It’s no secret that venture capitalists are out to make money. So, anyone who enters a deal with that type of company knows what they are getting into. With two consenting parties, it’s reasonable to assume there’s something in it for both sides.
When CVC Capital Partners bought a stake in the Premiership, it triggered an instant windfall reported to be £13.5 million for each of the 13 clubs. All 12 incumbents plus London Irish, who will join the top flight next season, received a payout.
In return, CVC took a 27% share of Premier Rugby. And that percentage will grow if television revenues rise in the coming years.
It looks like a good deal all round. But there should be concerns over where this leaves the sport, and what it means for the future.
Many, if not most, rugby clubs are struggling to make ends meet. It’s tough when players can command massive salaries, but the revenues are not keeping up with ever increasing costs. Club chairmen face a struggle. To attract supporters, teams must be successful, and that means finding the cash to sign marquee players while at the same time managing to generate the money to meet day-to-day costs.
Because so many clubs are toiling to balance the books, it was an easy decision to welcome CVC with open arms.
A cash injection and a promise of more if things go well provides a degree of confidence in the future of the game. And for the profitability of clubs. That positive outlook has evidently piqued the interest of others who are keen to get involved in rugby.
Indeed, Leicester Tigers have announced plans to sell the club, citing interest among potential buyers that has been fuelled by the CVC deal.
Leicester chairman Peter Tom said, “CVC’s investment in Premiership Rugby has created a unique opportunity – catapulting the sport into the public consciousness like never before and broadening its appeal to potential investors.”
Companies such as CVC tend to invest for periods of five to ten years and would normally look to sell out at a profit. That is typically achieved by generating higher levels of income or cutting costs.
One way to increase revenues at premiership clubs is to sign up to more lucrative television deals. Another is to hike the cost of following the fortunes of a team. And that’s where there is an impact on supporters. Higher television revenues are likely to mean selling rights to subscription broadcasters. Another route to higher income is more expensive season tickets or admission charges and inflated prices for merchandise or branded goods.
Cutting costs is another matter. Efficiencies are possible and can be implemented by clever business people. However, there are rarely positive implications if it comes to saving money.
Rugby clubs have always had a strong social aspect and many are at the heart of their communities. This will be lost if generating revenues becomes the main goal. And that’s ultimately what will happen if the sport continues along the road it is now on.
Next year will mark the 25th anniversary of rugby going professional. The recent arrival of the moneymen would suggest that it is coming of age. However, while a glance at what has happened in other sports should be held up as an indication of what is possible, it is also a cause for caution.
Written by Colin Renton