NZ Rugby needs to sort out its governance before chasing after Silver Lake's cash. Photo / Photosport
OPINION:
Sports Minister Grant Robertson wants to stay on the bench but may yet need to take the field, if only as referee.
As talks carry on between New Zealand Rugby (NZR) and the New Zealand Rugby Players' Association (NZRPA), Robertson says commercial decisions about rugby and its players are "ultimately" up to NZR. He says he continues to encourage NZR and NZRPA to reach agreement about the most "appropriate" path forward.
Whatever they decide, Robertson says the Government, through Sport NZ, will continue supporting grassroots rugby, and promote growth areas of the game, including women's rugby.
Sport NZ's $700,000 each year is immaterial alongside NZR's losses of $35 million last year and $7m the year before. But the Government is a bigger stakeholder than Sport NZ's cash implies. Rugby's national importance means governments both red and blue put their hands in the taxpayers' pockets for major events like next year's Rugby World Cup (RWC) for women and the 2011 and future RWCs for men.
While David Lange boycotted RWC 1987 over the previous year's Cavaliers tour, RWC 2011 wouldn't have happened without Helen Clark's extraordinary support, nor would it have been a success without John Key. For Eden Park to host an RWC final for men in 2035, NZR will need Prime Minister Arena Williams or Simeon Brown onside.
Robertson may be diplomatically keeping mum, but NZR and NZRPA would be wise not to ignore his and Jacinda Ardern's perspectives, and those who may follow them.
It is extremely unlikely a Labour Government would be happy with NZR selling 12.5 per cent of the All Blacks' commercial rights to a California technology investment firm. If anything, National's conservative base would be even more appalled.
The Silver Lake deal is the legacy project of long-serving NZR chairman Brent Impey. It is an attempted response to NZR's ongoing losses as a consequence of its broken business model.
Despite hundreds of millions of dollars from the likes of adidas and AIG, Impey and his board have so far failed to make NZR financially sustainable. They and NZR's 26 provincial union shareholders have been convinced the answer is setting up a new CommercialCo, with two Silver Lake directors on its board.
Apparently, these two directors will open doors in Silicon Valley to help CommercialCo transition the All Blacks from a team of 5 million to one of 7 billion.
As someone who still buys tickets to actual All Blacks games, I confess to not knowing what that all means. Then again, I couldn't imagine watching yachting through Animation Research when listening to Pete Montgomery on Newstalk ZB in 1986. There is clearly much more to do, to bring rugby to life for a wider audience, especially women's rugby, one of the world's fastest growing team sports.
Silver Lake would pay $387m for 12.5 per cent of CommercialCo, valuing it at $3.1 billion. If Silver Lake's networks double that, it will make a cool $387m in capital gains, while NZR thinks it would then own 87.5 per cent of a $6.2b company, albeit equity that would presumably never be sold.
In fact, there's no reason to think CommercialCo would do better than NZR alone.
Even if Silver Lake is the rainmaker Impey believes, it will have just two seats on an eight-person board controlled by NZR. That board will then hire an international recruiter recommended by Silver Lake to appoint a CEO and senior managers.
It will be those executives who determine whether CommercialCo succeeds. If they're available, NZR should hire them now, perhaps using Silver Lake's preferred recruiter. Silver Lake directors don't do day-to-day management.
The real driver of Impey's plan is NZR's thirst for cash. Revenue keeps growing strongly, but costs by more. The only part of the empire turning a profit is the All Blacks.
The salaries for 270 fully professional All Blacks, Super Rugby and National Provincial Championship (NPC) players take 36.5 per cent of NZR's revenue.
Despite their best talent being paid by NZR, the provincial unions collectively make losses, which is hardly surprising since they try to run 14 professional NPC teams off a population of 5 million, plus 12 heartland teams. To stop them becoming insolvent, the provincial unions take 16 per cent of NZR's revenue. Impey is promising even more cash for the grassroots.
NZR has decided its broken business model can only be solved by selling equity rather than increasing sponsorship revenue. The NZRPA agrees, with its Forsyth Barr proposal calling for a 5 per cent Initial Public Offering (IPO) on the New Zealand Exchange (NZX).
If, as NZRPA and Forsyth Barr chairman David Kirk says, the idea is to keep the All Blacks brand out of foreign ownership, then this would need to include a Kiwishare concept, restricting ownership to New Zealand citizens.
That could include people like Sir Ian Taylor, Rod Drury, Sir Peter Jackson, Sir Richard Taylor and Peter Thiel, all of whom know a thing or two about making money from new technologies. It might be easier to just invite them to invest directly, to avoid an IPO requiring CommercialCo to notify the NZX whenever an All Black sprains an ankle.
A third option, pushed by former NZR CEO David Moffett, calls for a co-operative like Real Madrid, the Green Bay Packers or Fonterra. This would also keep the brands in New Zealand ownership.
Whatever happens, the much bigger question is whether NZR has the governance arrangements to ensure, first, that the new capital is invested wisely to generate sustainable returns and, second, that new grassroots spending is effective. We might start by asking where all the adidas and AIG money has gone.
What assurances are there that the new grassroots spending won't just be wasted on fixing up decrepit provincial stadiums and subsidising loss-making NPC teams, than genuinely make a difference for young players the way the adidas and AIG money hasn't?
This time, the stakes will be higher, since equity in the premium brand will have been sold, never to return. Unfortunately, the new chairman to take over from Impey on Monday will not have a background in technology, international finance or marketing.
New Zealand rugby has never had as much money as its rivals in Australia, South Africa, England and France. Likewise, Team New Zealand and Luna Rossa had less money than the New York Yacht Club and the Royal Yacht Squadron. But it was the Kiwis and Italians who made it to this year's America's Cup.
Until all rugby stakeholders are convinced the rugby establishment knows what to do with a cool $300m-plus in cash, NZR shouldn't be selling any equity in one of this country's most sacred icons.
- Matthew Hooton is an Auckland-based public relations consultant.
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