By Shivaum Bapu, Mohammed Safayat, Pristie Sharma, and Daniel Winsor (UCL), Sally Marshall, Izer Onadim, Max Raso, and Valeriya Shreyber (Imperial College London)
Overview of the deal
Acquirer: CVC Capital Partners
Target: Six Nations Rugby
Total Transaction Size: £365 million
Closed date: 11/03/2021
Acquirer advisor: Oakwell Sports Advisory
Target advisor: Rothschild & Co
Being the oldest rugby tournament in the world, The Six Nations championship is world-famous, so it's no surprise its organising body attracts investors from across the world. The latest partnership for the sporting body is with CVC Capital partners - a European private equity and investment advisory firm, which brings alongside with it the hopes of strategy to help grow and develop the game further, through technological advances and commercial expertise.
The long-term nature of the partnership will see The Six Nations receiving CVC’s investment over a five-year period, over which the organisation will use the investment to bolster rugby development across the six nations involved in the tournament. The investment is akin to those previously seen from CVC, who add the transaction to total their stake in the game to £600m, with a future of becoming a dominant player in the game not too far away for the firm.
“The Six Nations Championship is steeped in rugby tradition, stretching back to 1883, and together with the women’s, Under-20s and Autumn International series, is synonymous with all the excitement, colour, and passion that rugby has to offer. This external investment is an important validation of what Six Nations Rugby has achieved to date and is a key next step as we invest to grow the game on the world stage.” - Ben Morel, CEO, Six Nations Rugby
Company Details: (Acquirer - CVC)
CVC Capital Partners is a private equity and investment advisory firm with approximately $111bn in secured commitments since inception across European and Asian private equity, credit and growth funds. As of 2019, CVC managed $75bn of assets. The funds managed or advised by CVC are invested in 73 companies worldwide, employing over 300,000 people in numerous countries.
Founded in 1981, headquartered in Luxembourg
CEO: John Clark
Number of employees: 400
Market Cap: N/A (privately held)
Assets under management (AUM): $75 billion
Company Details: (Target - Six Nations Rugby)
Six Nations Rugby is the official organising body of the annual Six Nations Championships and Autumn International Series. The Six Nations Championship started in 1883 making it the oldest international rugby tournament in the world. It has six member unions and federations which include England, France, Wales, Scotland, Ireland, and Italy.
Founded in 1883, headquartered in Dublin, Ireland
CEO: Ben Morel
Number of employees: N/A
Market Cap: N/A (privately held)
Projections and Assumptions
CVC views the transaction as crucial to their ambitious plans of becoming the dominant commercial player in one of the world’s favourite sports, taking their investment in rugby to over £600m since it first targeted the game two years ago. Parts of the £365m investment will be deferred and is dependent on conditions being met around the financial performance and solvency of the union and on games being resumed in an attempt to protect themselves from the pandemic.
CVC has been particularly active in rugby, spotting an opportunity to become the sport’s dominant commercial player by taking minority stakes in competitions and governing bodies. They aim to use this influence to bundle TV rights for rugby competitions around the world into a single package for broadcasters. CVC is also exploring streaming deals to digital players such as Amazon, as well as the creation of an ‘’over the top’’ internet subscription service for fans, as they believe the sport is undervalued by broadcasters in particular.
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. Sports deals will force private equity to reckon with passionate forces not present in many of the leveraged buyouts that they are more used to; this time, the product is rooted in a sense of identity, community, and shared histories.
In 2020, Six Nations Rugby’s revenues had decreased by £140 million and they are expected to fall by £30-35 million in 2021, despite the restructurings that were done in order to reduce costs. Therefore, this long-term investment by CVC helps boost their pandemic recovery. After this capital is initially used to pay down debt and rebuild reserves, it will mainly help develop assets through various strategies, such as improved digitalisation. Given the increasing competition within sports, technological enhancements and greater personalisation will be essential to ensure the game remains current, making this investment vital to maintaining the popularity of Six Nations. Such investment into long-term projects will help improve competitions and events, thereby growing the fanbase and increasing popularity, which will create more opportunities in the future, such as improved sponsorship deals.
CVC has previous experience in Sports, especially rugby where its total investment is greater than £700 million. As a result, CVC’s knowledge and experience in marketing, branding, and use of data, which are all areas that Six Nations are currently lacking in, can boost revenues by helping build commercial and broadcast deals.
Both companies’ interests in the deal also align. As a financial buyer, CVC wishes to maximise capital gain by adding as much value to the Six Nations as possible. To do this, fan experiences must be improved by making both the product and the competitions better, which is the aim of Six Nations.
Welsh Rugby Union Chief, Steve Phillips, believes that ‘this deal will be a catalyst for growth’ and ‘will directly improve the international tournaments’ whilst ‘indirectly providing the foundations on which the game can flourish.’
Risks and Uncertainties
The COVID-19 pandemic has taken a huge hit on sports globally, with the rugby union being no exception. With talks to purchase the stake in Six Nations Rugby beginning in 2019, the execution of the transaction was pushed-back given the postponement of the 2020 tournament. Revenue shortfalls have disrupted the key financials of Six Nations Rugby, led by fanless stadia, and the potential of permanent damage to the sport’s viewership. As a result, CVC acknowledged these shortfalls by adding a clause for conditions on the full investment, with targets being set.
The stagnating value of TV rights means that CVC is likely to receive a net £20m a year. This will be further disrupted by the likely move away from free-to-air broadcasters, such as ITV and the BBC, with their current contracts ending this year. As seen with the failed talks to introduce a pay-per-view fee for Premier League football, it is evident that there will be major backlash from fans if the free-to-air distribution is scrapped.