They saved the Premiership: Behind CVCs five years in rugby - Parts 1 & 2

[Neils]

?They saved the Premiership?: Behind CVC?s five years in rugby

Special report, part one: Private equity firm reveals, for the first time, why it got involved in rugby and what it has done so far
Daniel Schofield, Deputy Rugby Union Correspondent 15 January 2024 ? 2:12pm


With stakes in Premiership Rugby, the United Rugby Championship and the Six Nations, CVC Capital Partners is one of the biggest, yet least known, power brokers in rugby.

Last month marked five years since the private equity firm announced it had taken a 27 per cent holding in Premiership Rugby for around ?200 million. Since that time, they have kept public communications to an absolute minimum, allowing themselves to become a blank canvas on to which hopes and fears are projected. Until now.

In his first interview about its rugby investments, Nick Clarry, CVC?s head of sport, media and entertainment, explains its rationale for getting involved in rugby and its vision for taking the sport forward. Telegraph Sport has also spoken to several leading executives, including both sceptics and supporters, about CVC?s impact on the sport and what comes next. In the first of a two-part special report, Telegraph Sport reveals:

    Why CVC was attracted by rugby?s values as well as seeing opportunity in its fragmentation across different leagues and bodies
    Premiership Rugby chair Martyn Phillips admits ?I am not sure we would still be here? without CVC?s investment
    How it navigated the challenges of the last five years with Saracens? relegation, the Covid pandemic and three clubs going to wall
    Former RFU chief executive Francis Baron?s warning that it sold the family silver to CVC by giving up commercial rights to the Six Nations

CVC spots opportunity in ?underappreciated? rugby

After CVC agreed to sell its controlling interest in Formula One to Liberty Media in 2016, it was on the lookout for a new project in sport. Clarry quickly alighted upon rugby union. ?We think rugby is one of the great sports in terms of teamwork and values,? Clarry said. ?It is an incredible spectacle on the field in terms of physicality ? but also tactics as Rassie [Erasmus] showed us in the last World Cup. What I also love about rugby is the anticipation of an event in the game, that feeling that builds and builds. We think rugby is one of the great games of sport and really underappreciated and undervalued.?

The product, in CVC?s view, was being let down by a combination of poor management and too little commercial focus. It was also incredibly divided. In Formula One, the sport is run by one company and one CEO. In northern hemisphere rugby alone, there are a conflation of organisations from Premiership Rugby, the United Rugby Championship, Ligue Nationale de Rugby, European Professional Rugby, Six Nations, World Rugby, Lions, Barbarians plus the individual unions. Much of their energy has historically been spent on fighting each other or protecting their own fiefdoms.

That fragmentation has meant that rugby as a sport has acted as far less than the sum of its parts from its public profile to its leverage in negotiations with broadcasters. What it needed was for someone to pull everyone in the same direction. Hence, the purchase of the stake in Premiership Rugby was only the first step in CVC?s strategy. A similar holding was taken in the United Rugby Championship in 2020 and most significantly CVC acquired a one-seventh share in the Six Nations for an estimated ?365 million in 2021.

CVC?s entry into rugby was not without controversy. In F1, Bob Fernley, the deputy team principal of Force India, accused CVC of ?raping the sport? and plenty were suspicious of its intentions within rugby. ?CVC are a very, very successful, very large and very hard-nosed financial organisation,? Baron, the former RFU chief executive, said. ?They don?t invest in anything because they love a sport, they invest because they want to deliver an above average return for their shareholders and funders. You have to have that in the back of your mind the whole time.?

According to Baron?s analysis, the RFU will receive five instalments of ?19 million for its share of the Six Nations sale while its last set of financial accounts showed it lost ?16 million in annual television and sponsorship revenues. The RFU, in Baron?s view, effectively sold the family silver.
?All the bottom line exposure remains with the RFU and clubs?

?Initially CVC are worse off, but they brought those rights in perpetuity so by year six or seven they are heavily in the black and then they have the right to sell on those rights to another third party to make a big capital gain,? Baron said. ?CVC are taking no risk on the cost side. They are buying into revenue streams and all the bottom line exposure remains with the RFU and the Premiership clubs.?

The RFU strongly disputes this analysis and says that the CVC investment will be put into a strategic growth fund ?to generate income and deliver future revenues for the game?. Still, the negative perception of private equity can be hard to shift. Even Phillips, a former CEO at the Welsh Rugby Union and B&Q, held that view before undergoing somewhat of a Damascene conversion

?When I was in corporate land, I thought private equity was the devil incarnate, asset strippers,? Phillips said. ?I worked 30 years in corporate and I just wish I had found private equity sooner. The reason I say that is if they decide to do something they resource it properly. Whereas in business, if it costs ?1 you will say: ?What do I get for 50p?? These guys say if we are going to do it, let?s resource it properly so we have the best chance to succeed. I like that mentality.

?The only way they can succeed is to grow. What I think people miss is that if we grow they get 27 per cent of the growth and the clubs get 73 per cent. We could not be more aligned because if we are not growing then we are all in trouble.?
?Rugby is relatively small globally?

Phillips also points out the ?asset-stripping? stereotype does not apply because in Premiership Rugby?s case ?there are no assets to strip?. The attraction of partnering with CVC was not just for their funds but their contacts ranging across multiple industries within its multi-billion pound empire.

?Whether we like it or not, rugby is relatively small,? Phillips said. ?For a little sport like rugby to compete globally in a market that is very challenging is a big ask. Therefore I would much rather be trying to compete in it with someone like CVC also in the tent with us. They are looking at what some of the best sporting properties in the world are doing and they are sat in those boardrooms. We get access to some of that thinking and future direction which is incredibly useful.?

As an example of their reach, six months ago CVC asked Phillips to become vice chair of World Volleyball, who are market leaders in OTT (over-the-top) broadcasting. ?I get to sit on the board and bring those learnings back to Premiership Rugby for free,? Phillips said.

If playing catch-up to volleyball makes rugby sound small scale then that is precisely the attraction to CVC. ?You don?t invest in something that?s already really good because there?s little headroom,? Phillips said. ?You have to invest in something that has the potential to be a whole lot better. Investors want to buy assets that are undervalued, not overvalued. They want to buy something that is either at the bottom or on the way up, we call it catching the wave. We are still attractive because we have potential.?

If the appeal of CVC?s funds to the financially stricken Premiership Rugby and the URC seems obvious then the Six Nations was already well established as rugby?s single most reliable cash dispenser. Why then did it accept CVC?s offer? The money is undeniably attractive but a senior Six Nations executive says that collaboration was just as important as cash.

?At a time when the future looks quite uncertain and remains uncertain in how major sport is funded going forward it makes sense to have a relationship with responsible private equity to take advantage of all the opportunities that brings forward, not least the cash injection, but it is about much more,? the source said. ?It?s the ability to think differently about your future.


?We want to build a sense of togetherness in terms of what we are trying to achieve, which is a growth profile for the game. The output to that will be unlocking the true value of what we have, which we have not been doing for the last few years. We just have not been doing it. It is undeniable to suggest that we have. We have been operating as individual silos too often in rugby, which has led to massive difficulties where the rights market is soft and the economy is going through difficult years. We have to work together.?

CVC?s remit, across all three leagues, was focused purely on the commercial, according to Clarry: ?We had a clear plan which was around pulling the commercial side of the sport out from the sporting side - leaving the clubs, the unions and World Rugby in charge of the sport, with no influence from us; and then really focusing on and doubling down on an ambitious commercial vision for the game, with world-class management, and the day to day grind of commercial execution.?
Unforeseen circumstances hinder plans

However after CVC?s stake in the Premiership was formalised in March 2019, initial plans soon went awry. Little more than eight months later, the investigation into Saracens? manipulation of the salary cap was published and a few weeks after that the first cases of Covid were reported. Premiership Rugby, in particular, has been in a state of perma-crisis ever since with three clubs in Worcester Warriors, Wasps and London Irish falling out of the league.


There were missteps along the way. CVC?s initial management team of CEO Darren Childs and chair Andy Higginson were not suited to the firefighting and infighting common within the Premiership. With Childs? background in television, many clubs were expecting a broadcasting bonanza, however the last rights package with BT Sport, now TNT, renewed at the same value.

More problematic was how few strings were attached to how the Premiership clubs spent their windfall. This directly influenced CVC?s subsequent moves into La Liga and Ligue 1 in Spain and France, according to Francois Godard, a media analyst at Enders Media.

?The mistake they made was not to control their spending,? Godard said. ?They invested in these leagues but they did not have any commitments in contract terms on what the clubs could do with the liquidity. As a result, the clubs spend a lot on players as opposed to investing in their stadium, branding, infrastructure, digital services. As a result, the football clubs in France and Spain are committed to spending around 70 per cent of their liquidity on infrastructure.?

Some of those missteps have been rectified. The new management team of Phillips, CEO Simon Massie-Taylor and Nigel Melville, who acts as the interface between the clubs and league, are respected inside and outside the Premiership. While the broadcast income has been flat, they have massively expanded the reach of the league through free-to-air television deals with ITV as well as setting up a Premiership on-demand service. The Premiership attracted record numbers on both TNT and ITV last year while sponsorship has also increased.

As Phillips argues, Covid wiped out at least two years of progress and for Clarry this is the first stretch of calm for the Premiership after nearly five years of stormy waters. ?It has been harder work than we expected because of the financial difficulties of Covid, the situation with Worcester and Wasps, and also the fragmented nature of the game,? Clarry said. ?But the Premiership Rugby sponsorship business is up, the data business is up, and the media business is now on the way up, since our investment five years ago. We have also gone from a fraction of the games being on air to all of the games being shown across TNT Sports, ITV and Premiership Rugby TV ? which is a huge win for the fans. Sports are momentum businesses, and rugby has now turned the corner, with the prospect of much better results for everyone in the game.

This brings us to the question of whether either CVC or Premiership Rugby regrets their pact. Clarry?s answer is emphatically no. Phillips concurs: ?What I look at it is if we had our time over again would we do the same thing again? My answer would be yes, definitely. I think CVC have probably found that quite challenging but I just think rugby is really, really difficult to get change done? Exeter chairman Tony Rowe is among a handful of voices who have always opposed CVC?s involvement, questioning whether they have delivered upon their promises.

Yet Phillips, who was still with the WRU when Covid struck, believes there might not be a Premiership now without CVC?s investment. ?If you look at what is in the public domain, if that ?200 million was not in the Premiership economy when Covid came along, I don?t think we would have a club-by-club problem, I am not sure we would still be here,? Phillips said. ?If you look at how tough it is right now, even having that level of injection, then either it would not be here or it would have been seriously, seriously wounded.?

[Neils]

?It will come under one umbrella, like Coca-Cola?: Inside CVC?s vision for growing rugby

Special report, part two: CVC reveals what comes next and what it means for the sport
Daniel Schofield, Deputy Rugby Union Correspondent 16 January 2024 ? 3:56pm


It is not a matter of public record quite how much money CVC Capital Partners generated from its 10-year stewardship from Formula 1. Safe to say it was in the billions. So when Nick Clarry, head of sport at the private equity firm, tells Telegraph Sport that it will make its investment in rugby union succeed ?no matter how long that takes?, those words carry significant heft.

In part one of our special report, we looked at the significant challenges that CVC has faced since it announced its purchase of a stake in Premiership Rugby just over five years ago. Now we will look at what comes next, its vision for growing rugby and what that will mean for the sport.
?I wish their elbows were a bit sharper?

A lot of low-hanging fruit is already being plucked around marketing, sponsorship and digital media. The juiciest apple of all, however, remains the broadcasting contracts. When Clarry refers to rugby being ?undervalued? this would have been at the forefront of his mind.

A report by Enders Analysis, for instance, shows that Premiership Rugby is one of the best value rights packages in terms of the amount of viewers it attracts versus the cost of those rights at around ?110 million over three years. The rights package for the United Rugby Championship and the Six Nations are viewed in a similar light.

This might be great for the individual broadcaster such as TNT Sports but it is obviously damaging for the clubs and unions and it also short changes supporters, who will need multiple subscriptions if they want to watch rugby across different leagues. The leagues have not helped themselves in this regard by undercutting each other in negotiations with broadcasters.


Under CVC, rugby will no longer be divided and conquered. Instead, the commercial operations will be brought together under one umbrella in much the same way that the Coca-Cola Company runs Coca-Cola, Sprite and Fanta.

?Post pandemic it is clear that rugby can unlock the true potential of the game at scale, by working together differently,? Clarry said. ?For example: Six Nations worked closely with Sanzaar and World Rugby to agree the format for the fantastic new Nations Cup; and Six Nations, PRL, URC and EPCR are increasingly collaborating on commercial opportunities to help grow the game for the benefit of players and fans and grassroots rugby. This will enable the unions and clubs in those competitions to have the benefit of scale and aggregation, rather than fragmentation, providing more resources and capital to invest back into the game at all levels.?

The long-term ambition is to bundle the rights for Premiership, United Rugby Championship and possibly the Champions Cup, Six Nations and the new Nations Championship together in a single package. One broadcaster will, for a hefty premium, get to be the home of rugby. The others will be left with nothing.

This will not be a simple process. The broadcast deals for Premiership Rugby and the Autumn Series are due for renewal this year. The United Rugby Championship and Six Nations follow in 2025. As the former chief executive of the Welsh Rugby Union and current chair of Premiership Rugby, Martyn Phillips can attest to how slowly the wheels of progress turn in rugby. In 2018, he was part of a working group that drew up the concept for the Nations Cup that is still to come into effect. Another project to pool the television rights for the Autumn Series between the unions took four years to get approval from different boards.

Yet it would be a mistake to assume that CVC can simply force through any change it desires. ?By CVC having involvement in different rugby properties, it is a force to try to create alignment and a shared vision ? do we all agree this would be a good idea, even if it takes 3-5 years?? Phillips said. ?They cannot make us do anything. It is still the rugby boards who have to decide.

?CVC are facilitators. If anything I wish their elbows were a bit sharper. You would think they come in and be very aggressive and dominant, but they are not. If they were like that rugby would circle the wagons and it would go nowhere. They are having to be more influencing than they ordinarily might want to be to get things done, which might be quite frustrating for them. I think we are quite hard to work with.?
The end of free to air?

If a broadcaster is to become the home of rugby, it will not be BBC or ITV, who have plainly admitted they cannot afford to renew the current ?115 million-a-year deal to show the Six Nations, which expires next year. CVC recognises the importance of the Six Nations? current reach and the importance of free-to-air in projecting rugby to the wider public. This is why it helped Premiership Rugby negotiate a free-to-air deal for highlights and live matches with ITV.

Even if part of the Six Nations was lost to pay TV, it is likely that at least half of matches remained on terrestrial. This could be a similar arrangement to the one struck in 2012 when BBC and Sky split the rights to Formula 1, although races eventually ended up being exclusively shown by satellite. As a senior Six Nations executive told Telegraph Sport, this is a delicate tightrope on which they are about to tread.

?Our job is to promote and protect rugby union,? the source said. ?We have got to strike that balance between revenue and reach, and promotion and exposure. That?s a challenge for all sports. What we are trying to do is maintain the reach and find a way of growing the revenues that then get invested back into the game to ensure we are continuing to be relevant across the country and across the Six Nations as well as to future generations. Without that funding that job becomes basically unachievable and we don?t ever want to see a scenario where that is the case.?


The prospect of losing any part of the Six Nations from free-to-air television is an emotive subject that tends to get MPs pontificating in Parliament, but unless it is added to the list of ?Crown Jewels? events that have to be shown on terrestrial then there is little to stop market forces from determining the direction of travel.

While there is an appreciation of the reach of free-to-air ? viewership research by Enders Analysis shows the Six Nations trailed only the Wimbledon finals and the Women?s World Cup on a per-match basis ? there is also a recognition within the Six Nations it cannot afford to tie itself to the mast of terrestrial television indefinitely.

Linear television is on a five per cent decline trajectory every year, which is even more pronounced among younger generations. For the Six Nations to maintain its relevance, it must expand its scope significantly past its existing platforms.

?The way we look at this going forward is looking at the way people consume sports content, live sports content,? a Six Nations source said. ?It is different to how it was in the past. That is one of the key things we need to drive going forward is the ability to put the fan at the heart of the proposition, which rugby has not got a fantastic record of doing since its entry into the professional era. We need to continue to push the boundaries to keep rugby relevant for future generations and for fans who look at it and think this is not for me.?
The big broadcasting bet

In the world of sports broadcasting, football is king. Sky and TNT, formerly BT, have built their empires around showing Premier League and Champions League football respectively. Every other sport comes under the secondary sports market, but some are more valuable than others. Sky pays around ?200 million a year for its F1 rights, having renewed its exclusive deal through to 2029. Part of what makes F1 so valuable is that it has a distinct viewership separate to football so if you lose those rights, you lose those subscribers.

CVC?s proposition is that such a market also exists for rugby supporters and a broadcaster will be willing to pay a significant premium for exclusivity for a long-term period. According to Francois Godard, a media analyst at Enders Analysis, this will then create a symbiotic relationship between the broadcaster and the sport, in much the same way that Sky Sports has helped to propel the Premier League to its current stratospheric heights. ?You need broadcasters to invest in the sport,? Godard said. ?If you have a three-year contract then it is like having a three-year flat rental. Are you going to spend money on the apartment? No. If you have a 12-year contract then you are going to take a lot better care of it.?

If the strategy is a good one, Godard has doubts about which broadcaster will be willing to open its chequebook to be the home of rugby. Warner Bros Discovery, the parent company of TNT which owns the current rights to the Premiership and Champions Cup, is under significant financial pressure globally while Sky Sports has more or less closed its rugby operation, with the exception of its coverage of the Lions.

Meanwhile, potential new players DAZN missed out in the recent auction for Premier League rights which spells bad news for rugby, according to Godard. ?I don?t think it is very positive for rugby because the more there is competition between sports channels the higher demand for secondary sports because you want to boost your schedule,? Godard said. ?Now there will not be much competition between TNT and Sky Sports, they are complementary, they have deals together, they have cross distribution deals.?

CVC remains confident that if the proposition is strong enough then a broadcaster, whether that is TNT, Sky or a potential player, will be willing to stump up.
?We are getting to the good part now?

The devastating impact of the pandemic on the rugby economy and its aftereffects, which contributed to the demise of Worcester Warriors, Wasps and London Irish, have set back CVC?s plans by at least two years. Even now, the fruits of many of the initiatives being put in place today, such as Netflix?s Six Nations Full Contact documentary which premiered in London on Monday night, will not be seen immediately. ?I would call it lead lag,? Phillips said. ?The things we are doing today, we will only see the benefit of in 2-3 years? time. Most people want instant gratification but that?s impossible because of the length of the contracts. I am confident that the things we are doing today will bring medium-to-long-term benefit. I?d love it to be right now but it won?t be. That?s just reality.?

Perhaps CVC?s greatest achievement is that there is now a real sense that rugby?s stakeholders are finally pulling in the same direction. Even if bodies such as Premiership Rugby, the United Rugby Championship and the Rugby Football Union are not on the same page, they are now at least in adjoining chapters.

?The answer to fragmentation is collaboration,? one high level source said. ?Build trust. Build relationships. Build a sense of togetherness.? Another put it more bluntly: ?It?s collaborate or die.?

The Premiership remains in a precarious position with its finances, particularly with the repayment of the Covid recovery loans. The painful path to a 10-team league was privately celebrated by many as the optimum long-term solution. Losing another club, however, would be a disaster that could send the whole league toppling like a house of cards.

Clarry, however, is optimistic that rugby has finally turned a corner. As former RFU chief executive Francis Baron said in part one of our report, it is always worth remembering that private equity companies are in the business of making a profit ? which should hardly be considered a bad thing in a capitalistic society ? yet there is a point of pride in CVC?s investment in rugby. That was the starting point of a huge expansion of CVC?s sporting empire as it has taken stakes in La Liga and Ligue Un, the Spanish and French football leagues, as well as the Women?s Tennis Association and Gujarat Titans, the IPL franchise.

Rugby was their entry point to that empire and having weathered the storms of the past five years, Clarry is determined to see the project through.

?We don?t regret our investment in rugby,because we are getting to the good part now, where the efforts of everyone in the game has created positive momentum ? and it is about delivering strong results,? Clarry said. ?But it has been harder work than we expected when we started in 2019 because of Covid, Worcester and Wasps, fragmentation, cost of living crisis etc. Why does CVC credibly love rugby and not regret it? One, we are going to succeed by working together, no matter how long that takes ? and we are going to grow the game and audiences to deliver higher revenues to reinvest back into the sport at all levels. Two, everyone in rugby now understands the challenges, and they want to reach their full potential, and we are all fully aligned on the objectives. Three, the transformation of rugby has been one of the catalysts for other sports in the world, to realise the opportunities available to them through commercial partnership deals, with partners like CVC.?

[baldpaul101]

Interesting articles.
Also a centure capital firm has just taken over Cardiff.
You would wonder what such a firm would want with a Welsh Rugby side given that the WRFU seems to have presided over an even bigger mess than the RFU.
But as has been said about CVC, they don't do this for fun or ego's its about money & they think they can make a profit on it.
If others can be convinced maybe the investment in the game can be found to move things forward? Too late for Wasps, Warriors & Irish (Jersey might be able to recover IMO).