Private equity fund CVC Capital Partners became a major powerbroker in two sports this spring as it consummated deals to acquire a 14.3-per-cent stake in the commercial arm of the Six Nations rugby tournament and a 33-per-cent share of the International Volleyball Federation’s (FIVB) rights management vehicle.
In a sense, the Luxembourg-based firm’s interest could be described as a backhanded compliment. While its willingness to invest nearly £400m (€464m/$550m) of other people’s money across both properties spoke of its underlying confidence in their long-term ability to attract audiences, it also pointed to a belief that they had failed to exploit all the commercial opportunities available to them in the past. Sources say the subtext to CVC’s rugby investments, in particular, is the perception that the sport has been mismanaged and that the PE firm can deliver a return on its investment by introducing a degree of discipline and commercial rigour.
The calculation the Six Nations and the FIVB have made is that the upfront capital injection makes it worthwhile handing over a share of future income. They feel the additional money, plus CVC’s involvement as an ‘active minority partner’, will help them to fix the fundamentals of their businesses. In the case of the Six Nations, the member unions have effectively invited CVC to be a seventh nation, sharing 14.3 per cent of commercial revenues in return for £305m, split between the six members in differing proportions over five years. Volleyball has forsaken a 33-per-cent share of income in return for roughly £73m upfront.
The overriding question is whether this a case of sport selling off a share of the family silver or entrusting it for short-term keeping to a partner who knows how to add some additional polish.
There is no mistaking PE’s unerring ability to drive the overall value of sports properties and generate a return on its investments, as other examples from the industry attest. Formula Money reported CVC generated a nearly 563-per-cent increase in its investment in Formula 1, with another source telling SportBusiness the firm’s partners alone were enriched to the tune of $1bn. When rival PE firm Providence Equity Partners bought a 25-per-cent stake in Soccer United Marketing, the media and marketing arm of Major League Soccer, it tripled its investment in the space of five years, selling it back to the league for $450m in 2017.
More contentious are the measures PE investors might take to achieve these sorts of returns. During CVC’s stewardship, Formula 1 disappeared behind a paywall in some of its most lucrative markets and hosted races in controversial settings in search of bigger race fees. It has also been posited that the firm underexploited the motorsport on social media – and by extension its standing with a younger generation of fans – to leave a ‘nickel on the table’ to attract future buyers like Liberty Media.
The Six Nations and FIVB have clearly been persuaded that CVC’s ability to add value has evolved since this time, especially as some of these measures are ones they could reasonably be expected to implement on their own. Speaking to SportBusiness about the FIVB deal, Nick Clarry, the investment group’s head of sports, media and entertainment, perhaps hinted at the PE firm’s appeal when he pointed to CVC’s 2019 strategic partnership with George Pyne’s Bruin Sports Capital – owner of OTT solution provider Deltatre and the Two Circles digital marketing agency. Through Bruin, he argued, CVC would be able to plug volleyball into the sports tech capabilities and marketing know-how of the two firms.
If CVC is indeed able to draw on these relationships to create direct-to-consumer businesses around both assets, enabling it to build up a detailed dataset of their respective fanbases, it will leave them in a far healthier position than they find themselves now. More to the point, having accumulated the most valuable resource in the new digital economy, it wouldn’t need to worry about leaving a nickel on the table when it eventually comes to sell.