The truth about rugby union and CVC's £15 billion private equity play
Speculation – some of it mild, some of it wild – has been swirling around CVC’s motives in the sport of rugby union: what are its plans, what does the future hold?
CVC’s Series 7 fund is the home of Premier Rugby HOLDCO ltd, the company that owns all the commercial rights for Premiership Rugby. It sits in a stable of CVC investments, which includes a variety of big-name companies and brands such as Breitling, Samsonite and Virgin Active gyms
To give you a greater sense of who else Premier Rugby have huddled under its ownership umbrella, we’re talking the likes of Norwegian technocrats, Saudi princes, school teachers in New Jersey, Exeter supporters and Nigel Wray.
Series 7 is responsible for £15 billion of other people’s money, a record amount raised for a private equity (PE) fund in Europe.
The majority of money entrusted to CVC (64 per cent) comes from large public pension and sovereign wealth funds. That money will be used to buy companies around the world. Indeed, more than 144 CVC deals have already been done globally.
In short: CVC is not just trying to grow revenue in rugby but also trying to ensure that people like public school teachers in the United States can retire. It has to be successful and like any financial enterprise, should it fail CVC will be answerable to investors.
That said, the chance of failure looks small, because the Series 7 is not a particularly risky fund.
Here’s how it works: CVC is made up of mid-size companies who perform well in their given sector and, for the most part, are more ‘traditional’ types of businesses. For example, the companies mentioned before.
This goes some way to explaining why CVC wanted to strike a deal with Premier Rugby which limits the downside of funding rugby to the clubs; to understand exactly what I mean you can find my thoughts on the deal itself here.
While it’s reassuring that CVC sees rugby union as part of a stable core of businesses it would be more interesting to know how they see it contributing to their portfolio.
The only indication we have can be found on the CVC website which highlights ‘predictable cash flow’. Sure, this might indicate why buying TV revenue is such a good idea – but what about the growth of the game? Its commitment to that is not so clear.
CVC would turn rugby union into the NFL overnight if it could – but before throwing obscene money at the sport it needs to satisfy the goals of the fund.
To understand this better it’s probably best to understand what motivates CVC. Like most private equity investors it has to generate a minimum level of annual return, which in financial-speak is what’s known as the ‘hurdle rate’.
S7 has a hurdle rate of 6 per cent, 2 per cent lower than the industry standard of 8%. That means CVC needs to exceed 6 per cent every year in order to benefit from further incentives, as I will now explain.
A fund like S7 earns fees in two ways: the first is an annual charge which is paid regardless of performance (a typical charge will be in the region of 2 per cent of the fund’s value).
The second charge will be a share of the profits once the hurdle rate is exceeded. This could be as high as 20 per cent for any profit made in excess of that previously referenced 6 per cent.
As you can see, growth is important but yearly targets are more important. So don’t expect anything too radical in the near future as cash flow is king.
One of the advantages of PE investment is time. That is why it’s suitable for organisations with lots of money who don’t need it in the immediate future – for example pension funds.
Ultimately this long term strategy is a benefit to rugby union.
CVC will provide its acquired companies with all manner of advisory services. It will certainly change the management structure and then wait until they finally ‘exit’ the investment, usually via a listing on an exchange or a private sale.
Already we can see CVC making moves in that area, through a management restructure of Premier Rugby. Darren Childs has been appointed as CEO and a new CMO, Zoe Clapp, has just started. (Childs’ predecessor Mark McCafferty, meanwhile, has gone to CVC.)
Such structural changes are to some degree expected – but as Leicester Tigers have shown in recent years, recruitment can be fraught with difficulty.
There must be some doubts about Childs and Clapp who, despite impressive backgrounds, have no discernible track record of growing a sport. Time will tell.
One must also question what CVC sees in Premier Rugby. Does it feel as if the sport can take over the world or are their motives more opportunistic? Has it taken advantage of a sport which, outwardly, often appears in a state of flux and one beset by infighting?
“That has held them back in the performance because it was not where would have expected, certainly against France."@LewisMoody7 tells @heagneyl he thinks the Saracens elephant might still be in the room #ENGvIRE ?????????https://t.co/3CDkTpFoSI
— RugbyPass (@RugbyPass) February 23, 2020
Whatever the plans for rugby in the northern hemisphere the man to ask is a guy called Nick Clarry. Clarry is one of 29 managing partners at CVC and he oversees its activities in the sports, media and entertainment markets. Alongside fellow managing partner Pev Hooper, he is a director of Premier Rugby HOLDCO.
If Clarry’s name sounds familiar to you, it might because he was heavily involved with CVC dealings in Formula One and was often seen at races alongside the fund’s co-founder, Donald Mackenzie.
According to The Telegraph one of the main reasons CVC stuck with F1 for so long is down to Mackenzie, who fell in love with the sport. Either that, or he fell in love with the fact CVC made £2.8 to £3 billion out of F1 (depending on which reports you read).
There is little to suggest Clarry’s love of rugby comes anywhere near his friend’s admiration of F1. On the contrary, Clarry appears to have a more refined palette, preferring the arts to the rough and tumble of the AJ Bell Stadium. Clarry, as it happens, is the chairman of the Old Vic Theatre Trust.
Make no mistake, rugby union is a very small investment for CVC. Of the billions of pounds invested the question is how will Premiership Rugby battle for attention ahead of the watchmakers, aircraft manufacturers and private hospitals also owned by CVC? Only Clarry and his colleagues can answer that – but one suspects it might have plenty to do with the real prize – the Six Nations.
Rugby’s pact with CVC is deeply flawed – but it is not exactly a deal with the devil. Premiership owners are smart people who can live with the consequences of their deal – but will fans stomach the sale of the Six Nations under similar terms? Do they even matter? I’m sure they wish the teachers of the Louisiana school system well in their retirement – but not at the expense of our game.
Comments on RugbyPass
Big difference from the Saders. Forwards really muscled up and laid a solid platform. Scooter brought some steel and I liked the loosie combination. Newell has been rather disappointing this season but stepped up big time - happy also to see Franks dot down. He should do that more often! Reihana had a good game and there seems to be more flair and invention with him in the saddle. McNicoll plays well from the back and is reliable plus inventive when he joins the line. Keep it up chaps!
3 Go to comments🤦♂️🤣 who cares who’s the best . All I know is the All Blacks have the star coach but have few star players now …
30 Go to commentsJe suis sûr que Farrell est impatient de jouer avec Lopez et Machenaud et d’être entraîné par Collazo… 🤭
1 Go to commentsAn on field red (aka a full red) in SRP must surely carry a bigger suspension than a red card given by the bunker as that carries a 20 minute team punishment. Had Damon Murphy abdicated his responsibility as a ref and issued both Drua players a yellow, which would have been upgraded to a 20 minute red by the bunker, that would have killed Australia and New Zealand’s push for the 20 minute red to be trialled globally from July this year.
11 Go to commentsEver so often you all post a Danny Care story that isn’t the announcement that he has finally re-signed for one more, victory tour season at Quins and I’m just like, “well you fooled me again!” My absolute favorite player ever, we need to make his final year at the Stoop (and Twickers) official already. I know he supposedly snubbed France but I won’t feel better until he signs.
1 Go to commentslate hit what late hit it wasn’t at all late and can clearly see he was committed before the tackle
1 Go to commentsChristian Lio -Willies 2 try perfomance was a standout. As was captain Scott Barrett. Up front was where the boys won it.They are a great team and players. Fantastic Crusaders , you can keep going.
3 Go to commentsI don't know how the locals feel about that? I guess if you call yourselves the Worcester Wasps that might be appease. But really we need more teams in the Premiership in my view so they are not padding it out as they are at the moment. It might curtail so many players going abroad as well
5 Go to commentsNZ 😭😭😭is certainly rivaling England for best whingers cup!😭😭😭 !!!
30 Go to commentsYup. New Zealand won 3 out of 10 world cups played. SA 4 out of 8 attempts 30 Vs 50 per cent.🤔🤔
30 Go to commentsShould've done this years ago. Change Saturday kick off times to around 11am. Up and off and back home before 3pm, limit travel time too. Allows players to actually do something else with their Saturday that's family oriented or being rugby fans they could ‘watch’ pro rugby. Increases crowds etc. How can anyone that enjoys grassroots and pro rugby have to choose between the two on Saturdays?
9 Go to commentsI bet he inspired those supporters just as much.
1 Go to commentsBen Smith Springboks living rent free in his head 😊😂
67 Go to commentsGood to hear he would like to play the game at the highest level, I hadn’t been to sure how much of a motivator that was before now. Sadly he’s probably chosen the rugby club to go to. Try not to worry about all the input about how you should play rugby Joey and just try to emulate what you do on the league field and have fun. You’ll limit your game too much (well not really because he’s a standard athlete like SBW and he’ll still have enough) if you’re trying to make sure you can recycle the ball back etc. On the other hard, you can totally just try and recycle by looking to offload any and everywhere if you’re going to ground 😋
1 Go to commentsThis just proves that theres always a stat and a metric to use to justify your abilities and your success. Ben did it last week by creating an imaginary competition and now you did the same to counter his argument and espouse a new yardstick for success. Why not just use the current one and lets say the Boks have won 4 world cups making them the most successful world cup team. Outside of the world cup the All Blacks are the most successful team winning countless rugby championships and dominating the rankings with high win percentages. Over the last 4 years statistically the Irish are the best having the highest win rate and also having positive records against every tier 1 side. The most successful Northern team in the game has been England with a world cup title and the most six nations titles in history. The AB’s are the most dominant team in history with the highest win rate and 3 world cups. Lets not try to reinvent the wheel. Just be honest about the actual stats and what each team has been good at doing and that will be enough to define their level of success.
30 Go to commentsHow is 7’s played there? I’m surprised 10 or 11 man rugby hasn’t taken off. 7 just doesn’t fit the 15s dynamics (rules n field etc) but these other versions do.
9 Go to commentsPick Swinton at your peril A liability just like JWH from the Roosters Skelton ??? went missing at RWC
14 Go to commentsLike tennis, who have a ranking system, and I believe rugby too, just measure over each period preceding a world cup event who was the longest number one and that would be it. In tennis the number one player frequently is not the grand slam winner. I love and adore the All Blacks since the days of Ian Kirkpatrick when I was a kid in SA. And still do because they are the masters of running rugby and are gentleman on and off the field - in general. And in my opinion they have been the majority of the time the best rugby team in the world.
30 Go to commentsHaving overseas possessions in 2024 is absurd. These Frenchies should have to give the New Caledonians their freedom.
21 Go to commentsBell injured his foot didn’t he? Bring Tupou in he’ll deliver when it counts. Agree mostly but I would switch in the Reds number 8 Harry Wilson for Swinton and move Rob Valentini to 6 instead. Wilson is a clever player who reads the play, you can’t outmuscle the AB’s and Springboks, if you have any chance it’s by playing clever. Same goes for Paisami, he’s a little guy who doesn’t really trouble the likes of De Allende and Jordie Barrett. I’d rather play Carter Gordon at 12 and put Michael Lynagh’s boy at 10. That way you get a BMT type goalkicker at 10 and a playmaker at 12. Anyways, just my two cents as a Bok supporter.
14 Go to comments