SA Rugby Union (Saru) president Mark Alexander has warned of the sport’s demise in the country if its revenue structure isn’t overhauled and an equity partner found.
Alexander told MPs on Wednesday an equity partner would introduce a key cog in diversifying the union’s revenue base.
He said the union had opted for a partner with international expertise because of the dire need for a cash injection to sustain the sport. He said Saru had reached a local sponsorship ceiling and growth lay offshore where proposed US-based Ackerley Sports Group (ASG) had expertise.
“We do not have a reserve fund. Even though our income streams increase, so do our expenses,” Alexander said. “If we do not have a cash investment to at least ensure financial sustainability, if we are hit with a crisis again [such as Covid], we are going to face a serious problem.”
ASG is seeking a 20% stake in Saru’s commercial rights company in return for $75m and control of its board.
The board will comprise three members each from Saru and ASG — with the latter having the right to appoint an “independent” chair.
Under ASG’s offer $35m will be paid on signing the deal and the remainder over four years.
However, the capital must be repaid to ASG. One criticism of the proposed deal is that it amounts to a loan while ASG will have full participation rights.
‘Not a loan’
Saru CFO Abubakar Saban insisted the deal wasn’t a loan or mezzanine finance.
“There are complexities around it … the principle of underwriting a budget is not usual,” Saban said.
“You have one party that is investing in an entity, which is party A. You then share the risk and rewards of being a shareholder in that entity. But what we have done is that we have coupled it with a rugby business that must fundamentally fund its activities,” he said.
“The minute you turn on the value proposition, you will be able to generate out of this commercial entity more than the cost base … this investor that is buying a minority shareholding in the commercial entity has to first underwrite the cost base of rugby, and that we have locked in the distribution policy.
“That’s what is different from a loan. There was this notion that it was a loan. Without that [underwriting the cost base], one would argue it is a form of a loan. But taking the risk that if potentially we don’t see the value proposition on SA rugby’s cost budget … the investor can take potentially 10 to 15 years not seeing a cent in return. That’s what makes it not to be a loan.”
Saru members will vote on the proposal on Friday. Seven of the country’s 15 unions, including the Sharks, the Blue Bulls, and the Lions have said they oppose the deal.
Should that opposition hold at Friday’s special meeting, the deal will fail as it requires the support of 75% of member unions.
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