American investment banking giant Morgan Stanley is part of Australian cricket’s bid to explore a privatisation model that would fundamentally reshape the game’s finances, following the announcement of a modestly improved broadcast deal.
Industry sources confirmed to The Age and The Sydney Morning Herald Morgan Stanley’s involvement as a consultant in Cricket Australia discussions about privatisation, by a working group featuring representatives from states, territories and the Australian Cricketers Association.
Usman Khawaja walks off the SCG on day two of the New Year’s Test.Credit:Getty Images
Members of the group include incumbent CA chair Lachlan Henderson and his successor Mike Baird, Cricket New South Wales chair John Knox, ACA chief executive Todd Greenberg and Cricket ACT chair Greg Boorer.
Under the most likely privatisation path for CA, a separate entity would be created to house its revenue-raising activities such as broadcast, sponsorships and digital deals. A percentage stake of that entity would be sold to private investors to give them a proportion of the income in return for a rich capital injection worth hundreds of millions.
The group met over breakfast in Sydney on the rain-ravaged third day of the SCG Test for initial talks around how the game’s revenue steams might be broadened with an injection of private capital.
This is in line with CA’s strategy, unveiled last year, that seeks to: “Diversify revenue streams with increased innovation.”
Any move towards privatising cricket’s commercial operations is likely to run into opposition from within the game. This is partly on the premise that its administrators are only ever temporary custodians of a public good, and should not consider it their right to make a sale.
But a plateaued broadcast rights value proposition has opened the door for privatisation advocates to push harder than ever before. Several current players, including Usman Khawaja, have called for exploration of the area.
“The only way you’re going to increase the [BBL] salary cap is to privatise it,” Khawaja said in Sri Lanka in June. “Privatisation also brings in a lot of great things from outside, because once there’s money at stake for owners, they’ll try to do their best to give everything for that franchise.”
The broadcast deal unveiled on the eve of the SCG Test is worth $1.512 billion over seven years, working out to annual fees from Seven and Foxtel worth about $216 million a year.
Those terms offer only a small cash uplift to cricket – a 2018 deal with the same broadcasters was worth $197 million a year – that has left it languishing a long way behind the AFL’s position, after the football code inked a deal for $4.5 billion with the same broadcasters last year.
The deal was reached against a backdrop of increasing private-equity interest in global sports properties, including the recent purchase of a stake in New Zealand Rugby by the US-based Silver Lake Capital.
To make the sale, NZR created a separate “CommercialCo” entity that controls all revenue-generating activities of the governing body, including broadcast rights, sponsorship, licensing and digital.
Silver Lake purchased a stake of around 6 per cent in CommercialCo at a cost of $200 million, with the potential to raise that stake to about 8.5 per cent for another $100 million. Some of that capital was to be redistributed across the NZ rugby system.
In turn, Silver Lake has representation on the board of the CommercialCo, alongside NZR and also the New Zealand Rugby players association. The private investor must maintain its stake in rugby for at least five years before having the option of re-selling.
Unlike an attempt to sell minority ownership in two Big Bash League clubs in India in 2011, most possible buyers of any similar sale of Australian cricket’s commercial operations would likely be stateside.
Leading contenders may include Silver Lake, CVC Capital Partners and Redbird Capital, which holds financial interests in AC Milan, the Boston Red Sox and Liverpool FC among numerous sporting properties.
Morgan Stanley Australia’s chief executive, Richard Wagner, has history with Baird, however the link between the bank and CA was not made through the former New South Wales premier. Morgan Stanley had previously been engaged by CA to manage some of the investments on its balance sheet.
When Baird was NSW state treasurer and Wagner the head of investment banking at Morgan Stanley, the pair worked together on the privatisation of NSW ports Botany and Kembla in 2014, sold on a 99-year lease for $5 billion. Baird worked closely with numerous investment banks around the privatisation of numerous state assets during his time in government.
Knox, formerly chief executive of Credit Suisse in Australia, is head of Australia and New Zealand for the Ares SSG Group, a US-based investment manager that offers “investment solutions across the credit, private equity, real estate and infrastructure asset classes”, according to its website.
“Our only concern would be it’s a very long period of time, so understanding CPI and inflation as opposed to what’s proposed in this deal is something I need to understand better,” Greenberg told SEN Radio about the seven-year broadcast deal on Friday.
“We’re always hoping for more [uplift in the deal]. But I’m not in the middle of those negotiations, so I can’t be critical. CA will know just like we do that we work and live in a very competitive global environment, so there needs to be enough money in order to ensure our very best players play domestically, and we confront the challenges of global cricket.”
CA declined to comment.
