Silver Lake buying a stake in the ABs?
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From the article below (behind a pay-wall):
New Zealand Rugby could be a loss-making venture by 2025 and living off its capital reserves if it takes the deal with Silver Lake.
The national union will, according to an independent report by world renowned accountancy firm BDO, be running at an operational loss of almost $11m in four years if Silver Lake only deliver 50 per cent of their ambitious revenue growth targets.
The Herald has gained access to the BDO report which highlights the true level of risk NZR will be taking by agreeing a deal to sell 12.5 per cent of future commercial income to US fund manager Silver Lake.
NZR questioned the methodology of the BDO report, stating that: "NZR have reviewed the models presented by BDO and believe them to have a number of fundamental flaws."
Specifically, the report highlights that Silver Lake would be entering the partnership with virtually zero risk as they are taking a 12.5 per cent share of net revenue – total income generated by the new company that will be formed, minus the costs of setting up and running that venture - and hence their returns are unaffected by the overall profitability of NZR.
NZR could suffer heavy seven-figure losses year on year and Silver Lake will still pull out millions for its investors.
There are no penalty clauses or punitive outcomes for Silver Lake if they don't achieve their forecasts.(...)
The BDO report formed the basis of a presentation the New Zealand Rugby Players' Association gave to the NZR board, provincial unions chairs and former All Blacks captains last week.
There's much more text, but I don't think I can post it without breaching copy right.
For example, the report also states what happens if all goes to plan. And even that isn't a positive story.
Example:
But that scenario of living off interest payments is questioned by BDO and the NZRPA, who both say it makes little sense to effectively take Silver Lake's money and then pay it back to them at a rate that would be higher than if the national body effectively borrowed the money from a bank or other mainstream financial institutions.
But also:
Earlier this week NZR released a 10-page document to refute the claims made by the BDO report.
NZR stated that: "BDO and NZRPA have selected preferential aspects of the Silver Lake assumptions to support their arguments, blended with alternate models, which we believe demonstrates a misunderstanding of the economic model that underpins rugby."and further comments from NZR.
I have not idea about who is wrong and who is right in this, but one thing is clear: decision-making shouldn't be rushed about something as important as this. -
@billy-tell Ireland’s not NZ. Rugby means something. If you lose that, it just becomes another professional sport.
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@stargazer yep....really interesting about where the risks lie. Hate that. The conversation has been framed that the structure protects us but here we see that that means they have excluded all risks. Sweet for them. It may still be ok if these guys are the Messiahs.
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My thoughts are along the lines that all the parties that are wanting to fund mon-profitable parts of the game, the NZR board and every single Provinicial Union, all with all the independent, and onternal, financial advice, have voted unanimously for the deal suggests that people have scrutinised this up down and sideways, and believe it is favourable.
The only party holding out is the professional players.
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@gt12 blah blah buzzwords... 25 years ... blah ... complicated ... core strength ... partnership ... working through it ... key stakeholder ...
Listen here: https://www.newstalkzb.co.nz/on-demand/week-on-demand/
From 12 through to 1, talks to Brett Impie, then Nicholls (which is as far as I've got), and has apparently given Impie right of reply.
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@kiwiwomble said in Silver Lake buying a stake in the ABs?:
i think i should add something that might explain my "casualness" too this all
I follow Wimbledon in UK football. We had out club stolen, ground sold off team moved 70 miles away, badge and colours changed etc, the only thing left was the legal entity that use to own the club and even that they changed the name of
....so we started a new club back in wimbledon...and its better than the old one was...the fans ultimately make sports clubs
If they do too much that we as fans dont like...someone will form a break away comp...or we'll all go back to watching club rugby or something and we'll have an invitational team that wears black with a non trademarked silver fern on the front.
They cant kill rugby in NZ, so lets try and take their money and see if we can make things more sustainable....and if not we'll try something else
Where there is a disconnect is that the path to a return for Silver Lake is to grow the OVERSEAS fan base and to milk them for revenue.
Which implicitly means deprioritising the views of the DOMESTIC fan base.
In the end that could mean shooting for an annual round robin of the top ten nations. And a decoupling of ABs from domestic rugby, because fitting that in across the globe will be exceptionally challenging.
Of course the English and French clubs won't like that.
If the teams play all the time, it seems inevitably that the AB's 'edge' will diminish.
Furthermore, IMO the AB 'edge' is in large part because of the rugby played from midgets to ITM, which breeds instincts which simply can't be coached.
For me, the playing schedule of the ABs should be entirely outside the Silver Lake remit. Their skills are most likely to be in optimising viewing revenue and merchandising.
The PE playbook tends to involve price increases, reducing cost of services (in practice lowering quality to enable cost savings), elimination of unprofitable activities and deferral of expenditure wherever possible.
I remain a skeptic.
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@rapido said in Silver Lake buying a stake in the ABs?:
@gt12 said in Silver Lake buying a stake in the ABs?:
At the end of the day, how will this be implemented without the players spending more time on the paddock, likely with more international travel?
The big big money comes from the efforts of about 40 guys a year, so I think it's fair for them to be worried about the effect of what might be expected from them when the NZRU needs to generate more revenue.
Exactly what I am going on about in my posts earlier.
NZ rugby started the slide to unsustainably once the SR franchises became cash drains rather than cash generating assets. In years after 2007.
It's the competitions that needs the investment. Not the top heavy current inverted pyramid.
If Silver Lake can buy into the comp and front load a cash injection to get TT SR off and running, and then Pacific Champions Cup with Japan clubs. Then yes, I'd be for it and could see the vision.
If SL can facilitate a TRC that includes the potential big markets of USA and Japan included, then yes I'd buy into that.
But, they're not.
What's changing? Except the chance for the provinces to piss away NZU equity for the price of meaningless AB exhibition friendlies.
NZR needs to have agreed vision with new investor. I suspect if there is one it's not what you outlined, a view I have a lot of time for.
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@taniwharugby said in Silver Lake buying a stake in the ABs?:
@nostrildamus er they are bringing in cash without losing control, 15% is hardly a controlling share...
@Higgins well the official nzrugby app loading teams and scores in was pretty shit last time I used it, so there's that 😉
The veto means that 15% isn't really reflective.
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@number-10 said in Silver Lake buying a stake in the ABs?:
NZR Press Conference after today's AGM
So this is an evergreen deal with SL getting 12.5% p.a. of $200m a year, which is growing.
Let's just say $25m p.a. with some growth. It's sounding more like a royalty stream than an equity investment. $25m assuming a 4% yield is valued at $625m.
I've said it before. Such deals should be for a time period with mutual right of renewal.
I'd much rather NZR just sold them a ten year 12.5% royalty for $200m.
Would make the situation much less liable to run aground over (NZR) unexpected consequences!
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@taniwharugby in essence, it will leave less revenue for paying players, so they are more likely to play overseas, in which case Silver Lake will demand that overseas players are eligible for AB selection to protect revenue from AB games.
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@godder said in Silver Lake buying a stake in the ABs?:
@taniwharugby in essence, it will leave less revenue for paying players, so they are more likely to play overseas, in which case Silver Lake will demand that overseas players are eligible for AB selection to protect revenue from AB games.
Will SL be in a position to be able make demands like that? And if so, would the NZRFU be forced to bow to those demands?
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@rancid-schnitzel said in Silver Lake buying a stake in the ABs?:
@godder said in Silver Lake buying a stake in the ABs?:
@taniwharugby in essence, it will leave less revenue for paying players, so they are more likely to play overseas, in which case Silver Lake will demand that overseas players are eligible for AB selection to protect revenue from AB games.
Will SL be in a position to be able make demands like that? And if so, would the NZRFU be forced to bow to those demands?
I have colleagues that have sold their practices to Lumino, the big corporate dental outfit in NZ. They leave them alone for a while before they start to change the ways things are run, in particular they increase the fees which either works (more profits) or doesn't (patients leave because it got too expensive). They may want to increase their profits but their ideas don't always seem to achieve this. And they certainly don't have the patient's welfare primarily at heart. I have to think that SL will want an increasing return on their investment and may become increasingly insistent about how that is achieved, to the potential detriment of all of us and rugby in general
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@rancid-schnitzel said in Silver Lake buying a stake in the ABs?:
@godder said in Silver Lake buying a stake in the ABs?:
@taniwharugby in essence, it will leave less revenue for paying players, so they are more likely to play overseas, in which case Silver Lake will demand that overseas players are eligible for AB selection to protect revenue from AB games.
Will SL be in a position to be able make demands like that? And if so, would the NZRFU be forced to bow to those demands?
Don't know, but the article makes the point that NZR are selling 12.5% of revenue with no reduction in costs, so if there is not enough subsequent revenue growth, player costs are the most likely place to try to make savings.
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I'm not sure if Treason's article also has the opinion piece from Mark Robinson that appeared in the SST newspaper. I wasn't going to click on the former to check. Anyway, this is what he wrote:
OPINION: Kia ora New Zealand. Rugby is your game and in recent weeks you will have witnessed some robust debate about its future – and the best pathway to ensure it thrives and survives for future generations to enjoy. We have been inspired and humbled by the passion of our rugby community. It has also provided a reminder to New Zealand Rugby of the privilege and honour we hold as guardians of our national game. Ten days ago, our Provincial Unions and the Māori Rugby Board voted unanimously for us to proceed to establish a commercial entity, through which we would then partner with Silver Lake. Through this vote, our stakeholders have acknowledged that our game needs transformation. To do nothing is no longer an option as our game faces generational challenges. Rugby – our national passion – must change and change quickly to ensure its legacy can be passed on to the next generation of New Zealanders. If we are honest with ourselves rugby has been experiencing major challenges in our communities for some time and our grassroots are in desperate need of watering. In many ways our model is broken. We spend more than we earn and cannot fund the areas of our game that need our assistance most. Covid has only exacerbated this. Change is hard and there is no doubt we are faced with a huge decision. But we must be brave. Since rugby became professional in 1995, we have taken giant steps while evolving in a changing environment, but we believe we have always stayed true to our legacy. Now, in 2021 we have an opportunity to shift gears again – to make a change for the next generation. We cannot stand still – we must evolve again, so we can continue to commit to our key strategic goals – putting rugby at the heart of our communities, winning with mana and having loved, global brands, while always being guided by Te Ara Rangatira (The Rugby Way). So, with that in mind – we asked ourselves, how do we move forward and evolve, while honouring our legacy and everything we have achieved in the past. What is the best thing we can do for all of rugby? Our answer – for New Zealand Rugby to create a new commercial entity – in partnership with Silver Lake. Silver Lake is a technology investment firm based in the USA with experience in investing in some of the world’s most renowned businesses, including in sport. They have valued the commercial business of New Zealand Rugby at $3.1bn which means that in exchange for a 12.5% stake in a separate commercial entity, which would hold our commercial assets (including broadcast; sponsorship; merchandising and licensing; matchday revenues and new business streams) they will invest $387 million dollars into our organisation – immediately benefiting the rugby community from junior clubs through to our Teams in Black, and everything in between. What this materially looks like is an immediate injection of funds to help the community game right now and then creating a legacy fund to enable ongoing investment in the areas of our game most in need to protect the long term future – the grassroots, women’s rugby and supporting our Pasifika and Māori programmes and participants. The money will be there to re-build the base of our pyramid and enable us to continue to be strong at its peak. We are talking about more than 150,000 players in New Zealand who are the beating heart of our game and the place where the dreams of our All Blacks, Black Ferns, Māori All Blacks, All Blacks Sevens and Black Ferns Sevens players begin. Silver Lake will also add directly to our off-field operations through global connections and capabilities in technology, data and fan engagement. Having them as a partner will help us, as we seek to create global opportunities and the financial ability to keep our coaching and playing talent in New Zealand. The other 87.5% of this commercial entity will be owned by New Zealand Rugby. Through the creation of this separate entity and partnering through that with Silver Lake, it means Silver Lake will have no presence on the New Zealand Rugby Board and will not make “rugby” decisions. The commercial entity will be governed by a separate Board that will include five New Zealand Rugby representatives (including myself as CEO), two people from Silver Lake and one independent Chair. It is important to be clear on what this deal is not; We are not selling the All Blacks or any of our other Teams in Black. We are not giving private equity ‘control’ and they are not ‘taking over’ any part of our game. The Māori and Pasifika culture that plays a huge role in our game will be protected and our Māori Rugby Board have stated this partnership will have significant benefits for Māori rugby. We have spent a considerable amount of time with Silver Lake to make sure their values, culture and approach align with ours and I can assure you they do. Yes, they are an investor and of course they are partnering with us for their own commercial success. But when they succeed, so does Rugby – across the whole game. There were other options of course – to secure our future and grow our game – and we took time and care to explore these. We considered and then rejected several – a public listing on the NZX, debt funding and a capital raise in New Zealand. All were robustly assessed against our key objectives. Some of these options would have helped us to meet some of our objectives but none of them would have helped us to meet them all. Debt does not provide capability, and we do not have assets to secure that debt. A capital raise in New Zealand does not provide the value of the Silver Lake deal either from a financial or capability perspective and an IPO still would involve selling off a stake of our commercial revenue but without adding the precious capability we need to move forward. None of them would have provided New Zealand Rugby with the strategic benefits we will need to keep pace with the global game and ensure we are not left behind. And, critically, none of them can sufficiently support the long-term investment required for our grassroots. We turned over every rock, challenged ourselves and alongside our Provincial Unions and Māori Rugby Board we commissioned PWC to conduct an external review of the proposed deal. The PWC review found the Silver Lake proposal to be compelling. As for our professional players, we value the partnership we have with them and of course they are a critical part of the future of the game. We respect their input and their desire to ensure we have taken due care with this opportunity, and we are confident that together we can come to the right conclusion for the whole game in New Zealand. With a lifelong love of the game as a former junior club convenor and coach, player at all levels; and today the parent of kids playing rugby at school and New Zealand Rugby’s CEO, I can put my hand on my heart and say that an investor partnership with Silver Lake is the right thing for all of rugby – for the entire ecosystem – and we should welcome it.
Leaked report reveals risk in Silver Lake deal
