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The global private equity giant that bought a $4 billion stake in the UFC is in talks with Rugby Australia to make a game-changing investment in the embattled football code.
The Herald can reveal the Australian arm of American firm Kohlberg Kravis Roberts is in early talks with Rugby Australia, in collaboration with the Melbourne Rebels, about taking a stake in the sport worth "hundreds of millions of dollars", according to people with direct knowledge of the matter.
'The time is right to have these discussions': New Rugby Australia chairman Hamish McLennan.
'The time is right to have these discussions': New Rugby Australia chairman Hamish McLennan.CREDIT:JAMES ALCOCK
The parties met last week and are taking discussions further, based on a 2021 competition model for the professional game that will most likely dismantle the 25-year-old SANZAAR partnership at Super Rugby level and put Australia's interests first.
Incoming Rugby Australia chairman Hamish McLennan confirmed the firm's interest and said while Test rugby and the grassroots game were off limits, Super Rugby was ripe for a shake-up.
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"I haven’t spoken to KKR directly but obviously they are a seasoned and highly respected firm," McLennan said.
"We’ve had good inbound interest from UK and American private equity firms and I’m very open to continuing those discussions at a Super Rugby level.
"The time is right to have these discussions as we look to alternate funding mechanisms for the game. Anything I can do to free cash up to reinvest in grassroots rugby will be good for the game."
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KKR is a highly regarded American firm with global reach, comparable in size to CVC, the firm that bought into the Six Nations, the UK Premiership and the Pro 14. CVC is also heavily rumoured to be in talks with South African rugby.
KKR has several businesses across multiple industries. Its only known sports investment was a 2016 move to buy a minority stake in mixed martial arts juggernaut UFC, along with fellow private equity firm Silver Lake. All up, the group's investment was worth $4 billion.
KKR's Australian arm is headed by David Lang. The firm last month spent $1.7 billion on a 55 per cent stake in bank Colonial First State. In 2019 it bought biscuit-maker Arnott's for $3.2 billion.
It is not clear on what terms the talks with KKR are progressing. With private investment, an individual or consortium might buy an outright stake in a football club (such as Bart Campbell with the Melbourne Storm or Harold Mitchell and Andrew Cox's purchase of the Rebels) or a competition (Larry Kestelman and the NBL). Australian sport does not have a long history of private equity involvement.
Only Archer Capital's $137 million investment in Supercars, headed by former RA director Peter Wiggs, which is widely acknowledged to have been a failure, stands as a home-grown example of a private-equity model in Australia.
Abroad, the model has traditionally revolved around a firm buying the commercial rights to a sport, as in the case of CVC's investment in the Six Nations and European professional rugby competitions.
Under that model, Six Nations Rugby retains control of the competition but CVC owns the right to market and sell its broadcast, sponsorship and other commercial rights.
In rugby's case, RA has no broadcast partner or competition format locked in for 2021, making it a potentially attractive investment for an external party. The competition is also at a low ebb with fans, giving RA and a partner the opportunity to start again with a fan-centred model that could claw back eyeballs and interest.
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In rugby's case, any major change to the game's business model would have to be approved by the RA board but McLennan's comments confirm administrators are looking for new revenue sources.
This has been fuelled by seismic shifts in the sports broadcasting market, with traditional television and pay-TV providers signalling they can no longer pay big dollars for sports rights. This change was well under way pre-coronavirus but has been accelerated by the global shutdown of sport and major disruption to the advertising-driven business models of mainstream media companies.
In the past month, Nine, Seven and Foxtel have brokered discounted extensions with the NRL and AFL. The revised deal between RA and Fox for the rest of the 2020 competition was also expected to have been significantly reduced in cost.
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