The devil is in the detail of any WP Rugby private equity deal

Private equity ownership, by way of a majority shareholding, is the only future for a successful professional rugby franchise. Broadcasting deals, once the paymaster to rugby provinces and franchises, cannot sustain a professional rugby business model.

Professional rugby in South Africa cannot exist without private equity investment, and investors only invest if they have a controlling share or the comfort that they control the professional game’s decision making.

The Bulls, through the investment of Johann Rupert’s Remgro (37 percent) and Patrice Motsepe (37 percent) a long time ago understood professional rugby’s landscape.

The Sharks and Lions have private equity partners in Supersport (49 percent) and Altman Allers (49.9 percent).

Western Province, since rugby went professional in 1996, have never grasped or appreciated a private equity partner. Those who govern rugby in Western Province have always tried to safeguard the amateur ethos while wanting to dine out on the professional financial rewards. The two are not dinner companions. In fact, the two are simply not accommodated in the same room.

The media in the past fortnight have highlighted the situation at Western Province, with reports very one-sided, depending on who is speaking. The players, coaches and management want a quick fix and security that their salaries will be paid. It makes the R120 million-rand proposal from the South African-born United States business personality Marco Masotti so appealing.

Masotti represents New York-based MVM Holdings.

The union, led by its president Zelt Marais, is refusing to cede control and power.

The view of the players, coaches and management can’t be dismissed, but the reality is they have no long-term regard for Western Province or the Stormers. Players are mercenaries. They play for the highest bidder.

Equally, the view of the elected officials, who also want a short-term gain during their tenure.

It is understandable that there is a stand-off between players, coaches and the elected officials because everyone is arguing from a self-centred position. Neither is in it for the future of the game in the Western Cape.

Which is why the issue is not private equity, but rather the detail of any private equity deal.

Straight up, any offer for the professional ownership of the Stormers and Western Province, at six million US dollars, is an insult.

No investor would give anything to a professional rugby franchise if it didn’t understand the landscape or see the potential reward.

The offer is minimal because of the raw minerals of a province, which has the richest player feeder system through the schools, university and club structures. It is also inflated because of the internationally weak rand currency.

Rugby in the Western Cape will never want for players because of these structures.

Anyone who tells me rugby will die in the Western Cape if the union bosses don’t accept a six-million dollar investment is deluded. Rugby will always be alive.

The devil is in the detail of any investment.

The issue here is not private equity but what guarantees can be given to safeguard the future of the clubs that make up Western Province and the Stormers.

The USA offer to Western Province is a distress purchase. The potential investors have recognized cash flow issues and spoken to the short-term desires of players and coaches, the majority of whom won’t be around in the next decade.

I get that.

But I also get the resistance from the elected officials.

Why would they give up power to an investor, who really is paying petty cash for the rich natural harvest?

The only way the current deal is workable is if there is a generous annual guarantee that speaks to the financial well-being of the 90-plus clubs that make up rugby in the Western Province.

Western Province Rugby is a legacy brand, very much like a once-prosperous family owned business.

And just like that renowned family owned business that is in distress, the patriarch doesn’t cede power unless the offspring’s future has been guaranteed.

Any private equity deal that gets done with Western Province has to speak as much to the long-term future of the clubs, as it does the short-term cash injection of the professional entities, being WP and the Stormers.

No interested overseas party will invest in South African rugby simply to pay players and coaches salaries.

The interest in Western Province is because of the obvious rugby strength in the province, through its unlimited supply of talent.

No other province in the rugby world has as much schools’ talent and few can compete with a club structure as vibrant as that in the Western Province.

The six-million dollar offer is a steal for any investor because of the potential of the reward.

There is no risk from an overseas investor in committing six million dollars to own WP and the Stormers.

All the risk is with those elected officials, who govern the sport in the province.

And it is a risk that doesn’t speak to the proposed offer.

Those elected officials have to cede power to a majority shareholding private equity partner, but to do so they have to establish the value of their grass roots structure and get the annual guarantee that speaks to that, as opposed to any projected professional entity value, from which they would also be the beneficiaries.