Private equity in professional sport: A look at the NFL and the plans in SA rugby

The National Football League (NFL) in the United States (US) sits at the top of sports leagues worldwide in terms of revenue generated.

Its commercial strength is founded on massive long-term media rights deals (the current agreements are worth $110 billion over ten years), made possible by high viewership in the US and a growing global demand.

The influence that US sport has had on the sports industry in South Africa (and elsewhere) is noticeable. One can see this in the media and commercial strategies pursued by, and the events put on by, our national federations and franchises and the leagues local teams participate in.

Cricket and rugby matches have changed markedly as events in recent years, for example. One would expect that American sports fans attending an SA20 or United Rugby Championship (URC) match would find aspects of the matchday experience very familiar.

The collective bargaining-based approach to contracting, to setting terms of employment and to cost regulation is traditional to the sports industry in the US. This also prevails in the big three team sports in South Africa, particularly cricket and rugby (and to a lesser degree, football).

Given the state of development of the NFL's business and the maturity of its collective bargaining system, South Africa's team sports can continue to gain valuable insights from the gridiron league.

The NFL is currently welcoming in institutional investors, mainly from the ranks of private equity (PE), while the South African Rugby Union (SARU) is embarking on a journey of its own in seeking out an investment partner.

The NFL example provides possible inspiration for SARU in managing the negotiation process and setting a framework and rules for the role of an investor.

South African rugby’s courting of private equity

SARU has been looking for a PE partner to invest in rugby’s commercial rights.

This would be through a joint venture which holds or controls these rights or certain of SARU’s revenue-generating assets, including those associated with its crown jewel, the Springbok brand.

This is the basic structure of the partnership between New Zealand Rugby (NZR) and the Silver Lake fund (a prominent player in global sport). In 2022, the NZR sold an initial 5.7% equity stake in its commercial assets to the firm.

The process in South Africa has become drawn out and contentious. After the potential deal with CVC Capital Partners did not materialise, Ackerley Sports Group’s bid could not get the necessary votes from SARU’s general council, i.e., from the provincial unions. And as of recently, according to Netwerk24, SARU’s executive council is reconsidering whether to seek out an equity partner at all.

The prospect of a commercial partner becoming involved with SARU is a delicate subject, with the Springboks being an emotive brand and a national institution. As a result, the terms of a possible deal have become the subject of intense scrutiny by the South African public and even the parliamentary Portfolio Committee on Sports, Arts and Culture.

Private equity in the NFL (and how it relates to South African rugby)

In August 2024, the NFL announced it would permit investments in franchises by institutional investors. This made it the last of the major US sports leagues (MLB was the first, in 2019).

This is a league in which an incoming controlling owner of a team (an individual) must hold 30% of its equity, and in which ownership by families has been a fixture.

PE’s involvement in the NFL is highly regulated, and investors’ influence is limited. NFL.com described it as “a measured first dip into the pool”.

PE ownership is capped at 10% of a team. These are the strictest restrictions on PE ownership in the major US leagues (with the NBA, MLS, MLB and NHL capping it at 30%).[1]

Investment is restricted to a list of vetted funds and a consortium group (that includes CVC). Sovereign wealth funds and pension funds can only invest indirectly as limited partners.

The high guardrails around PE in the NFL contrasts with the situation in South African franchise rugby,[2] as it does with that in European club football, for example, where these types of investments are commonplace and often in the form of majority ownership.

Before opening the league up to such investors, the NFL appointed a special committee to consider and report back on the prospect of PE involvement. In a similar vein, according to a report by News24, a group of SARU unions were seeking that a ‘transaction committee’ (with an independent chairperson and overseen by an investment bank) be setup as part of a proposed ‘blueprint’ for a deal.

SARU’s general council has since resolved to appoint (through an independent selection process) a financial institution or advisor to review the “financial ecosystem” of the game in South Africa. This will include looking at the prospects of PE investment and possible alternatives.

The injection of cash that these investments bring (in exchange for a share of future profits) allows spending on infrastructure such as stadiums and training facilities. PE firms also bring with them expertise in financial management, in developing and enhancing revenue streams and in data analysis. And they often have access to high-level industry know-how.

Sport’s progressive openness to PE is reciprocated, with investments in the industry generally seen as more resistant to economic volatility than other sectors in the funds’ purview (for example, NBA team valuations have significantly outperformed major stock indices over the past 20 years)[3].

The ‘hard’ salary cap in the NFL gives investors a high level of cost certainty. And the long-term broadcast deals give them guarantees of a (high) level of revenue over those periods.

In the NFL (and other US leagues), team valuations are skyrocketing,[4] meaning it is increasingly difficult to find individuals willing and able to invest.[5] PE firms, however, can invest for relatively small amounts[6] and with low risk.

Investments must be for a minimum of six years, but as Neil Robertson wrote for the Sports Business Journal, the model for funds investing in sports assets is changing, with the NFL investments likely being ‘evergreen’ or ‘continuation’ funds (as opposed to the traditional PE modus operandi of selling up after a maximum of, say, ten years).

One feels that the influx of these investors will further increase franchise values, which will in turn necessitate the progressively increased involvement of PE.

The tight rules mean that PE investors have very limited influence over NFL franchises. There is no threat of the brands that fans love (in the franchises and the league) being unrecognisable or of fans losing interest and pushing back against the changes as a result. This ensures viewership is maintained and the value of media rights is protected.

From the perspective of the players’ association, the NFLPA, one would expect they are happy with developments, with the prevailing revenue sharing model ensuring the rising tide will lift all boats. (The next frontier as far as the NFLPA is concerned is players being permitted equity stakes in teams, or future rights to this being incorporated in contracts, as we have seen in MLS.)

What would a commercial partner bring to South African rugby?

SARU does not seem to have the leverage the NFL has in its negotiations with potential investors.[7] But importantly, it has a valuable bargaining chip in the form of the Springbok brand, which has a strong local presence, and which is known globally but, one feels, has great potential for increased reach beyond South Africa. Investors should be excited by this prospect.

One anticipates that there may well be scope for expanding rugby even further among demographic groups and regions in the country in which the game has traditionally been less of a fixture. The capital investment that would accompany a commercial partner’s entry (and the resulting increase in profits down the line) could help grow the game in this way – for example, by improving infrastructure and coaching in non-traditional rugby schools.

Women’s rugby (sevens, fifteens and age-group) is clearly a primary area of focus for SARU currently and would benefit greatly from the impact of an investment partner.

We have seen Rian Oberholzer, SARU’s interim CEO, say the Springbok brand has outgrown the local market (as Rapport reported on). The new Coca-Cola sponsorship seems to be indicative of this change in commercial approach. An investor – and, perhaps, especially one with an international footprint – would assist in these expansion efforts.

SARU will no doubt also be looking to expand its business in terms of international media rights, including in terms of the bread-and-butter component of broadcasting and streaming live matches.

Another notable business area in which an investor would likely look to enhance SARU’s presence is direct-to-consumer and ‘on-demand’ media and content creation.

In the US, rights holders (leagues and their franchises) have begun bypassing traditional broadcasters to engage directly with fans through their own streaming services and in partnering with Amazon (see the NFL and NBA), Apple (see MLS and MLB), Netflix (see the NFL) and the like.

An investment partner would assist in funding and building the necessary infrastructure and systems to explore this. It would require significant technological investments (for example, to bolster in-house production capabilities) and operational changes (for example, to manage subscriptions and new IT infrastructure).

So, what does a good deal look like?

SARU is on a relatively stable footing financially,[8] after a precarious period during and post the pandemic. Its position will be enhanced if and when – as we expect to happen soon – SARU becomes a shareholder in the company that owns the URC. This looks like a foundation from which SARU can optimise the influence of a commercial partner.

In its deal with PE, the NZR has retained full control of rugby operations and commercial strategy. This is a helpful precedent for SARU in seeking to balance the interests of its member unions, the public and a commercial partner (while indications are that a deal will be for a lower value than the one in New Zealand).

It is important that any deal SARU does is well calibrated for the federation’s financial situation, revenue and growth prospects.

In New Zealand (as the New Zealand Herald reported in early 2024), the combination of lower-than-forecast revenues and higher-than-predicted costs have led to an expectation that the cash reserves from the equity deal ($200 million) will be depleted before there is a material increase in income. Part of the reason for this is that the cost of revenue growth is higher than was projected. The situation resulted in Silver Lake’s stake being increased to 7.5%, after much initial contestation from the players’ association, the NZRPA.

The NZR deal is a rare comparator for SARU in the same sport and context, offering valuable learnings.

We can also look to the NFL, for an example of a rights holder that has managed to entice investors while exercising its leverage to retain maximum control over its brands and business and keep the fans happy.

[1] As in the NBA and MLB, multiple funds may hold stakes in a single team and funds may hold stakes in more than one team.

[2] In local rugby, the ownership of the four URC franchises is predominantly made up of investment consortiums (while there are prominent individuals behind many of the entities involved).

[3] According to The Athletic, “The S&P 500 has gone up by 389 percent since March 2002. Even Forbes’ least-valued team, the Grizzlies, has seen its valuation grow nearly 1,000 percent in 20 years.”

[4] In 2022, the Denver Broncos sold for over $4.5 billion and in 2023, the Washington Commanders, for just over $6 billion. And these franchises are neither amongst the most competitive in the league in recent years, nor are they amongst the most recognisable, valuable or profitable as brands.

[5] The sale of the Washington Commanders appears to have been the watershed moment for the introduction of PE, as the new ownership group features a higher number of limited partners than normal. As The Athletic and Forbes reported, the NFL had difficulties with the original proposed ownership structure for the Josh Harris-led purchase of the franchise, which included PE partners.

[6] As The Athletic reported, Blue Owl’s investment in NBA franchises (through its Dyal HomeCourt fund), totalling $200 million, is just a small percentage of the $82.9 billion in its assets under management.

[7] For example, as Robertson writes, an innovation introduced by the NFL is the requirement that PE investors share profits with the NFL on their exit. This will then be shared with the franchises, in the way that the league’s central media rights and sponsorship money is distributed. This provision, which is unique to the NFL, shows just how much commercial power and leverage the league has.

[8] SARU President, Mark Alexander, said that although a loss would be reported for 2024, the work undertaken by management and strong commercial sales for 2025 have secured the federation’s financial prospects for the next three years.

Disclaimer

The content published on the website of Miles Chennells & Associates, including articles, is provided for general purposes only and does not constitute legal advice.

Accordingly, we accept no responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in our publications.

Where appropriate, our publications contain reference to sources from which information was obtained and/or links to such sources.

In the event that you seek to obtain legal advice in respect of any particular matter, please make contact with the practice in order to enlist our services.

Please refer to the full terms of use on our website.

Sports law, Sports businessMiles ChennellsFebruary 12, 2025