‘A radical departure’: Who are CVC and what are their plans for rugby?
Gavin Cummiskey profiles the investment firm looking to make waves in the sport
After acquiring stakes in the Premiership and Pro14, CVC are looking towards the Six Nations. Photo: Ashley Western/MB Media/Getty Images
Keith Wood asked IRFU chief executive Philip Browne an obvious yet important question last week on Off the Ball.
“Philip, are you nervous about having a private equity firm coming in or are they essential partners of the game?”
Browne, without missing a beat, chose the second option.
Presuming the good folk at CVC Capital Partners have devoured the ultimate business manual - The Art of War by Sun Tzu - right about now they should be living one of the philosopher-general’s most famous quotes: “In the midst of chaos, there is also opportunity.”
The narrative that CVC – the investment goliath with assets worth US$75 billion – are contemplating a takeover of professional rugby has passed. One by one, deals are being signed. They have very much arrived.
“I think they are essential partners to the game,” Browne responded. “We are very comfortable that the deal between CVC and the Pro 14 is actually a deal with each of the unions involved, who are shareholders of the Pro 14, so it is quite different with the deal done with PRL [English Premiership], which is a deal done with the club owners.
“From our point of view, we are satisfied we put the protections into the arrangements with CVC that ensures the control of the game...the laws of the game, the regulations, all of that lies 100 percent with the unions.”
Maybe so. But CVC – the Luxembourg based firm which grew from the venture capitalist arm of Citicorp in 1981 – have taken commercial control and in the current climate what else do they need?
On May 22nd Celtic Rugby announced that CVC acquired a 28 per cent share of the Pro 14 for €140 million. The IRFU will get €33.56 million over the next three seasons (€5.59 million is already banked).
The English club owners are on board, having sold a 27 per cent holding in Premiership Rugby in 2018 to bring the firm’s investment in rugby these past two years to over €666 million.
The next move is a 14 per cent stake in the Six Nations.
This is only the beginning; CVC is financing their rugby investments through a €16.4 billion fund.
Having lassoed the sport that Browne concedes is teetering on a financial “cliff edge,” who is going to stop CVC from deciding what to tweak or even when to eradicate non-profitable elements under their influence?
Formula 1 provides a cautionary tale.
Before we get to that, it has been accepted for many years now that the rugby calendar has become a, largely, unprofitable mess. Radical change will be required before CVC can deliver the bottom line they fully intend on feeding their investors.
Neil Francis already called them a “coven of vampires” before “guaranteeing” the Pro 14 will not exist in five years’ time but Wood was thinking along similar lines when asking: “Could you see a possibility of an amalgamation between Pro 14 and Premiership?”
“The answer is I don’t know,” Browne replied.
It should worry everyone inside the game that Browne, a key decision maker in the future direction of rugby at club and international level, does not know the answer to this question.
“I think CVC need to get their feet under the table, work with Pro 14 and PRL, and work with EPCR because effectively they have a major influence now in terms of the European club competitions.
“I think the fact we have shared stakeholders between PRL and Pro 14 with influence in EPCR, I think it will put a fair degree of shape on how the professional game develops in the future.”
So, he has a fairly good idea.
Browne has been banging his head against this brick wall for “15 years.” CVC could deliver the blockbuster global playoffs every year to compare rugby with the NFL and the NBA. Irish rugby would be on board because this would turn the provinces into money making machines.
“That’s probably a good thing,” Browne added of everything coming under one corporate umbrella. “We have always had disparate views between the unions and jurisdictions to how the professional game should develop, what it should look like. I think having an independent party, for want of a better term, sitting in with a vested interest themselves will help to bring about, I would hope, a greater degree of coherence in the professional game in Europe. And not only to European rugby but world rugby.”
The wheels are already in motion. Pandemic or not, pacts are being signed, sealed and delivery comes next.
CVC are not entering the rugby market, they already sit among its executives, and soon they will be driving the sport.
Like they did F1. Between 2006 and 2017, they turned a $2.1 billion investment into a $4.4 billion sale to Liberty Media.
That’s what they do. Buy it, ship-shape it and sell the pieces off.
Rugby union has entered a cash rich but ruthless environment. Expect streamlining of the game to happen in line with broadcast deals.
World Rugby, the governing body, made a strong bid to keep control of international fixtures via the Nations League plan in 2019, supported by Philippe Blatter’s (the nephew of disgraced former Fifa president Sepp Blatter) Infront company promising a €6 billion investment over 12 years.
However, with proof that CVC already had boots on the ground, the Six Nations committee men refused to contemplate promotion and relegation from the cathedral of northern hemisphere rugby.
“This is a seminal moment for Six Nations, the world’s pre-eminent annual rugby tournament,” Nick Clarry, CVC’s managing partner, was quoted as saying in The Financial Times last March. “The six unions have to decide whether to give up control to World Rugby and Infront, and if this is the best way to build their sport and create long-term sustainable value.”
The message was clear: choose your next move very carefully, chaps.
If rugby wants to join the elite sporting powerhouses then worldwide annual competitions, with club and international seasons no longer overlapping, must be organised before the sweetest broadcast deals can happen.
Last week Browne repeated the language used by Financial Times sources for the creation of an “over-the-top” internet subscription service, potentially Amazon, so the game can move onto mobile devices.
They could presumably get a direct line to Jeff Bezos.
Last Thursday we emailed Mr Clarry, a managing partner at CVC since 2003, overseeing their sports, media and entertainment industries, having previously worked at Morgan Stanley and Goldman Sachs, but there was no response before publishing. This month, via a press release, the Cambridge-educated chairman of the Old Vic theatre expressed “a strong belief in the long-term potential of rugby for the fans, the players and the clubs, and what we can achieve in partnership with Pro14.”
But the 11 years CVC remained in motor racing was considered well over the usual three-to-five-year period a private equity firm would take over before selling for profit.
In March 2006 they completed a complicated deal to take majority ownership of Formula 1 with 63.4 per cent. The Guardian reports a 350 per cent return on investment in 2014. Come January 2017 Liberty Media - controlled by American billionaire John C Malone - acquired controlling interest.
The overriding aim is phenomenal profit.
Bob Fernley, the former deputy team principle of Force India F1 team, accused CVC of “raping the sport.”
“All their actions have been taken to extract as much money from the sport as possible and put as little in as possible,” said Fernley in 2016.
Also, by disappearing behind a paywall, F1 reportedly lost 137 million eye balls since 2010.
Strong opinion will follow on this issue but unless CVC can see tangible value in keeping some rugby on free-to-air television it will be a very loud but toothless debate.
Profitable revenue streams like the Six Nations, the World Cup and Lions tour will remain intact but everything else is up for amalgamation and possibly even dissolution.
What sells rugby to a global market?
Easy, give people what they crave: The Canterbury Crusaders versus Leinster in a northern against southern hemisphere battle for supremacy at a sardine-packed Lansdowne Road or Eden Park.
“In time,” The Financial Times reported on February 22nd, “CVC also envisages the creation of a ‘Club World Cup,’ a money-spinning tournament involving the best sides on the planet.”
This can be followed by annual visits from the All Blacks and Springboks to Dublin for meaningful, as opposed to traditional, “Test matches.”
“The group’s approach to rugby marks a radical departure from the traditional buyout model, where deals are financed in part by loading takeover targets with debt, then aiming to sell them on at a profit within three to five years,” the FT continued.
“It aims to raise revenues in the sport over a decade, which in time, would provide returns to CVC investors.”
World Rugby CEO Brett Gosper stated earlier this year: “It’s best that we work together with them where possible rather than be in a situation that we’re not in dialogue.”
That’s the leading executive of the sport’s governing body suggesting everyone hops on the CVC gravy train or risk exclusion from the journey.
The next move is wresting commercial control of the Six Nations. A pre-Covid deal of £300 million to acquire a 14 per cent stake could become reality – if that remains the value – any day now.
Opportunity amidst chaos.
Next they will seek to secure agreements with the most marketable brands: discussions are happening with the South African and New Zealand unions.
Then the takeover will be official.
“Private equity is a reality,” said Gosper. “We are where we are. [WORLD RUGBY]has to deal with reality in the most constructive way.”
Browne struck a more encouraging tone: “The deal with CVC is very much about reaching out to new markets. It’s about trying to tap into the sports marketing experience of CVC to try and build the Pro 14 as a brand and build it as an attractive proposition.”
If that proves impossible, merging into the Premiership and eventually a world club league would see the professional game arrive at its most profitable destination.
We won’t be long learning what the CVC blueprint for rugby looks like. It will be neither familiar nor conservative.