New Zealand Rugby faces crucial vote on US private equity deal

The fate of New Zealand Rugby’s contentious deal with a US private equity firm should be known on Thursday, when members vote at a special general meeting in Auckland.

If passed, Silver Lake will take a substantial stake in NZR’s commercial rights, introducing an unprecedented outside influence to the sporting body which owns the mighty All Blacks.

AFP breaks down details and implications of the investment:

Who are Silver Lake?

A California-founded global private equity firm which has expanded over 20 years to sit among the world’s largest technology investors.

It has ventured into sport and entertainment more recently.

In 2016, it was among a group of investors that purchased the UFC mixed martial arts promotion company and three years later poured $500 million (R7.8 billion) into acquiring just over 10 percent of City Football Group, the owners of English Premier League champions Manchester City and other teams around the world.

Rugby union, with its wealthy fan base, is next in its sights.

The sport has proved an attractive investment opportunity for private equity, with CVC Capital Partners taking stakes in England’s Premiership and the Six Nations tournament.

What do they want to do?

Silver Lake has offered to put NZ$200 million (R2 billion) into a joint commercial entity, which would remain majority-owned by NZR.

The firm would  gain a stake in NZR’s commercial rights and in return provide expertise on expanding its digital footprint to generate revenue.

Its main focus would be the three-time world champion All Blacks, recognised globally for their legacy of success and by casual fans for their fearsome pre-match haka challenge.

The deal values New Zealand Rugby’s commercial interests at NZ$3.5 billion (R35 billion).

Institutional investors would be given the opportunity to purchase a further NZ$100 million (R1 billion) stake later this year, although New Zealand Rugby would retain ownership of around 90 percent.

Why is it controversial?

The deal has been divisive in the New Zealand rugby community since first mooted nearly two years ago.

The first offer was more substantial, asking NZR to sell a stake of NZ$387.5 million but the proposal failed to win the backing of the strong players’ union, who feared it ceded too much control to outside commercial interests and risked tarnishing the All Blacks’ traditions.

The players’ chairman and former All Blacks captain David Kirk says the smaller offer, pitched in February, provides capital on a more sound basis.

However, it has this time failed to win initial support from the country’s 26 provincial unions, who make up NZR’s core membership.

They demanded more time to assess whether the money will flow or only trickle into the game’s grass roots.

Why does NZ Rugby want it?

NZR chief executive Mark Robinson is anxious that the provincial unions agree quickly to what he says is a “transformational” deal, choosing to bring the issue to a head in Thursday’s meeting.

The sport’s finances have operated largely at a loss in recent years but have suffered a resounding blow during the Covid-19 pandemic, with crowd and broadcast income suffering most heavily.

With rugby in the northern hemisphere going from strength to strength, NZR’s bosses insist private equity is the best pathway to ensure financial stability, boost the sport at all levels and slow the departure of star players to lucrative deals in Europe and Japan.

Robinson also believes Silver Lake has the mechanisms to maximise the All Blacks’ commercial value.

How is the vote likely to play out?

It’s grass roots versus commercial reality.

The provincial unions are expected to support the deal, although they’ve said little during four months of behind-closed-door negotiations.

Their views may have been swayed by an independent consultancy report, commissioned by NZR and leaked to media this week, which cast doubt over Silver Lake’s ability to achieve some of its business initiatives.

The report also questioned whether NZR is genuinely in need of the large sum on offer.

At the core of members’ voting will be the ideal to preserve a long-time New Zealand rugby tenet — that a strong base supports those at the top.