Private Equity Investment in Sport
Private equity firm CVC Capital Partners has purchased a 14.3% stake in the Six Nations rugby tournament, putting pen to paper on a deal, which will see CVC pay approximately £365 million over five-years.
The deal, subject to regulatory approval, sees CVC target the tournament’s commercial rights. In return, the governing bodies of England, Scotland, Wales, Ireland, France and Italy are set to receive an important financial boost, which is hoped will ensure growth to the game for years to come.
WHAT DOES THE DEAL MEAN FOR THE SIX NATIONS?
First and foremost, the deal secures significant investment over a five year period for the controlling national governing bodies of the Six Nations, who collectively sold a one-seventh stake in Six Nations Rugby Limited, the corporate body who owns the rights in the tournament, to CVC.
The investment each body receives is based on their respective audience share, which is as follows:
£95 million for the Rugby Football Union (“RFU”), England’s governing body for rugby;
£90 million* for the Fédération Française de Rugby;
£51 million for the Welsh Rugby Union;
£48 million for the Irish Rugby Football Union;
£44.5 million for the Scottish Rugby Union; and
£36 million* for the Federazione Italiana Rugby.
*These figures are approximate and based on respective national audience shares.
From a governance perspective, the aforementioned bodies’ collective stake in Six Nations Rugby Limited is reduced to 85.7%, but they retain their voting control, with sporting decisions remaining at their sole discretion and commercial decisions being subject to their majority consent.
In return for their investment, CVC now owns a one-seventh stake in the rights to the Men’s, Women’s and Under-20’s Six Nations tournaments as well as the rights to the Autumn Nations Cup.
For fans, there are rumours of a paywall being introduced for future Six Nations tournament content. Such a move would mean paying for the privilege of watching an England ‘grand slam’ (or wooden spoon, depending on your persuasion). It would also see an end to the free-to-air BBC and ITV coverage in the UK and spark a lucrative bidding war between major, and emerging, subscription services.
WHAT ARE THE BENEFITS FOR RUGBY?
The COVID-19 pandemic has hurt world rugby as a whole and, in particular, in Europe. Bill Sweeney, the Chief Executive of the RFU claimed that the deal will help offset losses of between £30 million to £50 million over the last financial year.
A notable impact of such a loss is that attempts to grow areas of the sport that have traditionally seen a lack of investment have been side-lined. CVC’s deal with the Six Nations will therefore no doubt be welcomed by proponents of the women’s game in Europe, who will hope to receive much needed support.
Indeed, Ben Moral, chief executive of the Six Nations, welcomed the deal and commented that CVC’s involvement is the ‘next step as we invest to grow the game on the world stage’.
Overall, CVC’s deal with the Six Nations will be warmly received by those within rugby. It could not come at a more pivotal time. The investment in one of the sport’s flagship tournaments signals confidence in the market for expansion that should excite all stakeholders.
ARE MORE PRIVATE EQUITY DEALS IN SPORT LIKELY IN THE FUTURE?
The Six Nations deal is not CVC’s first venture into rugby. The private equity firm has now invested more than £700 million in the sport, with minority stakes in England’s Premiership Rugby and the multinational Pro14 league. Negotiations are also close to being finalised with South Africa Rugby. Nor is their deal unique to rugby. CVC previously owned Formula One, for which it sold for $8 billion in 2016.
In the last few years, there has been a greater focus emerging from the world of private equity towards the sporting industry. Firms have been attentive to the opportunities many sports can provide for sustainable profit. US private equity firm Silver Lake is reportedly close to a US$330 million deal to acquire 15% of New Zealand Rugby’s commercial rights. If they get the all clear from the All Blacks, the deal will sit alongside Silver Lake’s investment in UFC and City Football Group. Elsewhere, the Women’s Super League is attracting interest from private equity firms that are interested in taking advantage of the rise of women’s football worldwide.
These investments should come as little surprise. Whilst the pandemic has caused significant losses within sectors of the sporting industry, such losses may be recoverable. Professional, elite level sport has continued to entertain a locked down audience since June last year. Viewing figures for the Premier League suggest that more people than ever tune in to Premier League matches from their homes. The echoes of a furore over a handball decision demonstrates that sport continues to grab the headlines, even in lockdown (see our latest update here). Elsewhere, the Six Nations Calcutta Cup game between England and Scotland in February saw its biggest audience in more than a decade.
With this unwavering appeal comes the stability of profits on commercial rights associated to sporting competitions. Tournaments like the Six Nations are anticipated by hardcore and casual fans alike. The commercial rights attached to a tournament tend to generate huge profits for the relevant rights holder. Importantly, as maintained by Brett Gosper, the former chief executive of World Rugby, private equity firms must be ‘asset builders, not asset strippers’. A partnership between private equity and a sporting organisation that seeks growth, rather than short term gain, is essential.
Nevertheless, private equity investment will most certainly soon become a growing force within many sports.
Andrew Bennett contributed to this article.