVC Capital selling significant stakes in its revenue streams. This appeared a godsend at the time, although it was clear to all those who knew that CVC would expect a return on their investments.”
City A.M. understands that whether the Premiership remains a 13-team competition or, in the event of a club folding, becomes a 12-team league remains irrelevant to the broadcast and commercial deal agreed with BT Sport and CVC.
“It is obvious that there has been a large disconnect between the sport and its commerciality,” Millichip added. “Many of the larger clubs are owned by wealthy individuals who are huge fans of the sport and don’t mind putting millions behind it. However, we are seeing a number of those owners leave the game, often being replaced by those who do not have the same financial clout.”