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The commercial pros and cons of World Rugby’s Nations Championship concept

Sam Underhill breaks clear during England v New Zealand at Twickenham in November 2018 (Shaun Botterill/Getty Images)

  • Broadcast rights to unified competition could be worth up to $200m annually
  • Hybrid model of global and regional partnerships key to sponsorship growth
  • Major unions’ matchday revenues threatened by new fixture list

Rugby union has been attempting to align its northern and southern hemisphere seasons to maximise its sporting and commercial potential almost since the game turned professional more than 20 years ago. The reaction to World Rugby’s latest attempt to resolve the sport’s Schleswig-Holstein question shows why, to paraphrase Lord Palmerston, all those who have previously sought the answer have either died, gone mad or forgotten about it.

Ireland captain and International Rugby Players president Johnny Sexton described the thinking behind the new Nations Championship concept as “out of touch”. The RFU’s acting chief executive, Nigel Melville, called the proposal “under-cooked”. And players from the Pacific Islands threatened to boycott this year’s World Cup in response to a leaked document (subsequently disowned by the governing body) that excluded them from the new competition for at least 12 years.

The presentation that World Rugby rushed out in response clarified the playing format but was relatively light on commercial detail.

Twelve teams will take part – those of the Six Nations and a Rugby Championship expanded to include, on current rankings, Fiji and Japan – and play each other once a season, alternating annually between home and away.

The Six Nations and Rugby Championship will continue as normal but double up as European and Rest of the World Conferences, with points won combined with results from the two other international windows to identify either four semi-finalists or two finalists to compete for the title in a match staged on neutral ground in Europe at the end of November.

The Nations Championship will offer a route of progression to countries playing in the feeder competitions beneath it by enabling their winners to face the bottom team in each conference in a promotion-relegation play-off at the same time as the final. The tournament will not take place in a World Cup year and will be tweaked to make room for British and Irish Lions tours in the seasons these take place.

From a commercial perspective, though, World Rugby offered only a single bullet point, saying: “Broadcast rights aggregated and collectively sold, increasing revenue potential. Possibility to centralise some sponsorship rights.”

While immediate analysis has focused on the structure of the competition, its integration with the established calendar and player welfare issues associated with the new schedule, firming up the numbers behind that commercial “potential” and “possibility”, will be just as crucial in determining whether the new championship gets off the ground.

Why this?

Despite the initial reaction, the Nations Championship in theory offers maximum financial gain for minimal restructuring pain. Instead of building something new from scratch, it gives the patchwork international fixture list the sort of audience- and media-friendly narrative that all sports and broadcasters crave, creating as a result a bigger commercial cake from which all parties (including World Rugby) could take a more valuable slice.

Some reports have suggested the governing body is projecting the new property to deliver a 35-per-cent increase in revenue on what its components currently generate between them, while one senior rights negotiator told SportBusiness: “The Six Nations will turn over £85m in TV rights each year and in real terms we’re talking £140m-£150m for this thing, although that may or may not be all TV rights.”

Why now?

As with all commercial deals, timing is of the essence. The southern hemisphere unions of SANZAAR (South Africa, New Zealand, Australia and Argentina) have been financially challenged for several years but have always met strong resistance from their Six Nations counterparts to any form of revenue sharing from the matches in which they meet.

However, rights marketing specialists in the sport believe that the European game’s growing interest in attracting private equity funding – “Money has never been more needed and more talked about,” Scottish Rugby chief executive Mark Dodson recently told the BBC – indicates that their own model is now also under strain. Colin Smith, managing director of Melbourne-based Global Sports Media, a rights consultant who has advised the Australian, New Zealand and South African unions, agrees that the southern hemisphere’s need is more pressing, but also observes: “There is a shortfall of capital both in the north and the south.”

He explains: “The financial power of England and France is significantly greater than the southern hemisphere unions, particularly at club level, but the RFU have had to make significant layoffs because the financial model is challenged, and the large majority of Premiership clubs have made losses. Notwithstanding that the Premiership has significantly increased its media rights and sponsorship revenue, they needed a CVC to come in to redesign the commercial model, and it wouldn’t surprise me if the same thing needed to occur in some way in the Top 14 as well. So the financial model is an issue with both the north and the south.”

With SANZAAR heading towards the next renewal period for its media rights, the Six Nations having struggled to attract a title sponsor in recent seasons, and ex-Formula One owner CVC Capital Partners seemingly targeting a portfolio of investment across the northern hemisphere club and international game, World Rugby has a small window in which its opportunity to incentivise all parties to come together for mutual benefit (which includes funding its own mandate to grow the global game) is at a peak. However, that window could quickly close if CVC or another private equity firm gets there first, or if the Six Nations pushes through its own plans to pool the tournament’s media rights with those of its competing teams’ November internationals, which have been earmarked as the business end of the new global championship.

To get over the line first, World Rugby will need to show the unions greater benefit in three key areas: media rights, sponsorship and matchday revenues.

Media rights

World Rugby’s public pronouncements on the commercial benefits of its Nations Championship proposals have so far concentrated on the increase in media-rights values the new property could achieve, based on the uplift in interest and viewership to which the governing body says its consumer research points, alongside the eagerness of a global broadcast partner reported to be waiting in the wings.

Media-rights specialists agree that the theory is sound but that achieving these ambitions will not be without difficulties on the ground itself.

Smith says building critical mass through aggregation makes sense for a sport “whose rights value is significantly lower than every other football code in every territory except New Zealand and South Africa” and sees cricket’s Indian Premier League as offering a potential model for distribution based on a range of domestic, global, pay and free-to-air packages.

There is also agreement that turning the friendly internationals of the June [now July] and November windows into competitive fixtures would certainly make them more valuable broadcast properties, but with the southern hemisphere portion again having significantly more potential for growth.

Kyle Nel, managing director of Cape Town-based sports marketing agency Treble Entertainment and formerly SA Rugby’s commercial manager, says: “I think one of the big drivers is the June inbound tours. They really haven’t been money spinners for the south at all. If you look at our gate takings and TV rights, the money all spins around the Rugby Championship – the traditional guys playing each other.”

And he adds: “Through the northern hemisphere countries wanting to look after players, even though we think we are teeing up against England or Ireland, the domestic rugby unions can’t under the current regulations guarantee or enforce the visiting unions to play a full-strength team. And the supporters aren’t stupid. There is so much entertainment available in sport that unless it’s ‘the best of the best is playing live’ you flick the channel. And that is what has been happening to the June inbound window.”

Unlocking new value in broadcast rights may be easier said than done, given the difficulties inherent in unpicking the existing arrangements and deciding who sells what in future – as well as in determining how the new pot will be divided. World Rugby describes the current rugby broadcast market as “complicated”; Smith prefers “a dog’s breakfast.”

While the time might be right to float a Nations Championship or world league from a strategic perspective, the Australian media rights consultant warns that the new property is launching on an ebbing tide as far as media-rights values are concerned. SANZAAR, for example, is considered unlikely to sustain the revenues achieved in the last renewal, when competition between BT and Sky for the UK portion helped deliver a near-150-per-cent increase on the value of the previous contract.

Smith tells SportBusiness: “The value of rugby rights is probably plateauing, and I think that is in both the northern hemisphere and the southern hemisphere, but especially in Australia. We saw the devaluation of English Premier League rights in football last year, with BT and Sky being happy to share rights. As I understand it, that could happen significantly in rugby too.”

There is also the issue of which rights are bundled for sale as part of the Nations Championship and which are left to stand alone, with SANZAAR having always included both Super Rugby and the Rugby Championship in a single tender. “The increased value of the new property cannot disproportionately devalue the unions’ remaining media-rights inventory,” stresses Nel.

And then there is the prickly issue of how to divide up the spoils, with the current disparity in earnings between individual nations highlighting differences in the value of specific matches that may or may not come under the marketing umbrella of the Nations Championship.

New Zealand’s hosting of a Lions Tour in 2017 added around $20m to the union’s normal broadcast revenue, while the RFU’s ability to generate more than twice as much media income as Scottish Rugby reflects primarily the higher value of England’s November Tests.

Nel says of the likely implications: “If World Rugby has more money to share then you’re going to have the strongest playing unions saying, well, we’re the best in the world so we should be commanding the most money; and the unions in the traditionally-strong commercial markets are saying the same thing. That’s what you are seeing in English football, where media rights distributed to the clubs are calculated and reported on a transparent commercial model, and [in rugby union] it will need a really clever model to divvy it up.”

Sponsorship

Increased sponsorship revenue for Nations Championship participants was labelled possible rather than probable by World Rugby, and rights experts believe the opportunity here is smaller than in the media segment, partly because of current market conditions and partly because of the disparate and dislocated nature of the sport’s core markets.

Private equity firm CVC’s investment of more than £200m (€233m/$264m) in Premiership Rugby demonstrates a belief that the sport has significant untapped potential to exploit, at least at club level, the struggles of the Six Nations in getting anywhere near the £16m-a-year it sought from a successor to RBS in 2018 – Guinness is now paying £6m in 2019 rising to £12m by 2024 – suggest the international game may be bumping its head against the ceiling.

That could be a temporary situation, with one negotiator pointing out: “The rights market is soft at the moment and has been for two or three years, with Brexit the main thing putting off decision-making.” But he also warns that a competition spanning Europe, South Africa and Australasia may struggle to find a sponsor willing to pay a premium for exposure in all those markets, saying: “Most sponsors in rugby have a regional base: they are looking at one or two key markets in Europe and possibly one or two around the world, and the existing competitions tend to support that.

“So the question is, would you support this world league as a new sponsor? It could open up new sponsors but there’s a lot of proof needed of how it’s going to work.”

That view is echoed by Nel, who previously managed all sponsorships for SA Rugby and believes that it is the new semi-final and final phase of the competition that will generate most new revenue and hold most appeal for a global brand – although that could be devalued if, as has been suggested, World Rugby abandons the semi-final phase to head off the threat of legal action raised by Premiership Rugby and the Top 14. “Potentially, the commercialisation of the new property will be a hybrid model,” Nel says. “There might be one overarching sponsor for the play-off element, [so] the existing elements remain with their current right-holders to sell in their market and World Rugby has this new property – i.e. the play-offs and final – to take to market.”

Matchday revenues

World Rugby has said its consumer research indicates that “a structured annual competition would make fans and new audiences more likely to watch, attend and engage with international rugby, exposing the sport to new fans worldwide”. However, its public emphasis on the benefits accruing to the broadcast and sponsorship segments overlooks the potential implications for ticket sales and stadium revenues.

The significance of the matchday segment varies from union to union. In 2017-18, for example, the RFU earned £30m through ticket sales – more than it generated in sponsorship and equating to 20 per cent of all rugby-related revenues. Matchday income accounted for a similar proportion of turnover for Rugby Australia and Scottish Rugby, but SA Rugby collected only ZAR 59m (€3.6m/$4.12m) from its home Tests – just six per cent of 2017 revenue.

The new Nations Championship could alter that balance by formalising the June/July and November fixture lists so that the 12 countries involved will play each other only once a year, either home or away. Depending on how the schedule pans out, that could give an advantage to teams that do not currently line up against the biggest names at full strength on a regular basis, and disadvantage those that do. England, for example, are unlikely to be hosting all of Australia, South Africa and New Zealand as they did in November 2018. Nor will the All Blacks be visiting Twickenham with the regularity seen between 2008 and 2014, when they appeared in six Novembers out of seven.

South Africa, in contrast, have significantly more to gain from a revived June/July window after years of attendance and revenue decline. Nel observes: “We’ve gone from crowds of 50,000 back in the day, when there was a mystique to playing the northern hemisphere teams, to a 25,000 crowd for a Test match, which is just not healthy.”

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