Six Nations investors CVC could exploit turmoil to drive hard bargain

CVC’s £300m investment in the Six Nations hinges on the unions agreeing to a pandemic clause that would allow the private equity company to withhold contributions if matches are cancelled, a move a disputes lawyer expects to become commonplace amid fears of a second coronavirus wave.

It is understood that CVC will reduce its valuation for a 14.5% stake to £200m if the Six Nations refuse to agree to such a clause, taking advantage of the financial turmoil generated by the lockdown. The six unions are expecting to lose more than £200m between them this year.

“CVC can try to capitalise on the situation and drive a hard bargain, but the flipside is they are trying to protect their investment,” said Jake Calvert, an associate at Cooke, Young and Keidan. “I am not privy to the negotiations but their primary position would be to suspend payments in the event of a second wave when fixtures could not be completed.

“There is a recognition across the board that Covid-19 is not captured in a contract and the money people have the power. Rugby union has been badly hit and a cash injection is needed to offset losses. The unions have more to lose than CVC if they walk away and I think a deal will be made. There is so much uncertainty at the moment that I do not see many other options on the table.”

CVC’s payments would be spread over five years, giving the company the ability to hold back money in the event of another lockdown. Calvert said that while the unions did not have the strongest hand, they needed to play it shrewdly.

“What I would expect is that the clause includes a deferral option,” he said. “Only if they could not complete the Six Nations or an autumn block of matches would CVC be able to hold back payments, cancellations rather than postponements. The clause would specifically refer to an outbreak that has been classified as a pandemic by the World Health Organization, something that is not covered by force majeure, which relates to acts of God.”

Calvert does not believe that sport will become less attractive to backers, arguing that the lack of live action for three months showed the public appetite for it. “I do not think the value of rugby has dropped,” he said. “If anything it is the other way around, because people have realised how important sport is in their lives.

“The downside for backers is the risk of this happening again, but if you have the pandemic clause you mitigate the risk. The likes of CVC make their money by capitalising on weakness and they appear to be sensing an opportunity.

“The Six Nations have to decide whether to agree to the clause, but they need money now having been hit hard by the pandemic. The power lies with those able to inject cash, which everyone needs now.”