Rugby Australia forced into new $40m loan with US firm Ares Management to shore up financial hole

The sources of a new $40m funding arrangement with Rugby Australia has been revealed, and the deal will not be cheap. But RA is still pursuing private equity as a new big sponsor was unveiled

The Wallabies jersey will carry a Cadbury logo for the next five years

Rugby Australia is on the verge of clinching an expensive $40m short-term funding deal with a US investment firm, in a move that will start to help dig the sport out of its alarming financial problems.

The Australian has learnt that Ares Management, a global alternative asset management company listed on the New York Stock Exchange, will be the source of the mystery funding deal needed by RA to shore up its finances over the next few years until a money-spinning tour by the British and Irish Lions in 2025.

But the deal, a unique one for an Australian sport, will not come cheaply. It is understood that RA will receive $10m annually from Ares for the next four years, but will likely pay an annual interest rate of more than 10 per cent, far above normal market rates and the amount the governing body is paying on other loans.

RA chairman Hamish McLennan confirmed the deal and said: “It is a necessary financial backstop but it comes at a time when our whole rugby union economy is really starting to improve, which means we can pursue additional private equity funding in the future on our own terms.”

Los Angeles-based Ares appointed John Knox, the chairman of Cricket NSW and one-time boss of Credit Suisse, as its local chairman last September. At the time, Knox said providing credit represented a big opportunity for Ares in Australia.

While little known in Australia, Ares recently announced a $1.35bn deal for 60 per cent of AMP Capital’s private markets business. Ares co-founder Bennett Rosenthal is co-owner of Major League Soccer team Los Angeles FC.

The Australian recently revealed that RA had received the funding offer, with a small note in the sport’s 2020 annual report released two weeks ago saying: “Subsequent to year end, the group has received a conditional offer for a financing facility of up to $40m to ensure the long-term financial viability of the group through to the 2025 Lions tour and beyond.”

It is likely RA will pay Ares back in full, plus interest, after the Lions tour. Showing just how lucrative a Lions visit is, with big crowds and big broadcast revenues generated, RA made an incremental surplus of $35m on the last Lions tour in 2013. It could expect to make even more in four years.

The Ares move is separate to rugby’s current bid to find a private equity partner to invest hundreds of millions in the sport, which McLennan will discuss with rugby officials at meetings next week, and also comes after a string of good results off the field for rugby.

On Thursday, RA announced it had found a new naming rights sponsor for the Wallabies in agreeing to a five-year contract with Cadburys. The deal means RA has filled the hole left by previous major partner Qantas with a blue chip company. It also comes after it abandoned a mooted partnership with controversial businessman Sanjeev Gutpa and his GFG Alliance, which has struck funding problems after the recent collapse of Greensill Capital.

RA has also been buoyed by last Saturday’s Super Rugby final in Brisbane, where the Queensland Reds struck late to beat the Brumbies in front of a crowd of about 42,000 at Suncorp Stadium and a large television audience on the Nine Network and streamer Stan.

Nine claimed the final reached about 1.3m viewers across its free-to-air TV and subscription services.

The Cadbury partnership will see the confectionary company’s logo on the front of the Wallabies jersey for Test matches and on training apparel for the next five years. Cadbury will also be a major partner of the Wallaroos with their logo to be on the back left of the Wallaroos’ shorts.

McLennan, the chairman of REA Group and former chief executive of Ten Network, said: “I have spent my life working with great brands and there is no better brand than Cadbury in terms of its values and its success, and they are perfect for Australian Rugby.”

RA lost $27.1m in a COVID-hit 2020 and already owe about $25m in loans to World Rugby, which is effectively an advance against Australia’s participation in the 2023 World Cup, and bank HSBC. The World Rugby deal includes $4.5m in short-term funding agreed to in March, which has to be repaid by September.