If something looks too good to be true, it probably is, so the saying goes. As CVC extends its rugby union portfolio to the Six Nations after buying a one-seventh share of the unions’ commercial rights for £365m, will it look to leverage the game in debt before pulling out with a handsome profit, as happened to companies such as Debenhams and Saga, or will it lift a sport that has struggled to maximise its commercial value to overcome its current financial struggles?
When the Glazer family took over Manchester United in 2005, most of the capital it used to buy the club came through loans, most of which were secured against the club’s assets, with interest payments of more than £60m a year. Within eight years, the debt of the previously profitable organisation was more than £300m and this month its co-chairman Avram Glazer put shares worth £70m up for sale. The club will receive nothing from the proceeds as its debt nudges towards £500m.
“The risk for the Six Nations is not the same,” says Phelan Hill, the head of strategy and consulting at Nielsen Sports. “The Glazers have a controlling stake, CVC have 14%. United have fixed assets and property that can be leveraged against, but CVC do not have that. I would have been more worried had they purchased one of the unions and been able to leverage a stadium like Twickenham. There is no quick buck to be made and it will not be an in-and-out like a Debenhams. It is about finding ways of driving additional value.”
It is more than a year since the unions played before full houses and they have all had to make budget cuts and reduce wages. When CVC bought a stake in Premiership Rugby at the end of 2018, it provided a stepping stone to the far more lucrative international game. When the Pro14, run by unions, followed little more than a year later, talks had already started with the Six Nations, but has the urgent need for money resulted in CVC having the better of the deal?
“It was the only deal for the Six Nations,” Hill says. “They need it, but it can benefit the game in the long term because CVC will only make money if it improves the business model. Club rugby was a good entry point because CVC gained knowledge and learned where the conflicts were. It would not have had much traction if it had gone straight for the Six Nations and I would expect the next move will be in the southern hemisphere to join things up.
“If CVC’s vision is to sort out the calendar, that will be a big help. I expect it to drive economies of scale and get better alignment, starting with the calendar which is fragmented. It is poor that the domestic game does not have access to star players for so long: imagine Barcelona rarely having Lionel Messi. Rugby has to move away from constant conflict and that means a global calendar: it has greater opportunity than any other sport because it has been so badly managed. I have worked with private equity and other investment firms who have been approached by rugby clubs. It is a very active market for clubs at the moment.”
Premiership clubs welcomed back their England players this week having hardly seen them this season. Kyle Sinckler has made one league start for Bristol, the same number as George Ford and Ben Youngs at Leicester, and one more than Anthony Watson at Bath and Luke Cowan-Dickie at Exeter.
“It is all about getting better alignment,” says Hill. “When RBS sponsored the Six Nations, France had a deal with a rival, Société Générale. That sort of conflict does not help maximise sponsorship rights. You only get a premium price when you provide exclusivity and by bundling the autumn internationals in one, rather than the six selling rights individually, it becomes like American sport where value is enhanced through deals negotiated centrally.
“Until the pandemic, sport would hike rates by 20% every media cycle, but I do not think that pattern will continue. Buoyant media rights led to lazy business models: rugby has an old one and there has not been enough thought about content and engagement with fans. CVC will look to change that and, with its experience in sport, recognises that the way we consume sports media is changing.”
The first debate will be between free-to-air television and pay TV. Last weekend’s round of the Six Nations generated audiences of more than eight millions viewers: at a time when spectators are not allowed in grounds or pubs, had the matches been accessed only through subscription, the number would have been reduced by around 90%. The Six Nations are looking for a hybrid model, live matches on both platforms, but by recognising that some bring more to the tournament than others – the RFU is getting £95m a year from the CVC deal compared to Italy’s £36m – it signals that most if not all of England’s fixtures will be behind a paywall but not many of Italy’s.
“Rugby’s fan base is pretty strong and affluent,” says Hill, “but it tends to be white, male and over 50. CVC will need to attract a different generation so expect more short-form digital content. Rugby is a ripe sport for engagement: it has never fully evolved since turning professional but it is well supported. CVC has recognised that investing in just one component will not get you very far. They now have so many touch points they can influence the future direction of the sport. They will be looking at the bigger picture.”
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