New Zealand Rugby and the Silver Lake deal: A beginner's guide.
What is the deal?
New Zealand Rugby is hoping to sell 12.5 percent of commercial rights to US technology investment giant Silver Lake for $387 million.
NZR's commercial rights are valued at over $3 billion.
More than nine months in the making, the offer would be for a share in a newly created NZR entity (likely to be called CommercialCo). Any deal must receive backing from more than 50 percent of the country's provincial rugby unions (PUs) and the approval of the New Zealand Rugby Players Association.
New Zealand Rugby has their annual general meeting on Thursday, 29 April, with the deal to be voted on then.
A California-based private equity firm, in 2019 Silver Lake acquired a 10 percent stake in City Football Group (CFG), which owns reigning English Premier League champions Manchester City and teams in the United States, Australia and China.
An investment in one of the most famous brands in world sport would expand the buyout giant's $US 75 billion ($NZ 104 billion) portfolio of companies, most of which are technology and sports venues and teams, according to its website.
Silver Lake has been in the news this week as part of the European Super League crisis in which 12 European football clubs tried to set up an alternative competition to the Champions League, before it fell apart from public opposition.
All Black fans have questioned whether New Zealand Rugby could be caught up in such a situation if they go through with the Silver Lake deal. Those fears seem a tad far-fetched. Silver Lake only owns 10 percent of Manchester City, with the majority being owned by the UAE's Sheikh Mansour. Silver Lake may have had a say in the matter, but ultimately it was the Sheikh's decision to enter Manchester City into the Super League (before quitting the competition two days later). If the All Blacks end up in a breakaway competition it would be NZR's choice.
Why does New Zealand Rugby need the money?
New Zealand Rugby was hit hard by Covid, losing $40 million, close to half of their cash reserves.
Even without the pandemic NZR's current financial model is unsustainable. They lose money most years and are struggling to keep up with the salaries top players can earn overseas.
If they want the All Blacks to maintain their levels of success and retain the country's best players, they need more moolah.
One Super Rugby boss believes that without the Silver Lake deal, rugby in New Zealand, both domestic and the All Blacks, would be in major trouble in a few years time. He reckons without the deal and a change in NZR's operating model, within five years most of the country's best players and All Blacks would be playing overseas.
Provincial rugby is bleeding out and needs money. Otago had to be bailed out in 2012 and Wellington needed NZR to come to the rescue in 2014 (due to costs associated with hosting the World Series Sevens tournament). Taranaki, Wellington, Canterbury and North Harbour all posted deficits in 2018.
Clubs are struggling to attract and keep players; teenage boys are leaving the game and participation levels are down. Grassroots rugby is struggling. A cash injection to the tune of $465 million would help and without it, NZR probably can't survive.
Want a women's Super Rugby competition? NZR boss Mark Robinson has made it clear that without the Silver Lake deal a professional women's competition is likely to remain just a dream.
As a colleague of mine recently wrote "If we want club rugby and schools rugby and women's rugby and Māori rugby and Pasifika rugby - and we want to retain elite coaches such as [Crusaders mastermind] Scott Robertson - then the money has to come from somewhere. In most instances that's via NZR."
What are the sticking points?
The New Zealand Rugby Players Association, headed by Rob Nichol, has several concerns.
The players want guarantees the All Black jersey, silver fern, haka and other Māori and Pasifika cultural values intrinsic to the All Blacks brand aren't sold off or culturally misappropriated. They want NZR and the Māori rugby board to retain kaitiaki of the haka and other cultural taonga.
The financial risk is another area of contention. NZR wants to sell a 15 percent stake to Silver Lake, but it will still be NZR who cover the costs of running the game in Aotearoa. NZR will have only an 85 percent share of future income, but they'll still be 100 percent responsible for the costs of paying players and provincial unions.
So, what if the deal doesn't produce more revenue over time? Who pays if Silver Lake start to lose money or value from their 15 percent stake of NZR's commercial rights? Will Silver Lake take the hit on their own? Will NZR feel the burn? Will the players be hit in the pocket?
The Players Association, Super Rugby franchises and Provincial Unions want assurances as to how NZR will mitigate the risk of the deal not generating as much income as they had hoped. If the Silver Lake deal goes bad and doesn't produce the revenue anticipated, NZR could end up with less money than before. Would NZR then cover costs? Or would the players share the risk also? Would NZR be forced to sell other assets?
What happens if Silver Lake decide to pull out of the deal after their first tenure (a possibility even if they make money) and NZR doesn't get a second cycle with the company? What if NZR then can't afford to buy that 15 percent stake back, could it be sold to another company who don't have NZ rugby's best interests at heart?
The players association is also concerned about pay. Currently players receive 36.5 per cent of NZR's revenue. NZR wants to lower that percentage to about 31 percent, similar to the NRL. The players aren't keen, but NZR believes the Silver Lake deal could significantly increase total revenue, from about $190 million a year to anywhere between $350-$500 million. In theory, that would increase the amount of money available for the players.
The NZRPA are also worried the deal could damage the relationship between rugby and the New Zealand public.
In a letter sent to NZR before the parties went to mediation, the players association said, "We believe there is a risk that this special bond and the nature of what rugby means to New Zealanders, players and spectators alike, is at risk in the proposed transaction."
What about Super Rugby?
Super Rugby franchises are largely in support of the deal and acknowledge that New Zealand Rugby needs extra dough. Most Super Rugby bosses weren't expecting any cash from the Silver Lake deal, but it's believed the Hurricanes, Crusaders, Blues, Highlanders and Chiefs may receive a direct cash boost if the deal gets done.
It's understood Silver Lake has been impressive in dealings and are saying the right things about legacy, the jersey and protecting that heritage.
However, there are concerns over how the extra revenue will be spent and how that spending is governed. What structures are in place/will be put in place to make sure that spending is accounted for and the outcomes measure? What governance structure is there to make sure the money is being used wisely? Could NZR be more prescriptive in their allocating of funding to provincial unions, rather than just handing out cash?
The franchises also want to know who will end up running the new third party entity created by NZR (CommercialCo), which will be responsible for maximising commercial rights and growing future revenue streams.
Will it just be filled by New Zealand Rugby employees or board members? Or will the chairperson, chief executive and staff come from outside NZR? Will it be a mix of NZR and Silver Lake people or will independent staff and bosses be brought it? If CommercialCo is staffed by current NZR employees, is there the potential for any conflict of interest? Who from NZR wants to go into those roles? Are they up to it and would it be appropriate for them to go into those jobs?
RNZ understands a current NZR staffer is being lined up for the CEO role at CommercialCo and that could create tension.
How about the provinces?
Provincial Unions are also largely in support of the deal, they need money more than most (see above), but they're also likely to ask for more once NZR does dish out the Silver Lake money. Whatever the provinces are offered it's likely to be seen as not enough.
There's speculation New Zealand Rugby want to put $200 million of the supposed $465 million they'll get from the Silver Lake deal straight into cash reserves. That could be seen as too conservative by provincial unions crying out for a bigger slice of the pie.
The unions may have to tag how they spend any money the get from the Silver Lake deal, to prove to NZR they aren't squandering it or using it in areas it shouldn't be.
That might not sit well with the unions, who may say, well it's our money, we can spend it how we like, don't tell us how to best support and grow the game in our province.
Heartland Unions, the likes of West Coast and Horowhenua-Kapiti, have already publicly backed the proposal.
What will the deal do for provincial and club rugby?
It should provide a significant cash boost to the provincial unions.
They will have to be clever with that money though, with New Zealand Rugby likely to be more prescriptive with how they want that money used; the unions will likely have to tag how the cash was spent. Does it grow the game in the province? Does it benefit women's and club rugby? How will the spending increase participation numbers? Does it help the unions create a financially sustainable future?
For Clubs, there remains some cynicism as to how much money will end up in their hands. However, community rugby needs help and clubs are (again) largely in support of any deal that could help ease the financial burden on the grassroots game.
Some pundits believe provincial unions have been a bit loose in their spending in the past and would like to see that tightened up.
Clubs would no doubt benefit from NZ rugby giving money directly to them rather than through the provincial unions, but again the unions are unlikely to be keen on such an idea and would prefer the money came through them.
Will the deal get over the line?
In short, yes. The parties involved have been in mediation and RNZ understands those talks have been productive.
Despite the grumblings from the players association and other stakeholders, New Zealand Rugby (and rugby in New Zealand) needs money and needs it now. NZR won't be able to retain top players in the face of big money overseas offers if the status quo remains. The organisation simply can't continue under the current model.
Provincial unions are crying out for cash as are clubs and grassroots rugby and while there's some scepticism around how the extra money from the Silver Lake deal might filter down to those levels, there doesn't appear to be another option that would give NZR such a significant ($465 million) cash injection.
The NZRPA has suggested other capital raising ideas, such as government or public bonds, be explored, but those ideas have been shot down in the past.
To put it bluntly, without the Silver Lake deal New Zealand Rugby could find themselves fighting for survival.
NZR needs the majority of provincial unions to agree to the deal and sign off from the players association.
Getting sign off from the players union is still some weeks away, with talks with the NZR over the players' collective agreement ongoing.