Over the past three weeks WPRFU president Zelt Marais lobbied and convinced the union’s council, made up of  80-odd clubs, to follow his “New Deal” with a little known property developer called Flyt (who were previously known as Any Side) and turn away from an agreed deal with Investec Property Fund.

Marais has backed the small guy over the big player. The Investec Property Development Division, who were set to redevelop Newlands, have completed dozens of huge retail, industrial, office and mixed use developments worth billions. Flyt listed five modest developments in its portfolio.

It took more than a year for Investec and the WPRFU to reach agreement as there was careful due diligence carried out by both parties. Marais, who became president midway through the WPRFU/Investec courting process, confirmed he started negotiations with Flyt on 3 June this year. How he has managed to put together this massive and complex deal in three weeks is impressive. The man must not have slept.

Was a comprehensive due diligence and risk analysis undertaken and presented? The council would have had to exercise its fiduciary duty, which includes an audit of Flyt and examining its other developments before approving this move. If not, has proper due diligence been carried out?

Marais sold the plan on the basis that the WPRFU would receive an immediate R112-million loan from yet another entity, DreamWorld (part of the Flyt group) and become 50% partners in a new company set up with Flyt to redevelop Newlands and another plot called Brookside.

With Investec, the rugby union were also paid hard cash up front (R110-million). But instead of being partners in the redevelopment of Newlands, Investec would have had a 99-year lease on the land and taken on all the costs of redevelopment.

The R112-million from Flyt is a loan. That loan has to be repaid from the proceeds of the development, which is years away from sod turning. There are years of approval process to go through and then the actual building can only start.

In return the WPRFU would have a 5% share in any profits derived from this plan, plus a further 3.5% share from the resale of any units developed.

Sure, it’s a lot less than the 50% on offer with Flyt, but what wasn’t explicitly spelled out to the constituents who voted to go with Flyt is that it also comes with massive uncertainty for the WPRFU.

As a 50/50 partner in the deal the WPRFU are going to have to share in the risk. To develop the Newlands complex will require planning permission and at least R2-billion in capital at a time when the property market is depressed and the future massively uncertain because of Covid-19.

First, the R110-million from Investec was not a loan. It was cash up front for the sale of development rights, which the WPRFU needed to clear debts of R58-million to Remgro and run its business. In the unlikely event Investec went bankrupt and couldn’t redevelop Newlands, the WPRFU would not need to repay the money. And they would still own Newlands.

The R112-million from Flyt is a loan. That loan has to be repaid from the proceeds of the development, which is years away from sod turning. There are years of approval process to go through and then the actual building can only start.

While this is happening, the R112-million loan is attracting interest. To make matters more complicated, the WPRFUs has signed over the mortgage bonds of other properties in its portfolio as security for the DreamWorld loan. According to notes sent to the council those properties hold a value of approximately R250-million.

The new company formed to redevelop Newlands between Flyt and the WPRFU will be called NewlandsDevCo. The board of this entity will be “controlled and managed” by Flyt, according to Marais’ pitch to the council. Flyt will cover the planning costs on “loan account” while further working capital will be sourced from other parties.

If, after four years planning approval has not been given, Flyt has the right to exit the NewlandsDevCo and claim payment planning costs, including interest, from the WPRFU.

The deal with Flyt doesn’t appear to be better for the WPRFU, no matter how you spin it. There was almost zero risk in the Investec terms while the Flyt deal has many question marks. It hinges on many moving parts coming together.

The WPRFU would be left as the only members of the company and “enjoy” sole ownership of all the planning applications reached at that point. Flyt would still have the mortgage bonds to all the WPRFU’s other properties (11 were listed) unless the R112-million (plus interest) loan has been paid off. Considering the WPRFU needs the redevelopment of Newlands to succeed to pay off the loan, Flyt will in all likelihood have scored some prime properties out of the relationship even if the Newlands development goes bust.

It’s not to say these scenarios will happen, but these are possible implications. For Marais to casually trumpet: “This is far better than any previous deal that has been on the table and, if it is approved, will ensure the sustainable and long-term future of Western Province rugby,” is disingenuous. There is massive risk attached to this deal for the union and the only entity that appears to be well covered in the event of the Newlands redevelopment failing, is Flyt.

Another wrinkle in the plan is that Investec are unlikely to just walk away without some sort of fight. They had signed heads of agreement with the WPRFU and have no doubt spent considerable time and effort in planning the Newlands redevelopment.

The fact that the Marais and the WPRFU jilted Investec hours before the final documents were due to be signed, seven months after heads of agreement were concluded, has also caused reputational damage. How will future companies view dealing with the union in the wake of this very public snub of Investec?

The deal with Flyt doesn’t appear to be better for the WPRFU, no matter how you spin it. There was almost zero risk in the Investec terms while the Flyt deal has many question marks. It hinges on many moving parts coming together.

There is no doubt the WPRFU has to leave Newlands, or upgrade the stadium at massive cost, which was not an option as they didn’t have the cash. The only way to fund the union in the long term was the sale and redevelopment of Newlands and move to Cape Town Stadium to play matches at favourable terms from the city.

We can only hope that there will be a WP and Stormers to play matches in the future because this deal has the potential to permanently sink the WPRFU if it goes wrong. In that case, there won’t be any statues to heroes. There will only be an epitaph at the place where a once great rugby union played. DM