Back in the All Black

New Zealand is a five-hour flight from its nearest neighbour, Australia. The country’s isolation has played a hand in it being known for only a handful of cultural exports. Whilst its picturesque wilderness is internationally known for its portrayal as Tolkien’s Middle Earth in Peter Jackson’s film trilogy, perhaps New Zealand’s best-known endeavour is its national sport; Rugby.

The All Blacks are arguably the most dominant team in all of sport, with three world cups and a staggering 77% win-percentage across 118 years of competition. However, for once it is not the island-nation’s play on the field that is sending waves across the Tasman Sea.

New Zealand Rugby (NZR) recently announced a private equity investment deal with California-based firm Silver Lake Partners. The deal will mean that the country’s national team, representing New Zealand internationally in its national sport, would not be wholly owned by a domestic entity. The sale of 12.5% - more on the structure in a bit – for US$282m gives the All Black’s a valuation of approximately US$2.26bn.

The agreement, which will see NZR establish a new business entity to manage its commercial rights, received unanimous approval from the unions 26 provinces and the Māori Rugby Board at its AGM on April 29th. It is the newly-formed business that Silver Lake will be investing in. The announcement has drawn great discussion, with fans and pundits voicing cross-spectrum opinions, whilst players are threatening to veto the sale.

Rugby has a relatively short, but complex, relationship with commercialism. The game only turned professional in the mid-1990s. It was during the ’95 World Cup that the powerhouses of the southern hemisphere – New Zealand, South Africa and Australia – cut a broadcasting deal with News Corp. It was this influx of Rupert Murdoch’s cash, combined with rumours of paid breakaway leagues, that put the pinch on unions in the northern hemisphere to complete the transition to an open game.

The commercial growth of the sport over the intervening twenty-five years has been staggering. The 2019 Rugby World Cup in Japan took the competition to Asia for the very first time and reportedly had an economic impact of £4.3bn, whilst receiving over two billion video views online. The days of amateurism are long gone.

“[Private equity investment is] truly a transformational opportunity for all of the game. We believe the game needs to change, and we have a strong leadership role to play in providing opportunities for that to happen.”

Mark Robinson, Chief Executive at New Zealand Rugby

Just as New Zealand were at the forefront of professionalising the game in the 90s, many feel they are blazing a bold new trail with this latest business deal. NZR Chairman, Brent Impey, praised the provincial unions and the Māori Rugby Board for recognising “the importance of private equity in driving commercial revenue and enabling investment to ensure rugby thrives and survives into the future.”

Impey is certainly justified in valuing new investment in terms of NZR’s growth. Following the difficulties of a pandemic-ravaged 2020 - despite live-events faring much better in New Zealand than elsewhere – NZR reported a loss of US$25.1m at the very same AGM where the Silver Lake vote took place.

For some, concerns over private equity investment were allayed by such details as the planning of a ‘Legacy Fund’ that will serve to filter money through the various levels of rugby across New Zealand and “fund longer term strategic initiatives to ensure the[ir] sustainability”. Others however, including the Players’ Association (NZRPA) have raised concerns over culturally significant ‘properties’ associated with the All Blacks, such as the Haka and the silver fern emblem, both spiritually important to the Māori people. The NZRPA have the ability to veto the sale.

The Chairman has hit back by accusing the players of using these issues as a smokescreen for their true concern; revenue shares. The two parties have been in negotiations over the players’ collective bargaining agreement. Impey has suggested that the new agreement would reduce the players’ percentage share of revenues, but ultimately provide them greater overall income. Leading players have denied the notion that their cultural concerns are simply a cover. Talks between NZR and NZRPA are ongoing.

Whilst the politicking within NZR continues, the question from outside the Union, and indeed from outside the country, is what this investment will mean for the All Blacks, and for rugby both on their shores and beyond.

Silver Lake are known to specialise in tech investments and acquisitions, but already amongst the firm’s portfolio are several sports properties. These include investments in Endeavor (parent company of IMG and the UFC), City Football Group, Madison Square Garden and Oak View Group which owns various sporting venues across the US. Whilst this suggests an understanding of the industry, sports investors must be careful when operating in sports and markets that may be unfamiliar – Silver Lake affiliate Manchester City were involved in the nightmarish Super League affair, instigated by owners who displayed a lack of understanding, or respect for, the unique arenas of English and European football.

In the wake of the Super League and the resulting mistrust of foreign sports investment, Silver Lake have been careful to calm concerns, pointing to the fact that the deal would leave the All Blacks and their commercial rights in the control of NZR.

In spite of these assuagements, it need not be assumed that Silver Lake’s investment will help to source increased income. "We've got to get revenue streams and we can't afford to fund those ourselves” an NZR insider admitted.

It is reported that amongst Silver Lake’s strategies for growth is “enlarging the All Black’s fan base around the world.” To me, an Englishman and a rugby fan, this seems an incongruous and incredibly Americanised view of international sport. The notion of growing the support of a national team “around the world” seems strange from a purist point of view.

In this instance I imagine that the term “around the world” could easily be replaced with “in the US”, where the potential for growth has been spotted by the up-start competition Major League Rugby. Future stateside test matches are likely in any instance, particularly given the sell-out crowd that filled Chicago’s Soldier Field when the All Blacks visited in 2016. The sixty-thousand in attendance that day were treated to Ireland’s maiden victory over New Zealand after 111 years of trying.

Whilst the prospect of the odd game being played in the US is of no great concern, any attempt to shoehorn additional internationals into the calaendar that has expanded significantly in the professional era. In 1996, the first full year following the game opening up, New Zealand played ten test matches. In 2018 they played fourteen. Of the four additional games, three were played overseas. One of those was played at a neutral venue, with the All Blacks and Australia facing off in Yokohama, Japan. The over-saturation of the international rugby calendar would undoubtedly lead to lower average broadcast viewership, the question is where the tipping point will be found. It should also be noted that the domestic rugby community will probably not take kindly to a growing proportion of internationals taking place overseas.

Similarly, fan opinion may be negatively affected by another revenue stream that NZR are very likely to pursue. Sponsorship in sport is a booming industry – projected to grow by US$5.3bn from 2020 to 2024 – but as previously mentioned, the landscape of American sport and that beyond their borders are very different and states-based investors must be careful to acknowledge this.

Other than a small Steinlager patch in the 1990’s, the All Blacks were one of the last tier-one national sides to sell advertising space on their famous jerseys. Insurance giant AIG added their minimalistic mark in 2012, but it is reported that NZR are on the verge of sealing a new deal with French firm Altrad. A new deal would allegedly be worth US$21.2m over two years.

Although the addition of a white AIG label to the hallowed strips was met with some opposition in New Zealand, it was ultimately accepted well and recognised as a necessary part of the modern game. However, as indicated by the NZRPA, there are parts of the All Blacks brand and experience that are considered untouchable.

In a recent Sporticast podcast episode, the hosts discussed the Silver Lake investment and what it may mean for the All Blacks going forwards. When discussing the potential for overly invasive sponsorship sales, one of them suggested a hypothetical scenario in which one of the country’s most hallowed cultural traditions is packaged in a highly insensitive and Americanised form. As unlikely as it is to happen, the concept of a commentator introducing “The Haka, presented by Rocket Mortgage” made me feel a little unwell.

There are, of course, positive potential outcomes of Silver Lake’s investment. An American cash injection is not necessarily an axe of overcommercialised franchise-style sport hanging over the All Blacks. The equity sale, particularly given the proposed structure, will likely have some tangible benefits to the national game. Beyond the much touted ‘Legacy Fund’, the deal will also include a short-term investment pool of US$28.15m for NZR and its stakeholders to split. The cash injection would help NZR to secure its star players to centralised contracts, a concept that began with the dawn of professionalism in the ‘90s. This would mean that they are better able to keep players such as the three Barrett brothers and rising star Caleb Clarke plying their trade domestically at one of the island nation’s five Super Rugby franchises, rather than being persuaded by the lucrative contracts offered by French and Japanese sides.

The Japanese Top League will likely be the most impacted foreign entity by NZR’s decision. Several of New Zealand’s top players, All Blacks both past and present, have been playing in this season’s Top League and the league’s chairman is part of the campaign for an international club world championship. If NZR are able to offer more lucrative packages, it may convince some of the bigger and more valuable names to remain in New Zealand, which could limit the value of Top League broadcasting packages, which chairman Ota has identified as a key next step in developing the Japanese competition.

The next step for NZR is to ease the concerns of the players, whether by lining their pockets a little better or by agreeing to take a holistic view to better protect certain aspects of the nation’s most beloved pastime. Beyond that? It is unclear the exact path that the union will take, but the objective will undoubtedly be revenue growth. Kiwis and rugby-lovers the world over must hope that the NZR, overseers of the game’s leading light on the field, maintain the best interests of the wider rugby community in the boardroom. Concerned stakeholders can be buoyed, as the investing firm reminded, by the fact that NZR maintain control of the operation of the Kiwi game.

One thing is for sure, the partnership of New Zealand Rugby and Silver Lake Partners opens a new chapter in international rugby. Both the governance and business of the sport must be sure to adapt to meet the challenges that this new era of private equity investment will bring, learning from the pit-falls shown by other American investors on the other side of the globe.

“What you just did was incredibly significant…”

NZR Chairman, Brent Impey, following the vote in favour of Silver Lake Partners’ investment at the recent annual meeting.