What Offer Can’t Italy Refuse?

The Six Nations probably wants to dump Italy for South Africa. Its not a bad deal for Italy if the money is right.

As previously explained, there are two levels of the Six Nations Championship: the competition itself and the entity that owns it. That entity is jointly owned by the six unions and CVC, a venture capital firm. Removing Italy for the entity would involve convincing the FIR to sell its shares. Otherwise, Italy would be entitled to a say in the competition from which they were removed.

Selling wouldn’t be an easy decision. The perception of the Six Nations as one of only two top tier annual competitions means that leaving would destroy the ego of Italian rugby, as it would almost certainly leave them joining a lower level of competition. None of this means that a sale would be a terrible financial decision.

Consider the reality of the Six Nation’s ownership structure. Unless there’s an unusual provision in the entities structure granting Italy some form of veto, (whether direct or requiring unanimous consent on membership decisions,) Italy will not have the votes to keep itself from being removed from the competition. However, they’d still be entitled to their ownership stake. That creates a position of strength. Theoretically, Italy could sit on its shares in perpetuity, entitling them to any dividends. (The easy work around would be tying payments to performance, though that leaves CVC out of the money. Venture capital tends to not enjoy giving up money.)

Warning: the following content contains math.

For Italy, the decision to sell should be tied to expected revenue. The FIR needs to make careful predictions about revenue to Italy over the coming years. Usually, historical revenue would make a decent starting point. However, new revenue streams from the CVC deal likely increases those rates. Once they’ve established a baseline annual revenue expectation, they need to consider how risk tolerant they are financial as an organization. If they want to guarantee annual cash flows that match current cash flows, they’ll need to also estimate a realistic amount of income they could make in place of participating in the Championship. That could come from returning to the Rugby Europe competition structure or a new competition.

The difference between the two numbers provides a baseline withdrawal from a portfolio that Italy could use to sustain operations. Applying updated assumptions to Modern Portfolio Theory, Italy could build a portfolio that allows them to take 3.2% of the initial value annually and safely assume they will continue to draw that amount in perpetuity.

The short version? Subtract the annual revenue Italy could earn from its alternative competition from the annual revenue it anticipates to earn from the Six Nations, then divide that by .032.

The point? There is a point where Italy would benefit finaicially from leaving the Six Nations. If the number that the Six Nations is willing to pay is greater than the amount calculated above, they’d do better to leave, invest the revenue, and take the income.

The question is ‘what’s that number, and would the other owners be willing to pony it up?’


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