Analysis: CVC money brings opportunity and risk

Cash injection is a huge opportunity for Scottish rugby but private equity firms are not benevolent societies so there is risk involved

Jonathan Davies and Alun Wyn Jones celebrate winning the 2019 Six Nations Championship Image: ©Fotosport/Hiroyuki Irie

A CASH injection of over £100 million from private equity firm CVC in exchange for a minority stake in the Six Nations, plus as much as £40 million for a slice of the PRO14 pie, would be game-changing for the Scottish Rugby Union. A whole new world of opportunity will suddenly open up. But the arrival of such an eye-watering sum of money brings its own risks, and we must keep in mind that this is not a gift but an investment from a private equity firm who will be ruthless in their determination to exact maximum profit from their outlay.

“The Six Nations Championship should consider carefully who it is dealing with before selling itself to private equity group CVC,” wrote Alex Brummer, the respected City Editor of The Daily Mail, back in March.

“As handsome as the £500m bid from CVC might seem, private equity owners are not a benevolent society. Operating behind closed doors, they can use that status to build businesses, but are just as likely to be ruthless in decision making. The goal normally is to offload the assets in as short a time as possible at far higher prices.

“The Six Nations is the jewel in the crown of international rugby, much admired in the Southern Hemisphere. Handing over the franchise to private equity for short term gains would be a disastrous error.”

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Private equity is a tough, profit-oriented business and CVC is a money making machine. It was founded as the European spin-out of American global banking giant Citicorp in 1981 and was subject to a management buy-out in 1993. It is now one of the world’s leading private equity firms with approximately US$123 billion of funds committed worldwide. Its headquarters are in Luxembourg and it employs over 400 staff working across a network of 24 offices throughout Europe, Asia and the Americas.

A patchy track record

Big money is exciting but Brummer points to the experience of Debenhams department store chain as a cautionary tale which the Six Nations should heed as they decide whether to stick or twist.

CVC, acting in concert with TPG Capital and Merrill Lynch, bought Debenhams for £1.7 billion in 2003 and, having ripped out over three times their initial equity investment, re-floated it three years later for about the same equity value, but with long property leases and debt close to £2bn — 2,000 per cent higher than when they took control of the company. Hardly surprisingly, Debenhams filed for administration in April 2019.

“Retailers need to be run as retailers, by retailers, not as cash cows by financiers,” said Stephen Springham, head of retail research at Knight Frank, at the time.

And it is not only in retail that CVC has a patchy record. In 2006, the company bought a controlling stake in F1 motor racing for about £1.6bn. It was worth about £6bn when sold to Liberty Global in 2017, but the future prospects of the sport are now a cause of serious concern. Bob Fernley, former principal of the 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,” he said in 2016.

The cost of profit

Giles Richards, the F1 and motor sports correspondent for The Guardian, was equally scathing in an analysis he wrote last September, blaming the teams for allowing themselves to become reliant on CVC hand-outs from TV deals which raised plenty of cash but damaged the sport’s visibility.

“From 2019, F1 will be exclusive in the UK to Sky for six years in a deal reportedly worth £600m,” he explained. “Good numbers for CVC but not so the dwindling worldwide audience that has fallen by 137m since 2010. A falling audience and exposure has its effect on sponsors, thus more had to be squeezed from TV and promoters and consequently the teams became more reliant on payments from these funds delivered by F1. There was nary a peep of disapproval from the teams after the Sky deal, taking jam today, over the sport’s future.

“CVC appeared to have no interest in that future. They appear to have spent very little on promotion, investment or attempting to engage with a younger audience.

“The pursuit of profit may also have led to failure of governance, so profound that in 2016 the drivers took the unprecedented step of openly criticising the way the sport was run in a statement describing the decision-making process as ‘obsolete and ill-structured’.

“It was management that had left payments between teams wildly inequitable and was responsible for the two-division haves and have-nots that now occupy the grid. Worse still in a sport awash with money, teams were still going bankrupt, though CVC denied responsibility for cash problems.

“There was pursuit of profit at every possible level but with apparently little interest in making the experience better or more popular. It was a distasteful, cynical process that left F1 tarnished.”

Haves and have-nots

Richards’ observation of a two-gear F1 competition split between “haves and have-nots” will resonate most loudly in the Southern Hemisphere, where there is already a structural imbalance between what is produced on the playing field and commercial performance – causing a steady flow of the world’s best players towards Europe.

The demise of World Rugby’s Nations Championship proposal last month left leading rugby figures in Australia, New Zealand and South Africa gnashing their teeth in anxiety over what the future now holds. News that the Six Nations Board is now “within days” of agreeing in principle to a deal worth half a billion pounds will have multiplied the angst-levels tenfold.

In truth, all rugby supporters across the globe should be concerned about what a deal so heavily weighted towards one cluster of countries will do to the overall fabric of the sport.

While CVC are reportedly buying only a 15 per cent stake in the Six Nations, they have already purchased a 27 per cent stake in Premiership Rugby and are in advanced negotiations for a £120 million stake in the PRO14 league. History tells us that they are unlikely stop there.

All of which provides invaluable context for those pondering the full significance of Sir Bill Gammell’s on-going review of “Scottish Rugby’s corporate governance and business structures”.

Six Nations Board takes step closer to £500 million private equity deal

About David Barnes 4012 Articles
David has worked as a freelance rugby journalist since 2004 covering every level of the game in Scotland for publications including The Herald/Sunday Herald, The Sunday Times, The Telegraph, The Scotsman/Scotland on Sunday/Evening News, The Daily Record, The Daily Mail/Mail on Sunday and The Sun.


  1. Another interesting and informative piece of journalism from the Offside Line!
    I made a comment just the other day about how detrimental subscription TV has been for Cricket. A point also expressed here by Dom Ward.
    This article raises my awareness of the impact on F1. Who will be next is not an issue for Rugby today or next week but its time will come?
    It would be easy to use Football as an example of where investment has played a major part. However just because the English Premier League are able to entice the world’s best players the supporters still have to pay inflated prices to attend matches. In the season just past the majority of the EPL sides could have played to empty stadiums and still made a profit! However, even with all the investment there are a number of English football teams that have large debt problems.
    Manchester United – £495.8m
    Brighton & Hove Albion – £207.1m
    Arsenal – £205.3m
    Liverpool – £201.7m
    Spurs – £180.4m
    Sunderland – £161.7m
    Newcastle – £152.3m
    Stoke – £122,7m
    Cardiff – £115.1m
    Blackburn Rovers – £112.8m

    Let’s remember investors want a return for their money. This is not a giveaway!
    What will the CVC money be used for? An equal share of the investment to each of the Nations opens up the same opportunity. If they all spend wisely, they all move on and they end up in the same ranking position. Is that progress? Will tickets get any cheaper? The simple answer is no! The likely outcome as has happened in football is that they will become more expensive!
    Do you think this additional money will see its way down to the grassroots? My feeling is that the elite players will become even younger and that the dropouts will be left with nowhere to go to play their rugby. The earlier you create the elite the quicker the likely decline in the rest of the game. That’s my findings across a number of sports. I understand that in Ireland what may have been termed as social rugby has taken a sharp decline for just that reason.
    My fear is we only find out when it is too late!

  2. Is the amount of investment welcome? Yes.
    Is Rugby a priority business for the investor (speculator?)? No
    So, what is an investor’s motive?
    Either dividends or capital growth or both.
    Are there any other investments by the investor which could create conflict? Yes.
    Does the equity share exceed that of any or all of the shares held by any other investors? Yes.
    Could that lead to disruption of the business model? Of course it could.
    Are there agreed performance criteria attached to the investment?
    Is this investment permitted by the Memorandum & Articles of Association of the Six Nations?
    Is there an agreed exit strategy for each party to this deal?
    Is the brand protected?

    I could bore for Scotland on this topic but just look across the sporting world at a football club that lost control over its own merchandise.

    • Lost control? Sold off merchandise for desperately needed cash then tried to rename in the deal. Currently being brought to book in the courts.

      That football club?

  3. Nice piece David

    We don’t have to look far to see the corrosive impact of money on a sport. The Cricketers are already lamenting the loss of exposure from the World Cup on Sky.

    I’m curious on who within the SRU is authorising this move.

    Interesting timing as well. This will be all done and dusted by the time the Gammell review reports.

  4. Let’s be honest, Murrayfield were quite clear when they announced the Review why it was getting done, and it was nothing to do with past criticism of their own actions.

    “In light of the rapidly evolving global rugby landscape (and with the potential for future external investment into the sport), Scottish Rugby’s governance structures must be fit for purpose to take account of the interests of all existing and future stakeholders. ”

    It’s making sure that the current stakeholder interests make way for the new stakeholders who are arriving over the horizon.

    Are we about to say goodbye to grassroots rugby as we know it?

    Fewer, but stronger.

  5. Very insightful piece David.

    CVC aren’t here out of the goodness of their hearts. This is purely about making money.

    I do hope the 6N Execs know what they are getting into. The Debenhams example is a classic PE case. This will be different for rugby as it’s a minority stake and the F1 saga has more relevance.

    The question is – who in the SRU is making the call and what will be done with the cash? Timing is a wonderful thing though. The Gammel review will be on going when this decision is made.

    That money is a one off – unless of course the Unions sell more share. And once it’s gone it’s gone.

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