“Never waste the opportunity offered by a good crisis,” Italian philosopher Niccolò Machiavelli once said. It seems to be the motto SA Rugby is operating under in these extreme times.

Every contract, every competition and every commercial deal is on the table as the 2020 season is increasingly likely to be condensed into a small window of two to three months. But, more important, every deal is under scrutiny for the next decade because Covid-19 has reshaped the way sports contracts will be viewed and drawn up.

South African Rugby has, for a quarter of a century, tethered its wagon to that of New Zealand and Australia, and latterly Argentina, in the Sanzaar alliance. That bond has been crucial for all three founding partners in bringing in billions in revenue over 25 years, but it has always been strained by geography, costs and time.

The coronavirus has deepened the fault lines that have for so long been plastered over because there is simply no other option left for South Africa but to reassess its strategic partnerships.

Sanzaar cannot function in the way it has since the onset of professionalism in 1996. The pandemic has ensured that travel costs will become exorbitant as many airlines fold, and travel will be more difficult if quarantines are called for. These problems will not disappear if South Africa looks north and eyes the more lucrative European market, but the options are greater.

SA Rugby chief executive Jurie Roux has said before, most notably when the Cheetahs and Southern Kings were unveiled as participants in European-based PRO14 three years ago, that South Africa would not abandon Sanzaar. But those statements were made in a world where Covid-19 was unknown. Everything has changed in the past six months.

“The politically correct answer is that we are committed to Sanzaar and we are negotiating in good faith,” Roux said in response to a question from Daily Maverick.

“The reality though is that the current format of competition we have (in Sanzaar, Super Rugby and Rugby Championship) is commercially too tight in the post-Covid world. Because of that, we are looking at up to three different options for the future. There are committees dealing with that and we have our own people in those bodies also coming up with models.

“People such as director of rugby Rassie Erasmus, logistics general manager Charles Wessels and Springbok coach Jacques Nienaber are on that committee and they will come up with rugby answers. Once we have a rugby decision on what competition works best, it will be up to the CEOs and others to come up with a commercial model.

“It’s all about commercial value at the moment and those commercials are heavily determined by the logistical challenges. We have to come to something that is a good rugby and commercial result, which can function in a Covid world. By that I mean where flights, business class tickets and the time it will take around isolation and quarantine are all greatly reduced,” said Roux.

The exact details of the models being considered are yet to be ready for publication. Once the committees have redrawn the schedules and competition structures, everything will have to go through boardrooms and broadcast partners.

What Roux didn’t say publicly is that SA Rugby is ideally placed to have the best of both worlds now. They already have a presence in Europe and, with a slimmed-down version of Super Rugby the very least we can expect, there will be scope for more forays into the European market with bigger brands such as the Sharks, Stormers, Bulls or Lions.

For years SA Rugby used the threat of going north in the hope of pulling its Sanzaar partners into line. But this had little effect simply because it was a hollow threat with no substance. That’s a huge part of why Roux pushed to get the Cheetahs and Kings into PRO14 – to demonstrate that South Africa had options.

It’s not like PRO14 came without pain. SA Rugby pays over R40-million to have those two teams in the northern hemisphere competition. But the price was worth paying because, now, SA Rugby has a gateway to the north and also the undivided attention of its Sanzaar partners.

Despite regular outbursts from Australia and threats to pull out of Sanzaar despite having nowhere to go, New Zealand and Argentina are well aware that they do not have any better options but to stay hitched to the alliance. South Africa potentially does have better options and has suggested it will use them. 

“There are some very interesting ideas being discussed and SA Rugby would be keen to see this pandemic have some positive spin-offs in terms of realignment,” Roux said.

 “We are working closely with our Sanzaar partners on what that might look like, but our current position is that we are well placed to head in any direction and are open to all ideas. Like our partners, we have ruled nothing out.”

Private equity in rugby

Another issue in the background, which has come to the fore under the strain of Covid-19, is that of private equity ownership in rugby. The pandemic has highlighted just how precarious the financial state of the global game is. In a ‘normal’ world, bank loans and leveraging clubs to the hilt to pay the bills of being a professional entity was commonplace. But the floor has fallen out, and those that were overexposed have been caught short.

Even before Covid-19, rugby started to court private equity partners with deep pockets. In South Africa, that has started with the likes of Remgro buying a big stake in the Bulls and smaller unproven partners such as the Greatest Company in the Whole Wide World, buying a majority piece of the Kings pie.

Up north, the giant investment firm CVC Capital Partners has bought a slice of PRO14 and England’s Premiership, and it’s close to finalising a deal to take on a 14% portion of the Six Nations. All these deals are worth hundreds of millions of pounds. It’s an open secret that every major rugby playing nation is scrambling to find a sugar daddy.

Companies such as CVC are not in it for the love of the game, or its values, which the rugby fraternity often trots out as a reason to play or watch the sport. Equity partners want a slice of the commercial side of the business and want to drive that value upwards to make money. Covid-19 has created a lot more willing sellers, at bargain prices, for stealthy equity firms who have the liquidity to step into this market.

“If an equity partner wants to buy into your organisation, it is seeing a bigger commercial value of our products than we are seeing,” Roux said. “They believe that with their expertise, they will be able to drive the commercial value higher for more profit every month. Because they pay in a lump sum up front, they take a dividend of the component’s value every year.

“They would not be getting into a business if they did not believe that they could drive the commercial value of the company higher. Private equity also doesn’t get bogged down in decisions based on sentiment and politics, which are not always rugby-related – it’s all about value and it drives you to the correct business decision.

“So, for example, you would not have a 16-team Currie Cup competition if there was no commercial value in it. The commercial value would be put on the table. If a sponsor is willing to pay R10-million for a 16-team Currie Cup competition, or R110-million for a double-round, six-team competition, which option do you think you should go for? There is no other decision than the commercial decision in their eyes. They stay out of rugby decisions and have no influence on selections of the national teams. They exist to drive your commercial value.

“There is not a union in the world who is not talking to different potential equity partners right now. Within the sporting environment, there are only four or five who are interested. They are here to stay. You are either an early joiner, or late joiner, but join you will,” said Roux. DM