In an exposé that sent ripples through the sports world, this newspaper revealed details of a $75m (R1.3bn) deal between the SA Rugby Union and a US private equity outfit.
On paper, the deal, which hands Ackerley Sports Group (ASG) a 20% stake, might seem like a savvy move to bolster the coffers, but in reality, it’s a deal so flawed that literally almost no-one could miss the pitfalls.
For starters, the valuation of the Springboks’ commercial rights at $375m (R6.6bn) is a glaring underestimation. When compared with the All Blacks, whose commercial rights were valued at a staggering $2.1bn by Silver Lake, Saru’s deal looks like a fire sale. The Springboks, with their storied history and global fan base, deserve a valuation that reflects their true value. This deal, however, suggests Saru is selling itself short, and by a wide margin.
For instance, Silver Lake’s investment valued the All Blacks’ commercial rights 16 times their annual revenue. Using the same yardstick, the Springboks' commercial rights should be worth between $1.5bn and $2bn (up to R35bn). Nonetheless, ASG negotiated a sweet deal under which it would pay 3-4 times the revenue of the Springboks, suggesting that the Springboks make between $94m-$125m in annual revenue, not far from about $135m the All Blacks grind out every year.
What’s more, the financial terms of the deal are troubling. ASG's investment is structured as an expensive dollar-denominated mezzanine deal, under which ASG gets a guaranteed 8% return plus a 20% share of any extra profit. It's a bit like agreeing to pay back the loan with a hefty interest rate and then giving away a chunk of your future earnings. This structure also gives ASG a so-called liquidation preference, meaning if things go south, it gets its money back. It’s a sure bet for ASG.
Under the deal, ASG payments of its $75m are spread out over time, but 80% of the Springbok commercial rights profits go to ASG to repay these tranches. It’s a highly problematic and illogical setup: the issue is that future investments, beyond the initial $35m, could be funded entirely from ASG’s share of the profits, rather than from new money coming in.
Selling a 20% stake means Saru is handing over significant control to ASG. This isn’t just about sharing profit; it’s about sharing decision-making power. ASG gets a controlling say over the commercial rights of the Springboks, including the right to sell their stake to anyone they choose. The risk here is that the Springboks brand and legacy could be influenced by external interests that may not prioritise the long-term health of SA rugby. Essentially, Saru is inviting a fox into the henhouse and hoping for the best.
Sure, Saru has the first opportunity to buy ASG stake if the private equity outfit decides to sell, but its handling of this deal — the high costs, loss of control and potential cash follow issues — does not inspire confidence in its financial management. Translation: Saru might have to pass the opportunity over if and when ASG decides to sell its stake.
The timing of the deal couldn’t be worse. The Springboks are on an upward trajectory, and their brand value is poised to grow. By selling the stake now, Saru is sacrificing future earnings for a quick cash injection.
Who advised on this deal? Jordan & Associates, that’s who. If the deal comes to pass, the boutique investment advisory firm led by Eddie Jordan, a well-known figure in the world of Formula 1, is on course for a big payout. The fee of 10% net of transaction costs, or R131m, due to Jordan & Associates is laughably out of touch with market norms. Typically, such deals attract a fee in the range of 1%-2% of the transaction amount. So why on earth is Saru agreeing to pay five to 10 times the standard rate?
This absurd fee raises serious questions about the advice received and the role played by Jordan & Associates. Are we to believe that Saru couldn’t find a more reasonable adviser? The fee reeks of poor governance and questionable ethics, casting a colossal shadow over the deal and any so-called independent advice Saru might have received.
Thankfully, this deal is dead in the water, forcing Saru to reconsider it and explore alternatives that protect the legacy and financial health of SA rugby. An alternative proposal has been suggested by Saru union members, which comprises some of the richest business leaders in SA including Johann Rupert and Patrice Motsepe.
Any alternative must not take advantage of Saru, which, for some inexplicable reason, seems to be in a weak negotiating position. The future of SA rugby deserves better.
• Motsoeneng is Business Day deputy editor
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