Private Equity in RL decision explained

[Tommygilf]

6 hours ago, Toby Chopra said:

Agreed. Nothing in those interviews suggests anyone was naive, or tricked into certain things. They knew what they were doing, and having assessed the offer not everyone decided it was worth it. I haven't seen the detail but they're savvy enough businessmen to make that call. 

Where I would question Hetherington's position is that I wonder if it's too easy for a well run and well capitalised club like Leeds to expect other clubs to grow their operations in the same way. It never works out like that. 

For me, one of the advantages of an outside investor taking some control is that would drive the competition forward on a centralised, coordinated "whole SL" basis rather than one led by individual clubs going a different speeds, and often different directions. 

We've seen enough from Elstone in recent time to know that he doesn't have that power, and still has his strings pulled by self interested owners. 

I don't think the untapped potential of British rugby league can be released on a club by club basis, it has to be the competition as a whole that is lifted, and outside control can help achieve that. 

That's true to an extent, but equally a lot of the reasons for example Wakefield are doing poorly as a club are down entirely to them and what they offer in relation to the very limited local competition. That's not to say Wakefield should be doing exactly what Leeds are, but rather they should be doing something at least. Leeds weren't always the club Hetherington now presides over either, which is an important point as he's seen a club grow to what it is now. 

The "whole SL basis" is an interesting but I think slightly flawed idea. Instead of the whole of super league, I think you'd only need what I'd describe as "the leading clubs plus". That's to say the big 5 English teams, Catalans and maybe say Huddersfield. The basic foundations of a successful Super League are found within that group, they are the core around which the competition, its TV deal etc are built on. The rest are largely interchangeable. IE, those top clubs can drive the game forwards together.

[Bostik Bailey]

6 hours ago, Toby Chopra said:

Where I would question Hetherington's position is that I wonder if it's too easy for a well run and well capitalised club like Leeds to expect other clubs to grow their operations in the same way. It never works out like that. 

That attitude sums up everything that is wrong with Rugby League in this country.

 

[Rupert Prince]

1 hour ago, Damien said:

The PE ownership of F1 that has been roundly slated and people did speak out about CVC taking from the sport and not developing it. This from the the deputy team principle of Force India:

CVC owned F1 between 2006 and 2017, when it was taken over by Liberty Media. The then deputy team principal of Force India, Bob Fernley, accused CVC during that time of “raping the sport”. In 2016 he summed up everything abut the firm’s relationship with F1 in a single sentence. “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.

https://www.theguardian.com/sport/blog/2018/sep/10/cvc-ownership-f1-warning-premiership-rugby-union

F1 team bosses have revealed their 'anger' that the sport's owners Delta3 and commercial rights-holders CVC have accrued debts of some $5bn dollars - as they clamour for a greater share of the revenue themselves.

The ten Formula 1 teams are rumoured to be seeking new meetings with the sport's commercial rights-holders after it emerged that a vast proposition of income is being used to service interest payments on debts.

According to the UK's Guardian newspaper, team principals have been angered by the revelation that the sport's owners - private equity firm CVC Capital - are carrying a $5bn (?3.2bn) burden that accrues around $230m in interest a year. That figure is roughly equivalent to half of the total annual 'payout' received by the teams and, with the FIA attempting to force through cost-cutting measures such as the highly controversial standardised engine, has raised more than a few hackles in the paddock.

The Guardian reports that CVC - which bought F1 from a consortium of banks in 2006, before setting up Delta3 to run it - loaded more than $2.4bn of bank loans onto it during the leveraged buyout, with an additional $2.6bn in loans which it states it will not enforce to be paid back since it acts merely as a standard tax-reduction mechanism.

https://www.crash.net/f1/news/64291/1/f1-debt-to-scare-teams-back-to-table

 

I'm not sure certain newpapers are altogether objective, and I am not sure Force India are either... A Canadian billionaire is happy to buy them out of administration.

But this is F1, not SL.  Payments to F1 teams are labyrinthine.  Ferrari get an extra 60 million, just for being Ferrari.    But without the teams, well there is no sport. 

 

[Oxford]

9 hours ago, Kayakman said:

a quick Trumped up report and then the bill paid out to some buddies.

All you forgot was farming a  no-bid contract to Deloite Uk for something they're completely incapable of achieving and you'll have the measure of UK plc.

[Damien]

5 minutes ago, Rupert Prince said:

I'm not sure certain newpapers are altogether objective, and I am not sure Force India are either... A Canadian billionaire is happy to buy them out of administration.

But this is F1, not SL.  Payments to F1 teams are labyrinthine.  Ferrari get an extra 60 million, just for being Ferrari.    But without the teams, well there is no sport. 

 

Its all relative and the point is still the same. RU is reporting exactly the same issues.

[GUBRATS]

The only way any investment can bring in a return of a large enough amount is via broadcasting , so what would they have spent the money on ? 

 

[M j M]

9 hours ago, Toby Chopra said:

Where I would question Hetherington's position is that I wonder if it's too easy for a well run and well capitalised club like Leeds to expect other clubs to grow their operations in the same way. It never works out like that. 

The thing about Hetherington is that he knows exactly how hard it is to run a small top flight club with low crowds. Which is why his, and Leeds's, stance is often sympathetic to the smaller clubs and especially the lower leagues. However he also ran Sheffield at a profit so he probably looks around him at Super League management meetings and wonders what the hell some of this lot are doing.

The finders fee yes is common - they'd probably get a lot more if the deal had gone through. And it looks like everyone knew about it but proceeding on that just needed a majority vote not unanimity.

Now if, as reported, that Saints/Leeds axis stated they were against this in almost any form pretty much from the start, wasn't it highly likely that we'd end up here with them vetoing it? Seems quite a cavalier way for the other club bosses to spend their money to me.

[Rugbyleaguesupporter]

£60m for 27pc, call it 25pc for easy maths. 

TV deal of £30m a season- in 8 seasons you've lost more from just tv deal than total sum youd receive  

30*8 = 240 

240m lose a quarter is £60m 

I cannot see how the £60m in would drastically boost revenue- so the correct call 

[Damien]

Just now, Rugbyleaguesupporter said:

£60m for 27pc, call it 25pc for easy maths. 

TV deal of £30m a season- in 8 seasons you've lost more from just tv deal than total sum youd receive  

30*8 = 240 

240m loseca quarter is £60m 

I cannot see how the £60m in would drastically boost revenue- so the correct call 

Its even worse than that because PE usually puts up little money and loads the sport, or business, it buys with debt.

[KiwiRLfan2050]

Private Equity would change the game for the best. The culture is embarrassing at the moment, business of the game needs to improve.  

[The Future is League]

20 hours ago, nadera78 said:

Carter couldn't be more open there, could he? Basically amounted to 'It wasn't a great deal but we are so desperate for cash we voted for it'.

Hetherington at least took the time to explain the main issue for him - not a good deal, and a loss of control to an outsider which short term aims.

 

21 hours ago, Tommygilf said:

A good couple of interviews here.

I don't get the sense Hetherington is one of the owners Carter describes as being against PE from the start, as he seems open to the concept but only for the right price and the right company.

What's not surprising is which owner voted which way I suppose.

 

8 hours ago, M j M said:

The thing about Hetherington is that he knows exactly how hard it is to run a small top flight club with low crowds. Which is why his, and Leeds's, stance is often sympathetic to the smaller clubs and especially the lower leagues. However he also ran Sheffield at a profit so he probably looks around him at Super League management meetings and wonders what the hell some of this lot are doing.

The finders fee yes is common - they'd probably get a lot more if the deal had gone through. And it looks like everyone knew about it but proceeding on that just needed a majority vote not unanimity.

Now if, as reported, that Saints/Leeds axis stated they were against this in almost any form pretty much from the start, wasn't it highly likely that we'd end up here with them vetoing it? Seems quite a cavalier way for the other club bosses to spend their money to me.

I would sooner have Gary Hetherington running my club than Carter

[Tommygilf]

3 hours ago, KiwiRLfan2050 said:

Private Equity would change the game for the best. The culture is embarrassing at the moment, business of the game needs to improve.  

Would it? How? 

[GUBRATS]

4 hours ago, KiwiRLfan2050 said:

Private Equity would change the game for the best. The culture is embarrassing at the moment, business of the game needs to improve.  

What would we spend the money on ?

[redjonn]

10 hours ago, Rugbyleaguesupporter said:

£60m for 27pc, call it 25pc for easy maths. 

TV deal of £30m a season- in 8 seasons you've lost more from just tv deal than total sum youd receive  

30*8 = 240 

240m lose a quarter is £60m 

I cannot see how the £60m in would drastically boost revenue- so the correct call 

Surely you would have a contract that its additional revenue over and above existing or expected existing revenue.  

[Oxford]

Loans have never been cheaper.

The Lottery has certain funds that could be tapped into.

RL has a cultural and historical footprint which would appeal to lots of funds and grants.

Now Covid may have changed all this and I could be overstating their availability but surely the case can be made for funds for a National RL Stadium at the very least.

But no we'd rather appear on Dragon's den and talk about the 80% they want for the derisory money they're willing to give.

[Damien]

48 minutes ago, redjonn said:

Surely you would have a contract that its additional revenue over and above existing or expected existing revenue.  

Thats not how it works in RU. Considering RL had an even worse deal there is no way it would be the case in RL.

[dkw]

1 hour ago, GUBRATS said:

What would we spend the money on ?

Players wages and agents fees......

[Bostik Bailey]

1 hour ago, GUBRATS said:

What would we spend the money on ?

Well I certainly wouldn’t be spent on some new fangled flushing toilets at Weldon Road.

[GUBRATS]

Thank you gentlemen for your replies

And the scary thing is , you're both probably right , it reminds me of my brother in law , who during the house price boom of the 00s twice remortgaged his ex council house , both times overstating what he was using the money for and then booking a holiday and buying his wife a nice car , then wondering why he couldn't afford the payments and had massive negative equity in his property which he then lost and ended up declaring bankruptcy 

I'd suggest the sport has ' dodged a bullet ' here 

[Oxford]

8 minutes ago, GUBRATS said:

I'd suggest the sport has ' dodged a bullet ' here 

[dkw]

If these PE investors do come in then they want a return on that investment, and I expect they would want it fairly quickly. I doubt they would be happy with that money going towards a development programme building into all levels to give the sport a long term future, youth programmes, infrastructure etc. They would want the top level to invest to make it more sellable to tv, sponsors etc. This investment is short-termism at its worst which is the last thing this sport needs.

[Damien]

7 minutes ago, dkw said:

If these PE investors do come in then they want a return on that investment, and I expect they would want it fairly quickly. I doubt they would be happy with that money going towards a development programme building into all levels to give the sport a long term future, youth programmes, infrastructure etc. They would want the top level to invest to make it more sellable to tv, sponsors etc. This investment is short-termism at its worst which is the last thing this sport needs.

The whole point of PE is quick returns as soon as possible. Development and growing the sport doesn't really form part of that. Due to the loans and debt that PE lump onto the business they could see a sizeable return in 5 years without doing a thing, simply by using the sports own money. A couple more quotes regarding the F1 takeover.

In an article on the 10 Biggest Formula 1 Disappointments of the Decade:

One of the biggest disappointments in the last decade was the way in which the private equity company CVC Capital Partners cared only about the return on its investment in the sport and pursued cash ruthlessly throughout its tenure between 2006 and 2017.

Everything they did was designed to squeeze money from the sport and to avoid any investment. Perhaps one cannot criticize such people as this is their goal, but it is a good warning to all sports to avoid the same happening to them.

https://www.autoweek.com/racing/formula-1/g30314117/the-10-biggest-formula-1-disappointments-of-the-decade/

And Forbes showing they funded the deal and saddled F1 with debt:

Private equity firms are famous for using loans to get deals across the finish line, and this is exactly how CVC structured its acquisition of F1 in March 2006. CVC funded the takeover with $965 million of its own money and a $1.1 billion loan from the Royal Bank of Scotland (RBS), but it didn’t stop there.

Once CVC owned F1, it was able to get an even bigger loan as this time it could secure it on the sport’s operating companies. As we revealed in British newspaper the Daily Express, in November 2006 RBS and Lehman Brothers lent F1 $2.9 billion, which was used to pay back the original $1.1 billion loan and CVC’s share of the purchase price. So not only did CVC get its money back just eight months after it bought F1, it left the sport on the hook for the loan that it used to buy it.

https://www.forbes.com/sites/csylt/2020/03/31/why-f1s-29-billion-debt-mountain-could-hold-the-keys-to-its-future/?sh=78a051b566e6

People who think RL can develop and grow through PE are dreaming.

[Rupert Prince]

2 hours ago, Oxford said:

Loans have never been cheaper.

The Lottery has certain funds that could be tapped into.

RL has a cultural and historical footprint which would appeal to lots of funds and grants.

Now Covid may have changed all this and I could be overstating their availability but surely the case can be made for funds for a National RL Stadium at the very least.

But no we'd rather appear on Dragon's den and talk about the 80% they want for the derisory money they're willing to give.

Loans have to be paid back.  Banks want security. They will not want to see its loan waste away.

So borrow money, make that money earn a return and then pay it back.  Part of earning a return is to pay the intetest on the money loaned.

So SL borrows money, it pays inretest and then makes SO much profit that after x years it's paid off the loan... and some.

So how does SL grow the game, service it's debt, become itself more wealthy and and the end still pay off the loan.  Or does it take on more debt to pay off the original loan?

Two things SL needs. 1. Investment; 2. How to use that investment.

[GUBRATS]

30 minutes ago, Rupert Prince said:

 

Two things SL needs. 1. Investment; 2. How to use that investment.

The only way for RL,SL to pay back any outside investment is via increased broadcasting revenue , that is essentially how all other sports have grown their income over the last 20 years 

So perhaps what Scotchy ( whatever happened to him ? ) suggested as in investing to produce your own content to sell on as to provide the best returns , to me that is the only thing PE could/should be considered for 

Once you start to pay back the loan then you could look at further Sources of investment to put together funding for infrastructure initiatives ( again Scotchy suggested buying into Elland Rd ) for either clubs or national uses 

But anything other than broadcasting isn't going to bring in a big enough return , IMO

[Rupert Prince]

9 minutes ago, GUBRATS said:

The only way for RL,SL to pay back any outside investment is via increased broadcasting revenue , that is essentially how all other sports have grown their income over the last 20 years 

So perhaps what Scotchy ( whatever happened to him ? ) suggested as in investing to produce your own content to sell on as to provide the best returns , to me that is the only thing PE could/should be considered for 

Once you start to pay back the loan then you could look at further Sources of investment to put together funding for infrastructure initiatives ( again Scotchy suggested buying into Elland Rd ) for either clubs or national uses 

But anything other than broadcasting isn't going to bring in a big enough return , IMO

Yes.  Broadcasting right become valuable when the game becomes watchable and people want to click the switcher or chose to select it rather than Canadian Basketball.

When will the game, the clubs, actually work together to improve the game.  When will the wider non SL game agree that the survival of the game depends on success of SL.