Cheree Kinnear explains the key points in the Silver Lake buy-in.
OPINION:
The vexed issue of Silver Lake will be back on the table this week and while New Zealand Rugby remains adamant that a deal with the US private equity group is imperative for the game to grow, the national body has, in the last few months, almost eliminated theirown rationale for striking an alliance.
Back in February when news became public that Silver Lake wanted to buy a stake in NZR's future revenue for $387m, there was such uncertainty about likely income and the relative strength of the game's finances that the basis to entertain the proposal was undeniably strong.
NZR was bleeding cash in a pandemic-impacted world and couldn't be sure when or if it would ever stop – and for how much longer they could keep dipping into their cash reserves, however seemingly deep they appeared.
Somewhat curiously, NZR also campaigned to sign with Silver Lake on a vote of no confidence in themselves. The argument to bring in Silver Lake was two-fold – the business needed money, but just as importantly said NZR, it needed expertise.
The presence and value of the All Blacks brand in foreign markets is central to the Silver Lake deal. Photo / Photosport
NZR said they had looked at all sorts of ways to raise capital, but dismissed those which didn't bring with it access to capability – suggesting that if the business was flooded with cash, they wouldn't have the contacts, strategic vision or financial wherewithal to effectively use it.
The argument keeps being made that the key to sustainable growth is growing the presence and value of the All Blacks brand in offshore markets and therefore it would be best to hand this responsibility to international figures with contacts and knowledge of how things work in far-off places.
For the NZR executive and board to paint themselves as incapable of delivering in the cut and thrust of global commerce was always a risk - because while it was intended to vindicate their support for a deal with Silver Lake, it made many wonder whether the better course of action would be to simply repopulate the executive and board with people who are.
The argument that NZR needs the acumen brought by Silver Lake has always been the harder one to swallow, but now it has no chance of slipping down the gullet of even staunch advocates of private equity investment.
In the last few months, NZR has proven unequivocally it is neither impoverished nor bereft of commercial expertise having secured in excess of $50m a year in sponsorship for real estate on the All Blacks kit.
NZR's commercial team have delivered a four-fold increase on the current deal with AIG which is estimated to be worth about $12m a year.
NZ Rugby chief executive Mark Robinson. Photo / Photosport
It was a process that attracted the biggest corporate names in the world, including Amazon, and has rubbished any notion of NZR needing to be in bed with Silver Lake to gain access to those with the deepest pockets.
NZR worked with a marketing firm to land these new deals, which only accentuates the arguments those against Silver Lake have been making, which is that it makes more business sense to pay one-off consultancy fees to recognised experts than it does to sell 12.5 per cent of revenue in perpetuity to Silver Lake.
What it's also done is throw into question what specifically Silver Lake can bring to the table that is not already there.
NZR has locked into six-year deals with new kit sponsors Altrad and Ineos, and has another four years left to run on their broadcast contract – a deal that is looking increasingly like a stroke of genius given the dramas Rugby Australia has incurred by spurning the advances of their long-term partner.
NZR has also organised two additional tests this year for cash payments of about $5m and so it is not clear at all which existing revenue stream it is that Silver Lake feel they can greatly improve.
And if they do have a plan, it will need to be hugely compelling – stack as low-risk and enormously lucrative – as if they come on board under the proposed terms, they will automatically net a share in the existing sponsorship and broadcast deals.
All eyes will be on NZ Rugby and its players this week when they resume talks over the proposed Silver Lake deal. Photo / Getty Images
NZR has done all the hard work bringing those deals to fruition, yet if they sell to Silver Lake, the US firm will be entitled to 12.5 per cent of that revenue – an estimated $17m a year.
NZR, through their well-executed commercial sponsorship and broadcast strategies, have killed their own argument that a deal with Silver Lake is imperative and when talks re-ignite with the New Zealand Rugby Players' Association this week, they will need a new basis on which to sell the merits of a private equity deal.
