ComeAllWithin
Rugby => ComeAllWithin Board => Topic started by: Fearless Fred on Wednesday 05-Sep-2018, 07:12*
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There's an article in today's Times that says that PRL are exploring the possibility of being bought by a private equity firm:
The Premiership is in talks over whether to agree a game-changing, historic deal for rugby by selling controlling ownership of the league to a private equity firm for about £275 million.
The deal is regarded by insiders as potentially the biggest step-change in club rugby since the game went professional 23 years ago, and is being compared to when football’s Premier League was formed in 1992.
The executive committee of Premier Rugby Ltd (PRL) has been in negotiations for about a year with CVC Capital Partners, the private equity company based in Luxembourg which made about £8 billion from its decade-long ownership of Formula One.
PRL is owned by 13 member clubs: the 12 sides in the Premiership and London Irish. The 13 club owners will have a special meeting on Tuesday when the executive committee will present the deal with CVC.
It is unlikely that a deal will be agreed and signed immediately but the meeting could give the green light for the completion of the deal. Club sources indicated yesterday that their valuation of the Premiership is higher than CVC’s offer. It is understood that, if the CVC deal is not approved, PRL has other equivalent investment to consider from outside of private equity.
The RFU cannot stop the deal and thus prevent a new, outside influence from becoming one of the key stakeholders in English rugby. The RFU can veto new owners of the individual clubs, although it has no right of veto to ownership of its league.
The concern for English rugby is whether CVC will flex its muscle regarding its key assets. There is already a contest between club and country for control and ownership of the England players. If the deal with CVC were to go through, it would only be in the following years that any disagreement over how much time the players would be released for British & Irish Lions tours, for instance, or extra England camps, would be apparent.
It is understood that CVC would want to be a quiet partner within the game. However, it will be ruthless on commercial rights. It should be expected that it would drive a harder bargain with the RFU over the cost of player release for international windows.
The clubs have struggled in recent seasons to make the business of rugby work; collectively they lose about £30 million a year, on average £2.3 million each. It is hard to see many of them rejecting a windfall that would deliver about £17 million overnight to every club. The clubs could wipe out almost all of their debt. They see the deal as an opportunity to invest by building new stands and facilities.
Recent tranches of income received by the clubs, mainly from the sales of television rights, have gone largely to the players, which served to inflate player wages. However, there is an understanding among the PRL owners that the CVC money would not go the same way; the deal will not instigate another sharp rise of the salary cap.
The majority of the clubs are understood to be in favour of the deal. The significant opponent is believed to be Bath, who are controlled by the most influential of the owners, Bruce Craig.
CVC, it is understood, regards the Premiership to have been severely undercommercialised in the past decade. CVC’s model with F1 was based largely on selling TV rights globally. This is a pool in which PRL has only dipped its toes. CVC shares a strong relationship with Sky, the broadcaster of F1, who is likely to return to the negotiating table for TV rights of club rugby.
There will be concern, too, for CVC’s exit strategy. It will only be interested in leaving with a large return on its investment, as it did with F1 in January last year. Another potential problem for the clubs is that when CVC sells on its 51 per cent controlling stake, they could find themselves under any ownership. The Times understands that the fine-tuning of the terms for exit from the deal have yet to be completed, though first rights may go to the 13 clubs.
The deal could provide a significant windfall for English rugby, but there is huge potential for an escalation of the antipathy between clubs and the RFU.
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Blimey
Massively enticing for the clubs and potentially great for the sport in the medium term - while at the same time almost guaranteeing total commercial exploitation and its potential death when CVC cash in.
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It does seem interesting. Of course we will then end up like football where the clubs are dictating the international appearances and can veto them, which perhaps as the main wage payers is how it should always be.
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Commercialism is, sadly, the lifeblood of most sports these days. In and of itself, it is not automatically bad, but the exit strategy is the one that stands out for me.
If it costs CVC to buy, they will want a return. A £17m windfall per club will allow huge investment, but if the price at the end of the term is £20m or £25m per club, how many could possibly stump that up? And if not, and PRL gets sold to someone else, then who? Under what terms?
We all want club rugby to succeed; it's where we invest our time, money and passion. To a greater or lesser extent, we want National teams and Lions to thrive as well. The issue is whether this is a short term gain with a long term hangover.
We live in interesting times...
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Yeah, if this happens I'm out and will probably head off to watch the lower leagues.
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CVC are not a charity, they are buying the commercial rights for a purpose - presumably because they think they can get more out of the TV than Premiership Rugby does now.
But that increase goes to CVC not to the clubs.
How much per year will the clubs get after the initial £17m?
Anything? Nothing?
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Its worked pretty well in Formula 1 but then I guess you have wealthy manufacturers subbing the teams a little.
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Far from convinced that this is good thing for the game in the longer term.
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CVC are not a charity, they are buying the commercial rights for a purpose - presumably because they think they can get more out of the TV than Premiership Rugby does now.
But that increase goes to CVC not to the clubs.
How much per year will the clubs get after the initial £17m?
Anything? Nothing?
CVC would buy 51% of the shares via a new share issue. The clubs would share in any dividends paid out of Premiership rugby. Whether there are any would depend on how the deal is structured in terms of the debt and equity structure.
CVC will look for value by improving the commerical performance of PRL and also likely by trying to get a better deal with the RFU. This is a small deal for CVC (certainly their main fund) so they must think they can generate large returns out of it. There is, of course, the ego boost to the deal partners that comes from owning this type of asset.
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I think this would be a big mistake. The clubs I'm afraid are losing money because tehir business model isn't working. This won't help the underlying issue, it is merley a tempoirary sticking plaster to cover current cashflow issues. It will be to the detriment of the clubs in the longterm imho.
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I agree with you Rocker. However a £17m injection per club could allow investment to help turn the losses around - new stand etc. Better than trying to fleece the fans with dodgy bonds.
I'm not surprised Bruce Craig is against it, only that more owners aren't. Is £17m really worth selling control of your destiny for?
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I'm no economist - in fact, I'm a total layman when it comes to this stuff. But surely if the clubs are pretty much all (with the exception of 1 or 2) leaking money year on year then any kind of injection of funding and someone else carrying the debts and losses has got to be a good thing/saving grace? No? Can someone break down - in very simple terms - why this is a bad idea? Not even being trite - I'm a freelance video editor by trade, I don't even know what I'm doing with my own money most of the time!
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I'm no economist - in fact, I'm a total layman when it comes to this stuff. But surely if the clubs are pretty much all (with the exception of 1 or 2) leaking money year on year then any kind of injection of funding and someone else carrying the debts and losses has got to be a good thing/saving grace? No? Can someone break down - in very simple terms - why this is a bad idea? Not even being trite - I'm a freelance video editor by trade, I don't even know what I'm doing with my own money most of the time!
You get the money today, which is good, but the price of that money is a loss of control over the business going forward - CVC would be in charge. Depending on the circumstances of the various club owners, they may be willing to do this to get cash now vs reduced future income.
Now if CVC grow the revenue hugely in a way that PRL couldn't have alone, that all might be a price worth paying but CVC are a bunch of financial guys and it is unlikely they will add much beyond changing the management of PRL or bringing in advisers / consultants to help. PRL could arguably do it themselves.
The real problem comes at the end when CVC want to sell (their fund has a limited life so they have to sell and the staff make their money out of the share of realised profits so are motivated to sell). Who takes control then?
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Surely they can only sell if there is a willing buyer and the willing buyer would then take control.
I see very little downside.
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Surely they can only sell if there is a willing buyer and the willing buyer would then take control.
I see very little downside.
This is what I was thinking. Again, I don't pretend to know any of the intricacies surrounding these types of business deals but surely handing over the commercial and fiscal risk and responsibility to a third party and making it their problem is only ever a good thing? And what, realistically, are these corporates going to do to negatively affect the experience us fans pay to be part of? If they try anything too drastic that the fans don't like, those fans won't be so inclined to turn up - so if they want to make a success of the competition commercially it's in their interests not to have a negative affect on the rugby side of things. At least not to an extent that I, or other fans like me who just want to watch a good game of rugby, will mind about.
But if someone can warn me of something I'm not seeing/understanding (which, as mentioned, is eminently probable) then I'd always prefer to be prepared for disappointment/outrage.
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The problem is that since Mark Evans invented Big Game there has been no other changes in the last 10 years and now everyone is really struggling for sponsorship/partnership. I cannot see any vision from anyone. Whoever pushed through the increase in salary cap last time sounded in my opinion the death knell for premiership rugby clubs surviving in their present financial format. Owners all want money back and this would help them, but I disagree that it is good news and I personally gave up on formula 1 when CVC got involved as it ceased to be a real sport. It just confirms that Premiership does not have clubs anymore just business trying to break even at worst or make a profit at best. So forget membership, debentures just a Season ticket or not. How it will fit in with England and the rfu I have no idea but for my money these guys are only interested in one thing themselves and maximising their profit. Quins have tried to wrap it up in Community and Foundation but this is is Very very sad.
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You would think that a company with a healthy profit in mind would have done some homework on an investment of millions. It wouldn't be in their interest to lose money with a half cocked idea of what model they think might work. There has to be a profitable and secure long term strategy in order to make the deal work. Even if you wanted to sell later it would still have to be worth while someone else investing in.
It looks like a good idea as it would enable clubs to invest and possibly make themselves more profitable. Maybe it's too good to be true and you know what they say about things like that.
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The problem is that since Mark Evans invented Big Game there has been no other changes in the last 10 years and now everyone is really struggling for sponsorship/partnership. I cannot see any vision from anyone. Whoever pushed through the increase in salary cap last time sounded in my opinion the death knell for premiership rugby clubs surviving in their present financial format. Owners all want money back and this would help them, but I disagree that it is good news and I personally gave up on formula 1 when CVC got involved as it ceased to be a real sport. It just confirms that Premiership does not have clubs anymore just business trying to break even at worst or make a profit at best. So forget membership, debentures just a Season ticket or not. How it will fit in with England and the rfu I have no idea but for my money these guys are only interested in one thing themselves and maximising their profit. Quins have tried to wrap it up in Community and Foundation but this is is Very very sad.
But my question would be: how does this affect your matchday/fan experience? I'm not being contrary or anything, just genuinely interested to know. Quins have been running as a business for decades - why didn't you stop watching Premiership rugby years ago? I can only speak for myself but, as a fan of the club, my main ask is that Quins do things on the pitch that we want to come and watch and that they serve up enough food and booze to keep us happy (and have facilities to keep kids busy for those who bring their youngsters). To do that, the club needs to do its bidding off the pitch. The two aren't mutually exclusive - they come hand in hand. I don't really understand what you expect them to do...
My very simple view is that as long as Quins maintain performance on the pitch and around the ground, I'll keep coming back. I expect Quins to keep themselves afloat as a business and am doing my little bit to help them do that but the only thing I expect in return is some great memories - I don't need to know who owns what and how they're managing their affairs. I trust they know what they're doing in the best interests of the business. Just give me high intensity rugby, a box of piping hot fish and chips and a fresh pint. Happy days.
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Perhaps they think that there are untapped or poorly investigated markets that with enough investment can produce extra revenue for everyone. If rugby takes off in the US or maybe other rugby countries can have access to prem games and pay a bit for it,that can't be a bad thing. If prem teams could get merchandise sales around the world because of extra coverage would that help.
I stopped watching F1 when half the races went to Sky as I won't have Sky. I couldn't follow it so easily and lost interest. I am only one and Monte one other who have opted out due to changes but if overall the revenue from the new controls increased then it is a good thing for F1 overall.
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So back to our friends Stuart Barnes and Dewi Morris for Premiership rugby is what people want _ joy oh joy
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CVC are typical private equity sharks. They made a lot of money for themselves from F1. This was by buying an existing money making operation, but not one which was fair. Their idea of generating growth was jacking up prices. They had no long term strategy for the business .
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So back to our friends Stuart Barnes and Dewi Morris for Premiership rugby is what people want _ joy oh joy
Forgive me if I'm being stupid but why would that be the case? And does it really matter, in the grand scheme of things, who commentates on the game? Especially if it keeps the game afloat? I really don't think these decisions are being taken lightly - but maybe I'm naive.
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In the greater scheme of things, does it matter if something good is replaced with something bad? Strange perspective.
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Why is it bad? There is simply no basis to say that whatsoever.
A suggestion that rugby will go back to sky, for example, is pure speculation based on nothing tangible.
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The reality is that almost every club in the league is making losses every year. At this rate, the entire sport will go bankrupt. Is that good?
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Just goes to highlight the incompetence and lack of willingness of Buffy the Blazer at commercialising and widening rugby's appeal to newer bigger audiences. We've all moaned for years about myopic vested interests - I bet the new owners would love to see a vibrant English game expanded domestically and exported globally. Pro14 are already getting TV deals in China that PL wouldn't even conceive of.
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In the greater scheme of things, does it matter if something good is replaced with something bad? Strange perspective.
That's exactly what the "grand scheme of things" disclaimer is. Do I love Barnes and Morris' commentary? No - although Harrison and Greenwood are good value, so it really ain't all bad. Do I want to see the Premiership go down the pan? Even more no. So which one would I choose? Sky coverage, obviously. That way I can still watch the game and, quite frankly, I'll make my own mind up about what's going on without needing the commentary team anyway.
Regardless, like I said and as GP2110 reiterates, where is the evidence that CVC buying 51% of the Premiership = Sky coverage? Oh yeah, someone on here who has already decided "CVC funding injection = bad" randomly came up with that assertion to justify their negative feelings about the whole thing, which I'm still yet to get to the bottom of (and would still like to understand). And I hate to be a stickler for detail but BT Sport have an exclusive rights contract in place - one that they outbid Sky for - so who says Sky even want it for that price anyway?
So yeah, I'll take saving the Premiership over any of this nonsense about Barnes and Morris and rugby players being replaced by F1 cars...
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Yeah, if this happens I'm out and will probably head off to watch the lower leagues.
Why?
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Tricky one this....
What’s clear is that the business side of the game in England is poor and that a lot more needs to be done at individual clubs to maximise profit generating growth outside of and alongside the core rugby activities.
Quins probably have more opportunities to do this than many clubs because of their location and brand. But London is competitive. The new stadium development is essential for this but it will need brave, commercial and ambition vision of the sort we’ve not seen to date.
The global game also has a long way to go. I get worried about what the proportion of empty seat at the Rugby Championship and Super 15 games say about the state of the game and its appeal. If you can’t fill the ground for the Wallabies vs All Blacks in Sydney things aren’t in a good way...
So...new ideas and investment are essential! I’m not sure these guys are right for it - it’s just a hunch - but if not them then who? There is no one at the clubs or the rfu who have shown anything bold or brave to shake things up in recent years so I just can’t see it happening with the status quo.
Interesting times.
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The problem is that since Mark Evans invented Big Game there has been no other changes in the last 10 years and now everyone is really struggling for sponsorship/partnership. I cannot see any vision from anyone. Whoever pushed through the increase in salary cap last time sounded in my opinion the death knell for premiership rugby clubs surviving in their present financial format. Owners all want money back and this would help them, but I disagree that it is good news and I personally gave up on formula 1 when CVC got involved as it ceased to be a real sport. It just confirms that Premiership does not have clubs anymore just business trying to break even at worst or make a profit at best. So forget membership, debentures just a Season ticket or not. How it will fit in with England and the rfu I have no idea but for my money these guys are only interested in one thing themselves and maximising their profit. Quins have tried to wrap it up in Community and Foundation but this is is Very very sad.
Just one point, the Premiership stopped having clubs and had businesses the moment the sport went professional. It may be a total and utter potentially unsurvivable mess but that's professional sport if you want a mass audience.
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Looks like it's going to be rejected:
From the Telegraph (https://www.telegraph.co.uk/rugby-union/2018/09/05/premiership-rugby-reject-275m-bid-private-equity-firm-cvc-50/)
Premiership Rugby are expected to reject a £275 million bid for a major share in England’s top league from a private equity firm – although two other finance-raising options are understood to be under strong consideration, Telegraph Sport can reveal.
Private equity firm CVC Capital Partners, who bought a 70 per cent stake in Formula One in 2006 for about £1.3 billion and last year sold it to Liberty Media for around £6.2 billion, have made an offer to secure a 50 per cent holding in English club rugby’s elite tournament.
The deal, regarded in some quarters as a potential game-changer for the club game, will be considered by owners at a board meeting on Tuesday.
However, the organisation’s rules state that such a financial investment requires unanimous agreement from clubs and it is understood that several believe CVC’s offer undervalues the tournament, despite combined losses of around £28.5 million last year.
Premiership Rugby has seen its turnover rise dramatically to £70 million this season, a rise of 88 per cent in five years and those opposed to the offer believe that it does not reflect the potential growth of the league.
Premiership regulations also state that no entity is allowed more than 25 per cent shareholding, which is currently split between 13 clubs although the clubs would have the right to alter that if unanimity is reached.
However, it seems that the CVC’s valuation of the league at £550 million has left some club owners underwhelmed while others have expressed concerns with giving an outside body a major say in the sport’s affairs.
“Given the rise of the revenue over the last five years, the offer of £275 million is not enough,” said one senior club source. “Selling 50 per cent or more of the league might give us a short-term windfall, but it would result in lower central revenues going forward unless the investor is able to increase them significantly.”
Caution expressed over the CVC offer could make two other options that will be presented to club owners on Tuesday more attractive.
It is understood that clubs will also consider an offer of smaller financial investment for a minority shareholding as well as an option to effectively take out a “mortgage” on future league revenues, giving the clubs a much-needed short-term cash injection.
Any new investment is likely to see the majority of clubs insist that it does not result in a hike in the salary cap and demand instead that the money is used to invest in facilities to grow the domestic game.
Saracens are currently looking for an investment for a £30 million for a new stand at Allianz Park while Harlequins, Bath and Newcastle are also planning to upgrade their stadiums.
The prospect of an outside investor seeking to increase the commercial value of club rugby also raised fears of fresh aggravation with the Rugby Football Union over the release of top players to England, with the potential that clubs would demand more money from the governing body.
The RFU declined to comment beyond saying that it would monitor developments, although one senior source claimed that a deal would require approval in a special general meeting.
“What will happen to academies and player development if profit is the motive,” said the source. “How can the RFU inject huge amount of funding into a company who will be looking for a 9.25 per cent annual return on investment?”
The clubs, however, moved to reassure those fears by insisting that any new investor would respect the current eight-year £225 million deal signed with the RFU in 2016, which secures greater access to England players and offers financial incentives for clubs to field English-qualified players.
Eddie Jones, the England head coach, refused to be drawn on the potential impact of a new investment in the club game, saying only that access was already at a minimum.
“We can’t get them [players] any less,” said Jones. “If we get them any less, we won’t see them at all. If you look at Australia, New Zealand and South Africa at the start of the Rugby Championship they got a four-week camp. If they want to give them to us any less then I’ll be out of a job. I might be out of a job anyway!”
Another senior source reflected concerns about the impact that outside investors would have on English rugby as a whole. “There is a real danger of the clubs getting blinded by money,” said the source.
Tom Gladstone, director of consulting at sports marketing firm Synergy, said he expected CVC to secure a TV deal in America if their deal was accepted.
“I wouldn’t have said it has Premier League or F1 level of potential, but there is clearly a realisation that there has been under-commercialisation,” he told Telegraph Sport.
“From a central revenue point of view, the biggest potential is clearly on the TV broadcast deal.
“With BT and Channel 5 deals coming up in 2021, the TV deals will be foremost in their minds.
“The natural rugby playing nations are potential new markets, but America, with Gallagher [as Premiership sponsor] coming in, will be a big strategic push.
“I can’t imagine the salary cap will be moved. I think there will be close controls on where the new money is spent. It will need to be invested in infrastructure and marketing to grow the game.”
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TomBuckQuin well done for avoiding the knee jerk reaction of "They want to make money so it must be bad".
But my concerns with CVC's proposal are:
1. If they take over 51% of the business, they presumably get 51% of the profit. So in return for £20m ish per club, the clubs are handing over half of their future dividend income from PRL.
You would hope that thje clubs invest the £20m and grow things so that they can replace that lost future income. But based on past history, what's the chance they all just spank it? So effetively by taking the money now, are they mortgaging their future?
2. CVC aren't a charity so will be putting in £275 with the aim of getting more than that back. I don't know what they did in F1 but it sounds from others here as though they made it lots more expensive. Which would be a shame.
OP
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Owners will clear all or some of their debt with this cash, although we have always been assured that Charles Jillings and Duncan Saville were not about to recall their debt. However the bond last year was trying to do just that.
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Oliool - Yes - if they took 50%, they would get 50% of the profits. But, at present, as noted in the Tory article, there were combined losses of around £28.5 million last year. That is not new. For the last few years, there has been no profit to share.
Moreover, everyone seems to be of a view that CVC would only be interested if they saw a good return. So 50% of a good return is better than a 100% of a debt, which is growing and which is causing the clubs to be in financial turnover.
As regards the previous discussion re: Sky, they would only get rights if they outbid BT. Either way, the more revenue from tv rights, the better for the clubs financially.
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However, it seems that the CVC’s valuation of the league at £550 million has left some club owners underwhelmed
This is a bit bizarre.
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Oliool - Yes - if they took 50%, they would get 50% of the profits. But, at present, as noted in the Tory article, there were combined losses of around £28.5 million last year. That is not new. For the last few years, there has been no profit to share.
I don't think that's quite right. The clubs as a whole are making a £28.5m loss. But PRL (which is the thing they are thinking of selling) is profitable. It pays dividends to the clubs (i.e. it hands them their on 13th share of the TV rights etc).
So by doing this they would be handing over something which is currently of value to them.
OP
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Interesting thread with some intelligent contributions, thanks.
From my point of view, the minute it becomes too costly to travel and watch the games I will happily become an armchair fan utilising RugbyPass/ BT/Sky/Premiership TV or whoever and maybe attend key games of my choice. I will still very much be a Quins fan but able to afford a couple more Chambermaids.
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Oli - But PRL is (as far as I understand) 100% owned by the 12 Premiership clubs + Irish.
So even if PRL is profitable, those profits go straight to the clubs and the dividends are reflected in the clubs 'figures. The fact that all of the clubs are making losses, means that the dividends are plainly not sufficient at present.
Alternatively, PRL is very profitable - but the clubs have chosen not to draw the profits (in which case their losses are artificial). That would make no sense to me.
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Yeah, if this happens I'm out and will probably head off to watch the lower leagues.
Why?
At the moment I feel that Premiership clubs are treading a fine line between commercialism and running an accessible sport that is still firmly rooted in the community and supplying players to the England team. My concern is that if CVC get involved then the links with all of those will be put under severe strain in the search of profit. We'll end up with a situation much like football or current F1.
I appreciate I'm being cynical but I just don't want to watch a sport that is a commercial entity's play thing much beyond the level it already is.
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Oli - But PRL is (as far as I understand) 100% owned by the 12 Premiership clubs + Irish.
So even if PRL is profitable, those profits go straight to the clubs and the dividends are reflected in the clubs 'figures. The fact that all of the clubs are making losses, means that the dividends are plainly not sufficient at present.
Alternatively, PRL is very profitable - but the clubs have chosen not to draw the profits (in which case their losses are artificial). That would make no sense to me.
What you say is right. Today they draw the profits and still make a loss overall. The concern is that they sell half of PRL, only get half the profit in future, and so make a larger loss - unless the money paid by the buyer is well invested, to grow the overall profit of PRL by more than double.
Which comes back to the original point of - will the clubs spend that "jam today" money well, or will they just spank it...? I know which one I suspect.
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It's an interesting debate.
I fail to see what CVC bring to the table apart from expensive cash. If the clubs wanted a cash injection (albeit it might be smaller, I'm sure they could borrow against the TV income stream). This would be significantly cheaper than CVCs money. I doubt CVC will really add significant value to the sport. The team in CVC are money guys (of which the PRL has access to plenty). If they have a bench of potential managers / advisers who are that much better than the current team PRL can go and hire them anyway.
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Surely they can only sell if there is a willing buyer and the willing buyer would then take control.
I see very little downside.
Surely that depends who the willing buyer is? For example would you like to see half of PRL controlled by an oligarch? The Glazers? Stan Kronke? etc
The clubs should think very, very carefully before conceding control of their largest revenue stream.
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I find this figure of £28.5m loss by the clubs quite misleading. When the money the sugar dadies put in is treated as investment and club balance sheets show big loans due to them, this is nonsense, they are just trying to fool us (or more likely the taxman). In reality they must know that very little of this money will ever be repaid to them. In economic reality this is income to the clubs.
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The taxman? I don't think you understand how tax works. How could it possibly be reported as income? It will be a very dark day when investment proceeds are treated as taxable income, whether they be capital or loans. Don't give them ideas.