Source: University of Canterbury
12 May 2021
The commercialisation of elite sport – including the sale, relocation and branding of professional sport clubs – is nothing new. The commercialisation of professional sport has driven huge changes in sports teams from being responsible to the public and local community and seen as a public good, to being responsible to the owners and shareholders of the commercial entities. This fundamental change sparks debate and controversy.
Due to the possible involvement of the All Blacks – New Zealand’s most famous national sport brand – NZ Rugby’s decision to sell a 12.5% stake in a new entity controlling its commercial interests is possibly a world first, and raises intriguing questions:
- Could the deal compromise the All Blacks brand and heritage?
- What exactly is NZ Rugby selling?
- Are there alternative solutions to its apparent financial problems?
All 26 provincial unions voted in favour of the NZ$387.5 million deal with US private equity firm Silver Lake at NZ Rugby’s 129th annual general meeting on April 29. However, the NZ Rugby Players’ Association (NZRPA) has yet to agree and has released a critical analysis of the deal. As well as financial questions, the NZRPA has also raised concerns about the less tangible value of the All Blacks brand and what it has called its “special bond” with New Zealanders. But the fact remains, NZ Rugby is losing money and needs investment to maintain its current business model.
NZ Rugby’s current assets include competitions such as Super Rugby Aotearoa and the Farah Palmer Cup, and commercial assets (trademarks) of its teams, such as the All Blacks, Black Ferns and Māori All Blacks. Largely because of the iconic All Blacks brand, those commercial rights are valued at about $2.8 billion.
From Silver Lake’s perspective, NZ Rugby represents just another part of a sport and entertainment portfolio that includes City Football Group and Madison Square Garden Sports, global holding companies that own many major sports franchises.
The road to Silver Lake arguably began when rugby turned professional in 1995. As other international sporting leagues have shown, full commercialisation, including local and foreign investment, is to be expected in the professional era. For example, there are currently 15 clubs in English football’s Premier League that are either owned or part-owned by overseas investors.
It’s not surprising when national sports bodies seek to transfer their commercial assets to private entities. EuroLeague Basketball, for instance, uses EuroLeague Commercial Assets and EuroLeague Properties to manage its assets. Ownership is divided between the teams and various national basketball associations. The consensus is that professional sport leagues and franchises should be left independent and free for their own development as commercial entities, although this may cause (and has caused) tensions between franchise management and public interests.
However, the All Blacks (as well as other national teams under NZ Rugby) are not just a franchise. They are the national rugby team that represents New Zealand as a nation on the international rugby field. As the key asset in NZ Rugby’s commercial portfolio, the team is also clearly what attracts Silver Lake.
However, most commercialisations of national sports bodies carefully exclude the involvement of national teams and there has been hardly any precedent of selling the commercial portfolio of a national team to a private firm. Sponsorship is common but fundamentally different since it does not involve any ownership of the national team’s commercial rights.
In most cases, a national sports team is seen as a kind of public good, owned collectively by default. It may have obvious commercial interests, but is governed and controlled by the national sport body as a non-profit organisation. Common practice is that these bodies oversee the sponsorship and broadcast rights, and justify revenues for sport development in the community (rather for profit), due to its non-profit profile and defined visions.
NZ Rugby has been the same – with the stated mission to “lead, support, grow and promote New Zealand’s game … and a community game”. But the soon-to-be-created commercial entity may change this model entirely – it may own the commercial rights to the All Blacks while being a commercial entity privately owned by foreign firms. In a different word, this new entity will have to report to its shareholders in priority, rather than solely to New Zealand public or the rugby community.
Managing the commercial portfolio of a national sport team is complex when it comes to meeting public expectations, and discord can occur simply because the image of a sponsor does not fit the team’s brand identity. There has been much research on the topic of brand image transfer in sport sponsorships. While Silver Lake might seem a great investor for now, supporting the cultural and heritage values of the All Blacks, no-one can guarantee what will happen when they face trade-offs between its interests and the All Blacks’.
What would make it much less controversial? If NZ Rugby does urgently need to cover its financial losses, it could transfer all its commercial assets to a new commercial entity, with or without foreign investment, but retain any asset regarding national teams. They could put the commercial portfolio of the All Blacks on “lease” via a fix-term contract. From a financial investment perspective, leasing is better than selling, since selling is a one-off deal, while leasing can be repeated and ownership is retained.
Similarly, the Chinese Basketball Association divided its operation in two: the CBA Company was established as a separate commercial entity owning and managing the men’s professional league, while the Chinese Basketball Association remains a not-for-profit organisation governing the representative teams, managing their sponsorship and broadcasting deals from which they distribute the revenue to women’s basketball development and grassroots games.
However, practically speaking, this might be difficult. The most attractive asset to Silver Lake is no doubt the All Blacks brand. So, it would be hard to negotiate such a deal leaving the All Blacks out of the picture, especially while NZ Rugby is in urgent need to cover its financial loss. But to solve the current problem, do we have to compromise our most beloved national team?
University of Canterbury Senior Lecturer in Marketing, Dr Ning (Chris) Chen‘s primary areas of interest include identity and attachment theory in different contexts, including brand attachment, sports fandom and personal connection, as well as stakeholder analysis in professional sports.