Gregor Paul: The next few months will be the most turbulent for New Zealand Rugby

New Zealand Rugby CEO Mark Robinson. Photo / Photosport.co.nz

OPINION

After two years of intense negotiations, bitter in-fighting with the professional players, endless zoom calls and power point presentations to the provinces, New Zealand Rugby will feel today's vote to approve their $200m deal with Silver Lake has brought a long and difficult journey to an end.

But in fact, all it has done has get them to the start-line ready for the real hard work to begin.

Now is the time for the lawyers to step in and draft the long-form documentation that will deliver the micro detail on which the success or otherwise of this deal will depend.

The devil, as every company that has accepted private equity cash knows, is in the detail and the next few months could be even more fraught and intense than the last two years, with one piece of work in particular likely to inflame tensions between the Rugby Players' Association and NZR and lead to significant fall-out.

Back in June last year when the original $388m offer to sell a 12.5 stake to Silver Lake was on the table and strongly opposed by the players, there seemed no way forward for NZR and their plans to raise capital.

What got the players back to the table was firstly the removal of Brent Impey as the chair of NZR. He'd lost their trust after he called RPA chairman and former All Blacks captain David Kirk "disingenuous" and then warned that blocking the deal would be "the greatest on-goal in the history of sport".

The All Blacks line up during the national anthem before the New Zealand and Australia rugby test match at Eden Park. 7 August 2021. Photo / Jason Oxenham.

The second and more important driver in bringing the players back into the fold was NZR's agreement that they would commit to an independent review of their governance structure and process.

The review will not be binding, but the findings will be made public, and the prospect of significant change being recommended is high as the terms of reference have asked the panel to ask the fundamental question of who the game's stakeholders really are.

The current governance structure is no longer reflective of the modern landscape. It's set up, largely, with a narrow and perhaps archaic view that the 26 provincial unions are the only stakeholders whose voice needs to be heard.

There are strong arguments to change the structure and create specific seats and pathways to ensure there is specific representation for Super Rugby, high-performance and the women's game.

Changing the structure of the board may not be the contentious part of the review, however.

It's what it may unearth about the board's processes that could cause the tension as it can't be forgotten that the provinces were voting on Silver Lake deal Mark II, and serious questions have to be asked about why NZR wasted a full year by trying to do Silver Lake Deal Mark I without the cooperation of the RPA.

As PriceWaterhouseCoopers noted in their independent review of the second deal, NZR built all their financial forecasts and sales collateral on a player payment structure for which they absolutely didn't have agreement.

NZR were also adamant last year that they had explored all other forms of raising capital and rejected them all, including a stock market flotation which they said would come with burdensome regulations and no capability attached and was unlikely to be heavily subscribed.

Here we are now, Silver Lake deal Mark II approved with a stock market flotation listed as one of the only three ways the US firm can exit its investment.

And possibly most significant of all yet strangely underappreciated, is that one of the key reasons NZR tried to drive through the Mark I deal with a lower percentage of income going to the players, was that they were determined to lower their fixed costs and lessen the amount of outgoings directly linked to revenue.

With 36.5 per cent of revenue going to the players and 17.5 per cent going to the provinces, NZR has 54 per cent of their expenses directly linked to revenue.

If Mark I had been approved, the players' share would have dropped to about 31 per cent and the total to 47 per cent.

But it is Mark II that has been approved and the players will be retaining their 36.5 per cent, the provinces their 17.5 per cent and once Silver Lake's investment converts to an equity stake after three years, their dividend will mean another 7.5 per cent of NZR's outgoings will be linked directly to revenue.

NZR wanted 47 per cent revenue-linked costs, but they have ended up with 61.5 per cent and if the model was considered broken before, what exactly is it now?

The Steinlagers were flowing at NZR's Auckland headquarters after the vote, but however bumpy the last two years have been, the next few months are likely to be even more turbulent.