HOW A $7M+ PRIVATE EQUITY DEAL AND GOVERNANCE INTERVENTION SAVED ONE OF SOUTH AFRICA’S OLDEST RUGBY UNION

Western Province Rugby Union officially confirmed last week on the 27th of March, 2024, that it has finalized its equity deal with the Red Disa Consortium, transferring controlling shares to the Cape Town-based investment firm.

This agreement, months in the making, received the green light in August when the clubs constituting the Western Province Rugby Football Union (WPRFU) General Council voted in favor of Red Disa acquiring a 74% shareholding in WP Professional Rugby (Pty) Ltd (WPPR).

Reports indicate that this transaction will initially inject R148 million ($7M+) into the Union, facilitating its transition away from the administration by the South Africa Rugby Union. This development raises the question: How did one of South Africa’s oldest and most successful rugby unions find itself under the administration of the country’s rugby apex body?

THE FINANCIAL MALADMINISTRATION

The financial instability leading to this administration began in 2020 with the Rugby Union's newly elected president opting to cancel the Heads of Agreement with a company called Investec, concerning the redevelopment of their Newlands stadium. Although the deal with Investec was incomplete, the firm had already advanced R50 million ($3.4Million+) for debt servicing. Consequently, the Union found itself indebted to Investec, as the initial arrangement would have allowed Investec to recoup this advancement from the redevelopment's profits.

In the same year, the Union entered into a similar agreement with Flyt Property, which provided a R112 million ($7.6Million+) loan. Additionally, Flyt Property, through its parent company Dream Property, settled the prior advancement by Investec, further complicating the Union’s financial obligations.

Meanwhile, a proposal from a New York-based investment consortium, MVM Holdings, offering a 51% equity stake for R100 million ($6Million+) in 2020, was stalled by the Union. MVM Holdings subsequently chose to invest in a rival team, the Sharks.

The Union's agreement with Flyt faltered over valuation disagreements, leading Flyt to sue for the recoupment of R112 million ($7.6Million+) and an additional R338 million ($23Million+) in damages in March 2021. This litigation threatened the Union’s financial stability, prompting attempts to secure a similar deal with another partner, Staytus, and a R205 million ($14Million+) loan to settle Flyt’s claim, though this effort ultimately failed to materialize.

This series of financial challenges prompted the intervention of the South African Rugby Union to avert bankruptcy, placing the Union under its administration.

Given these tumultuous events, the prevailing question is: How was the Union still able to secure a private equity deal exceeding $7 million?

The Commercials

Aside from being the oldest rugby union in South Africa, Western Province commands a significant following across the country, translating into substantial commercial value. Let's explore some figures from public reports to quantify this success.

The Union's professional team, the Stormers, clinched the first-ever United Rugby Championship in 2021. This championship not only bolstered their standing but also proved to be a commercial triumph in several key aspects:

• The United Rugby Championship, representing the pinnacle of domestic club or franchise rugby across its member countries (Ireland, Italy, South Africa, Scotland, and Wales), brought the games to an international audience, transmitting to approximately 16 countries worldwide.
• This exposure resulted in over 8 million viewers and 81,358 spectators during the final run. For comparison, local tournaments featuring 13 broadcasted matches attracted 123,797 spectators, significantly outpacing the 4,278 spectators for Capetown FC.
• Consequently, the stadium management in Capetown realized revenue of R38,142,426 ($2.6Million+), exceeding the previous target figure of R29,359,122 ($2Million+) by 30%.

In the 2022/2023 season, the Stormers achieved even greater success:

• The team attracted 10 million viewers across 17 broadcasted matches, spanning 16 countries, and drew a cumulative 331,641 spectators to the stadium.
• Although the Stormers made a run to the final but did not clinch the title, the final match attendance reached a sold-out 56,334 spectators, setting a record for the largest grand final attendance in South African Rugby history.
• Collaborative commercial initiatives between the stadium and the Stormers generated R18.1 million ($1.25Million+), surpassing the target of R17.7 million ($1.2Million+).

These figures not only demonstrate the Stormers' and Western Province Rugby's significant impact on and off the field but also highlight the robust commercial potential of the union's brand and its professional team.

Takeaways

This narrative serves as a poignant reminder of the vulnerability of legacy sports franchises to financial maladministration and the pivotal role of governance in ensuring their survival. A perfect example is the closure of Worcester and Wasps in England, which the UK parliament called a stain to the reputation of the Rugby Authorities.

The intervention by the South Africa Rugby Union, coupled with the strategic change in the constitution to allow for majority equity by private entities, exemplifies effective governance in crisis management. For example, one of the ways this maladministration affected the Union was in the commencement of the sale of suite concession rights to their team suite holders and also the sale of Business Lounge Membership, as these things need a valid agreement to be done, which they could not enter into, due to being in administration.?

Additionally, the Union’s ability to translate on-field success into commercial prosperity played a crucial role in securing the substantial private equity investment. This case highlights the importance of governance, the potential for private equity in sports, and the seamless integration of sports success with commercial strategy, offering valuable insights for sports teams in Africa and even globally.

Disclaimer: The figures presented in US Dollars are approximate values, converted from South African Rand using the official exchange rates applicable in the year of the respective transactions.