THE BREAKDOWN: Man Utd’s Accounts Released, Why are Spurs Still Bad, Hearn’s Rugby Takeover, & WTA in Big Trouble (E38)

31:23I'm sure he knew very well what the debt profile was. It was more around sort of how quickly we could turn the football side around, which in turn will start generating significant revenue. And then the whole thing will be able to sort of work from there. whereas at the moment it's still a bit of a bit of a leaky ship I have to say I know they've started the season poorly and there's a lot of heat around at the moment I don't think that they have done a lot of bad things in the last year football wise I think Man United fans are going to hate on me for this right but I think they are actually headed in the right direction and it's just of course it takes longer than you would like and it's going to be multi-window because the profile of their playing squad and the liabilities that they have mean that it just takes a while for those things to work through the system.

32:13And some of those liabilities are self-inflicted under Ratcliffe. So it's not just the stuff that he's inherited. It's stuff that has been put in place during that time. But do I see the same frenetic, panicky, mad, sort of 30 years out of date style of operating that I see at Spurs? No. I think mostly it looks reasonably judicious a bit slower than people would like but then when you're paying 70 million pounds you're in interest payments I'm sorry it is gonna be slower than you would like yeah well when you look at the way they dealt with the transfer window this year that stands up because they didn't get to the stage where towards the end they were panicking they didn't have the people in the door and so they spent loads of money they well I mean they did one deal probably later on in Belieber but there was nothing was the first time in however over many years I read they didn't make a signing on deadline day.

33:04Whether you agree the players they brought in or not were the best players is a different discussion. But to your point, I think there wasn't the rashness that you would have associated with the previous Man United. Yeah. The double whammy, Charles, is that Spurs and United are having their own failings exposed at the same time as the Premier League, as we discussed earlier on, has become so strong in depth that you get punished. Like, you know, if you go back 10, 15 years, Premier League was still quite, you know, obviously more competitive than other leagues, etc. But generally speaking, there were still some easier games in the league.

33:37I'm looking at it right now going, I don't know how many easy games. If you're a bit off it, like, you are going to get done. The problem with it is, is that the central underpinning tenet of this topic is the immovable fact of the original Glazer deal. Yeah. Right? And effectively, everything after then is trying to ascertain whoever is running United right now and whoever is managing United right now are they doing as well as could possibly be expected given that they have inherited that terrible deal? Yeah, and look, to anyone interested, we did a deep dive into it on a previous show. I'll put a link in the description and you can go back and have a look because we talked kind of at length about how that actually came together.

34:15But it will be interesting to see, particularly on an exit from the Glazers. But I want to use that as a segue to look at an exit for some other owners. An exit that has been achieved. This has been achieved. And an interesting one, considering some of the numbers attached to it, I think. But Charlie, we are, of course, after speculating a few weeks ago, talking about Todd Boley and Mark Walter departing Chelsea Football Club and really giving the keys to Clear Lake now to take on a majority ownership alongside the investor who has stayed in his 12.8%, Hansel Weiss, the Swiss, I think 90-plus-year-old Hansel Weiss now, billionaire investor.

34:51I'm not expecting him to take the place of Boley marching across the pitch to go and give the team talk. I'll give the outlines of what actually happened. So they sold their 12.8 % each to Clear Lake for a total of£950 million, or$1.1,$1.2 billion. Clear Lake already owns 61.5%, so that basically takes them to over 85 % of total ownership and full control, pretty much. But the deal also valued the club, most interestingly, at£5 billion of equity plus debt, basically. Enterprise value. Enterprise value, EV, yeah. So, pause there. First thought? It's not worth 5 billion EV. Yeah. Because we've just been discussing United and Liverpool who have traded minority stakes at those kinds of levels, right?

35:44A little bit north of there, but not a lot north of there, sort of 5 billion or so. And you're looking at revenues at those clubs of around about 700 million pounds, right? Yeah. What are Chelsea's revenues? Last year it was 495 or something, wasn't it? So they have revenues, 200 million pounds a year less than those clubs. And yet this deal has been done at the same valuation. Now the normal revenue multiple that you might be looking at with Premier League clubs, about 5x, right? So normally you'd expect a 200 million pound revenue gap to equate to around about a 1 billion to 1.5 billion ev gap yeah right so if united and liverpool are five five and a half billion you'd expect chelsea to be valued at four billion ev right take the debt out of that and you know the equity in it might be more like two billion but ev about four so why is it rhetoric not rhetorical question i'm going to ask you the question why is it given that there was only one plausible buyer for this minority stake.

36:56Why have Clear Lake effectively paid 20 % more than they should have done for this stake, Charlie? Well, I think I suggested it on a previous show that it secures a value for Clear Lake's original investment, which would show an increase on paper of what they pay for it. Now, we discussed it and said that would be very strange in theory, just in business because Walter and Boley were in a tricky situation that looked like they had to sell. If you have someone that has to sell and realistically you're the only buyer, the natural thing to do would be to have them over a barrel and try and get that equity for as little cash as you could possibly part with, particularly when you've been shelling money in lots of different areas in the club.

37:42Many of them on Boley's mistakes. Exactly. Now, of course, what that would do though is it would set the first price in the market since you bought it that would say to everyone hey everyone being your own investors your own investors of course the ones that matter most yeah this asset is worth three billion let's say and those investors being private lps in the fund who are looking for a two 2.5x return really at minimum they'd be going well we're down yeah But not only are we down, we've also increased our capital deployment in this club since. So how can that be? And you as the manager of that money, and also in this case, obviously a very public operator.

38:29So who was actually over a barrel here? It was Clearlake who was over a barrel. Because what they couldn't afford to happen was for Bowley and Walter to wander out into the marketplace and sell their 25 % for a number that would indicate that Clear Lake had made a loss on the whole deal. They had to go in there and pay them at a number which basically said to their own investors, this is all going great. It's fine. Nothing to see here. It's all absolutely fine. I would like to caveat it though with this isn't still a very good deal. It was. Well,$4 billion to$5 billion is really, let's say, what the capital injection has been now total from that ownership group.

39:11So let's just call it 5 billion. Yeah? Because we... Four and a half. Let's say... Four and a half. It is... That is one and a bit X on what you bought the club for. Now, I mentioned what the standard P return would be, right? You would want that to be 2 to 2.5 X. Now, there are rumours... Hang on a second, Charlie. Let's just get this straight, right? The original deal was a complicated deal because the amount they bought it for was combined with the amount that they had to put into the club, which they then have put in, albeit through debt, which is another story altogether. So the total amount that they put into the club is$4 to$4.5 billion, right?

39:50So in other words, if the Boley stake had been sold at a valuation of$4 billion, then effectively it would have said that the value of the investment had either stayed static or even gone down a bit during those four years. So I'm completely agreeing with you. What I'm saying is, while this is good in some ways. Good for whom? It's not, this isn't a good deal for anyone, really. No, well, it's a good deal for Berlin Water. But it's still a 1x because they're part of that group. So their money that they've put in, there'll be a percentage. There's an amount, obviously, in the capital calls that will have had to come from their percentage of the ownership.

40:28So they have proportionally increased their investment alongside what Clear Lake have done. Yes. So Boleyn Water had put in about a billion, right? Either which way round, the bottom line is, is that for reasons of their own, Clear Lake have overpaid for this and clearly felt that they had to do so, right? They couldn't afford for that state to be sold separately. So they bought it themselves and they've made sure that they paid a sum, which means that Boleyn Water go, thank you very much, we'll take that. Yes, and still says to an investment group that, hey. It's all okay here. It's okay here.

40:59Yeah. But there are rumors that Clear Lake has significantly marked down their equity in Chelsea to some of their funds to 1x. Yeah. Basically, sorry, what that means is they're turning, and that's in a bull market, right, if we want to call it that. So that's while the value supposedly around football is going up, these guys are saying, hang on a second, the multiple we may get on exit here is getting our money back. Yeah. Which to your investors isn't a complete fail, but it's absolutely not the pitch that you would have put in front of them when you said, hey, we've got this amazing opportunity to go and buy into one of England's most successful football clubs.

41:35So I guess, Charlie, my point is, I didn't want to look like we were celebrating it. My point is there's a very good reason these numbers have come about. It's a good deal for those involved because they can save face, maintain a value on the club that keeps it moving, should we say, in the right direction, even if stagnating. But I don't want to sit here and say, wow, they've made money on this deal or it's gone up. I mean, really, based on what they would have all got into this for, this is not the returns they would want to be doing at this stage in the project. And if they really have marked down the equity value in Chelsea to 1x, it's basically saying that they're holding their hands up and admitting that they don't think they can increase the value of this club for the remaining few years that they're likely to own it for.

42:16And this all goes back to the stadium. This all goes back to the stadium, which is that basically that 2 billion that they were told that they would have to put into the club as part of the deal was effectively kind of earmarked for mostly the stadium. Now you might have said, okay, one and a half billion on the stadium and 500 million on operating whatever other types of expenditure. For them to have blown the money that has been blown and not changed the stadium situation now puts them in a situation where they basically can't change the underlying metrics of the club. The club is going to be stuck at 200 million behind the very biggest English clubs just in perpetuity.

42:55It's just the way. And in the meantime, other clubs, and this is where I put a little asterisk here against the idea that they're all going to be fine it's not going to end up being a great investment but it's going to be sort of okay in the meantime, other clubs are moving and doing stuff if you look at Leeds United's plans to take Ellum Road up to 53 ,000 you look at what Everton have done with the Hill Dickinson of taking that above 50 ,000 obviously you've got Liverpool and Sunderland sorry, Newcastle and Sunderland already at 50 ,000 plus, etc you're starting to get a significant group of clubs who have stadiums are much larger than Chelsea's yeah and you made a point the other day which is that Chelsea's glory days are now increasingly in the rear view mirror right so we're not talking two years ago we're talking about 10 years ago that they were consistently at the top table you know winning stuff and all that kind of thing so you start to ask the question in a competitive marketplace in terms of exits On what grounds would you say that Chelsea is worth$4 billion and Leeds United$1 billion?

43:59When there are two significant clubs with very big histories, but Leeds United are going to have a much bigger stadium with massive revenues, and Chelsea's going to be stuck there because there's nothing they can do. It's$39 ,000. 42.5. Is it 42.5? Yeah. Oh, come on. Sorry. Keep up. And it's in Chelsea. Yes, but... It's the lazy reliance. of the London club that looks there and thinks we sit in a prime location and our ability to extract real value will come down to our ability to get people into the stadium who are willing to spend more than the others. The point is, as you've said... Which is very particularly almost a hospitality point, right?

44:33Because your match day ticketing might be a bit higher, but it won't be enough to catch up the attendance difference. But also, if that is your strategy, then on a highway to going and alienating your own fat, if your only way to make more money is to extract as much cash from the people that come and watch you, you're not going to have much of a club to sell considering we know the value of football really lies in the collective that sits around the product. And also, Charlie, don't forget, there are pick notes in this which are frightening. And if you listen to some who know far better than I do, we do around this.

45:09And by the way, when we're talking about pick notes, we're talking about the increasing interest payments that are being laden on debt, which aren't paid back. They're rolled up. Exactly. So they roll up each year and accumulate on top of each other. keep on accumulating more and more and more and more. But I think it was about 500 million pick note loan, which I think is already at over 800 million. And is projected to go over a billion. There's a lot in here that you would be concerned about. But I think it's interesting what you said, Charlie. I'm just going to close on this point because we've got so much else to get into, which is they are now managing a suboptimal situation.

45:42By they, I mean Clear Lake, right? So they've already marked it down as being effectively what we call a dog in investment terms, right? We're not going to make any money out of this. they're trying to manage the PR around that by making sure they don't get marked down below par, right? Let's try and at least keep it, you know, that we haven't lost money on the deal. What that then means is they'll be looking to get out. They're going to be looking to get out because the one thing they can't do is lock up their investors' money on a dog. So what I mean by that, viewers and listeners, is that Clear Lake is not itself the provider of the funds, it's the manager of money on behalf of institutions.

46:22And those institutions put their money with Clearlake to manage it and get a return. And there are two elements to getting the return, one of which is the amount of profit you make, and the other one of which is how quickly it happens, right? Because the sooner that you can return that money to investors through the fund, the sooner that money can be redeployed into another profitable investment or taken out by the investors to go and do something else with. The ultimate sin in fund management is to have money locked up on a bad investment, right? That's what investors really hate. It's like, you've got all my money.

46:57It's not earning anything. In fact, it's probably even making a loss. You don't seem to be able to get it out of there, right? So it's just locked up there for 10 years. And it's dragged out in public every single week. And it's embarrassing, etc. So it just makes me think, is this whole episode indicative that Clearlake are actually going to have to start thinking about selling this. Oh, definitely. I mean, we've always assumed it's going to be 2031, that sort of time scale, so seven, eight years after buying it. I'm just wondering whether it might happen a little bit sooner than that. And that part of this is making sure that they have total control over that exit process.

47:33And I guess if you're an investor looking at it as an opportunity now before they try and let, well, before they will inevitably lay in more debt and put more money into it and therefore have to try and get more money from it. If you think there's ever, and if let's say you were big enough and you really wanted to have a crack at it, now wouldn't be a bad time to do it, depending on obviously what some of those debt structures look like within the club and how many would have to be taken on. Don't forget that. Because it doesn't sit on the club, does it? It's a holding company level. So actually you don't have to worry about that.

47:59Sorry, Blueco level. So you don't actually have to worry about that. You can just buy the asset off them. So actually - I think watch this space on this one. Just the whole profile of what's going on makes me think that they've pretty much realized, as a rational person would do, this ain't going anywhere. And I think because Clearlake's an institutional manager, Boley, as a private investor, and Walter as a private investor, could afford to have an element of ego tied up in the whole thing, which is, yeah, but I want to make it a success for my own sake, right? For my own profile. But when you're an institutional manager, you don't have that luxury.

48:34It's not your money. you're managing other people's money and ultimately you have to take a clear headed view which is do I want to lock up 5 billion of my client's money in an investment that I no longer believe is going to make a profit maybe not can we talk rugby? we can in fact we haven't spoken about rugby for quite a long time I won't take up much time I really want to have a chat about it because Eddie Hearn has come out again actually this morning so it was great Isn't it funny to say, let's talk about rugby and then say Eddie Hearn? It's weird, isn't it? It's just knowing everything that we do about rugby, all of your mates with their gilets in the Twickenham car park, et cetera.

49:14All of my mates. Look at him. This is as if he's a man from the other side of the tracks. It's a sort of, you know, gilets and slightly red faces and sort of having a picnic out the back of the car and all this type of stuff. That's great, yeah. Right. Twickers. Right. Twickers. The thought of, you know, into this rather bucolic traditional English setup, the sort of the slightly over sharp suit and cockney tones of Eddie Hearn marching in with his boxing promoter style. I've been loving this, Charlie. Well, he's kind of brought it into this. Line it out. He has. Hasn't he? He has. So just to fill in the gaps here, which is that the most prominent, I won't say the best, but the most prominent current English player is a guy called Henry Pollock.

49:58bright blonde hair headband plays for England also plays for Northampton Saints his home club and he became the first prominent rugby player to be taken on by Eddie Hearn in an agency capacity Eddie Hearn normally looks after snooker players boxers darts players all these types of things now he's taken on a rugby player who he believes can be a big star Matrim Talent Agency very specifically very specifically and this is important actually i'll read out what match from talent agency on their own site is meant to be because it actually plays into a key part of what i want to say here so match from talent agency is match from sports new brand of talent management created by eddie herne to manage the service leading sports and entertainment talent with care and loyalty nurturing athletes careers by managing their brand and building their reputations commercial yeah brand exposure not contracts yeah okay not contracts we comment on this at the time do you remember it was march april when this originally came out and it was yeah we're just me looking after the commercial side and the traditional agents can look after the contracts lo and behold six months later yeah and look i'm a big matchroom fan and big eddie herne fan the language in this worries me i'm going to read out the part of the statement or part of the conversation should we say that was had um eddie said if we went into rugby it would be a stroll in the park for me worry number one by by by saying if I went into rugby what does that mean?

51:22I think he's referring to a more collective role in rugby should we say league type level rather than working with individual players he's going to actually try and do what he does with darts or what he does with snooker which is the sport so he actually says as you'll see working with let's say Prem Rugby right? I'd love to see the ad mixture between Eddie Hearn and the RFU That would be brilliant well this is part of the problem he goes it's a huge global sport steeped in history with fantastic values and tradition that just need to be turbocharged. Agreed. I know what needs to be done and I don't even think it's that tough a job.

51:55I've got meetings with Prem Rugby in two weeks time and after that meeting, I will probably decide whether I'm going to move into rugby or not. If we come in, we will come in as a partnership with them to blow it up and change the sport forever. Now it's time to take the shackles off, take the stabilizers off and let the players earn their money. You know what you said just now about where Jim Ratcliffe maybe found the challenge slightly greater than he anticipated. I would throw this at that statement as a primary thing that comes out of that for me, right? Regardless of everything, Eddie Hearn's success in boxing and darts and all of these sports has been exceptional.

52:35No one can take that away. They haven't had the legacy baggage, the institutional behaviours, the RFU councils. They haven't had to deal with the governance structures that rugby has that prevent someone from literally coming in, thinking they're really big bollocks and being able to make the sweeping changes that really need to be made if you are going to shift the sport to one side. I've been at a real loggerheads with this, Charlie, because part of it I love because we're constantly wanting rugby to reflect the quality of the actual sport and stand up and be recognised as that sport, build a marketing value, earn more money from the clubs to the leagues.

53:12So having someone like this involved in it is a good thing. But you cannot, while doing that, start making statements that suggest removing a salary cap a few years after three clubs have gone bust without having the revenue, most crucially, to be able to even think about removing a salary cap. You can't have those conversations and say that in such a blasé way. There is a very specific reason for people that don't know. So, okay, look, this new Pollock deal that has just been signed by Northampton Saints, it's a 400k deal a year, and he was up from 150 odd. So it's a big pay increase. In football, of course, that's nothing.

53:54In rugby, that would class as a big deal. There is a salary cap in Prem Rugby at 6.4 million, meaning each club cannot spend more than 6.4 million. I think actually it goes up to eight after a few bonuses, but you can't spend more than 6.4 million. and he claimed that they turned down seven fit well henry turned down seven figure salaries to sign this contract important again just keep that in mind and there is also a marquee player allowance in in within this setup and part of the reason i think charlie he's got some of this idea in his head is because the other player they got in was a guy called finn russell now of course if you follow your rugby you'll know who finn russell is finn russell is one of the best fly halves in the world and has been for a very long time he plays for scotland and his contract at bath reportedly is one million pounds a year.

54:38Eddie's probably seen that and gone, I have this amazing talent next to me that's probably the most valuable marketing tool that rugby has, particularly in this country at the moment. That worth should result in a salary. There's so much to unpick here, right? Because I think he's got, he might be doing it deliberately to achieve a certain result on behalf of his client, right? So just recognize that these aren't stupid people. but there's a whole bunch of non-secutors in there which need to be unpicked right so first of all as you say the reason why the salary cap is in place is because that is the level which has been worked out as being just about and i wouldn't put it more strongly than that sustainable given the current revenues that come into rugby through either ticketing on the one hand and um media rights on the other hand because they don't get much through media rights remember what they get per club about three and a half to three and a half million per club on media rights and then their ticketing most of their stadiums fit about 15 to 20 000 people right so it's been carefully worked out that the maximum that these clubs can afford to spend on players is about six and a half seven million pounds and then once you then drop that down from there you work out okay in that case any single player can't be worth more than a certain amount except you say one marquee player now so the first non-secretary is to say that as you've already pointed out that you can start paying players a lot of money on the aspiration that rugby at some point might start to make more money right that's just bad business terrible business because you know the cart has you know has to come after the horse the horse is the revenue and the cart is saying well now we're making lots of revenue the players deserve to get paid more secondly pollock you've just said correctly Pollock is potentially the most marketable figure for England rugby but his contract is with Northampton Saints right and there's a limit to how much Pollock can impact the marketing of Northampton Saints why because Northampton Saints is a provincial English brand right it's of interest to people in the county of Northamptonshire fundamentally and a certain number of businesses within that sort of catchment area who want to advertise to those people which Which is similar to most prem rugby clubs.

56:50Pretty much all prem rugby clubs. So in other words, Pollock can be as marketable as he wants, but the vehicle that he is marketing is by definition a very limited vehicle. There's no overseas rights here. You're not going to be able to say, oh, we're suddenly going to develop a massive audience for Northampton Saints Rugby Club in South Africa. They're not interested. They couldn't give two hoots about our domestic rugby system. So in other words, expecting Northampton Saints to pay Pollock a lot of money for the fact that he's good at marketing England rugby is a total non-sector. The question there would have to go to the RFU in terms of how much they would pay in terms of central contracts for players who helped them market England rugby.

57:36Because England rugby is a much bigger canvas. England rugby draws in massive crowds. England rugby has massive sponsors. So if Eddie Hearn can win the argument with the RFU that Pollock is bringing in big sponsors to the RFU and that he deserves a cut of that pie, then that's up to you. The last point I want to make here, which perhaps, you know, I don't understand vast amounts about rugby, but I probably understand more than Eddie Hearn, is that who gets paid the big bucks in American football? The quarterbacks. The quarterbacks. What's the nearest equivalent in rugby to a quarterback? The fly half.

58:10and who's the best fly half in the world? Finn Russell, right? So you're talking about give or take. Give or take. There were two or three of them, right? So you're talking about one of the three most valuable players in the world in Finn Russell who's playing in the key position that impacts, influences every single game, right? Is totally different from someone who plays at Flanka. So Charlie, it's exactly to the point of really know your lane, right, for now. And this, what do I want from Eddie Hearn in this situation? Why were we excited potentially? Because as we said, and as he's, Brogby's biggest problem over the years has been its inability to make stars out of its biggest talents.

58:42And those talents transcend boundaries. How many Jonah Lomus have we had? And even at that level, you still would say there was a huge amount left on the table for an athlete of his quality. Even your Johnny Wilkinsons and your Dan Carters and those players, they did a little bit. Johnny Wilkinsons probably thing was Hackett or Charles... Gillette's maybe? Brian Habana with Gillette. Right. And he hated when he came on the show. So he said, look, you've been one of the very, very few, I could count them on one hand, athletes to break out of that. He just couldn't admit it. He couldn't accept it.

59:15And that's part of the rugby player's mentality. It's team ethos. Individuals sticking their head above the parapet being more than the sum of the team. It's a massive challenge. So what do I want from Eddie Hearn going into this? I want him to do what he's best at. I want him to try and build as much hype around some of these individuals as possible. I want him to get brand dollars in. I want him to show people that rugby stars can be valuable, that money should be put into the broader sport of rugby. Because if you can really capture what makes this sport good, i.e. the top professionals throwing themselves for 80 minutes to match into each other, there is something extraordinary still about what that product actually is.

59:54If you can show that, then you're going to give the sport, the prem, saints, whatever, a chance to improve on their revenues. you're trying to build a business case right before you come to the point that we have to pay everyone more and charlie why we laughed at this really from the start we're going to talk about it in a sec is because there's just this assumption that you walk in you say there's the players are great and there's all this attention we must pay them more is going to mean that the business of that sport improves no let's be very very honest here with this whole thing that eddie has to understand coming into this is six out of ten clubs are balance sheet insolvent in the prem What that means is that their liabilities exceed their assets.

1:00:33And what happens when that happens, as we know in English football, it means that the owners have to put in a significant amount of cash to try and offset that. Now, rugby doesn't have the billionaire owners on the whole in this country. Doesn't the Pro 14 in France? But that creates different problems for them. So if you don't have that, eventually you're going to be in a position where the owner cannot keep putting money in. And hey, guess what happens? A quarter of your division goes out of business in just a few years. so if you want to just give them free reign if you want to leave it to the whims of ownerships who want to chase titles and try and do everything that they shouldn't do for good business on the pitch then yeah remove a salary cap and let them do that but it's not actually going to help the sport and it's not going to help Pollock in the long run and so on and so on because they're going to be sitting in an environment which ultimately is screwed but you know i mean charlie i mean stick to basics here I totally agree with everything you just said, by the way.

1:01:25That's absolutely correct. But if you are in a non-massive sport, right? And I'm sorry, rugby isn't. Football is. American football is because of the country it takes place in. Golf is. Rugby is not. Rugby is the next tier down from there. Sorry, cricket is. Cricket's a proper global sport with a massive audience. Rugby is the next tier down from there. if you're going to be one of the stars that breaks out one of the prerequisites is you have to be one of the very best in the world right you've got to be able to actually walk the walk rather than just talk the talk Henry Pollock is not even a guaranteed player for England let alone in a world 15 he's definitely not a guaranteed player in the British Lions the thing that makes me slightly queasy about this whole thing is that effectively you've got a situation where we're being told that a player who is not the very best at what he does should be being paid a vast amount because he wears a headband and because he dances around and this type of stuff.

1:02:29That is not how, I don't want to say, I love boxing and I love snooker and I love darts, but they are all slightly in the circus bit, right, of sport, right? And they are the show. They're a show. And they have always been done by promoters, which the Hearns are. They are promoters. They're also individual. And they're individual sports as well. Right. But again, you need to be the best. Right. Luke Littler doesn't make money by being the 10th best darts player in the world. He makes money by being the best darts player in the world. In a team sport, which is not at the very, very top. If you are going to get breakout stars, they are going to need to be players who are conspicuously stars.

1:03:09was Jonah Lomu burst on the scene and he was the player right he wasn't the 10th best player he was the best and therefore everyone wanted to watch him because he was going to go and score three or four tries and run all over people now Henry Pollock is a very good rugby player but he's got some way to go before he's in the Dan Carter Johnny Wilkinson Jonah Lomu type type stratosphere so I don't even think taking on it's just looking at it in his merit as a sports marketing person myself. If I was advising rugby right now, I would not be saying, go and state all your bets on a player like Henry Pollock.

1:03:44Whatever he brings, he brings, and that's great, right? Fantastic. We've got to focus on the players who are the genuine global stars. We've got to focus on the ones who can actually inspire people by being something out of the ordinary on the pitch, by doing things that people take people's breath away, right? And sad to say, that is somewhat unlikely to happen with a flanker, right it's probably the the least glamorous position on the entire pitch pretty much right doing the dirty work doing the hard yards doing the turnovers making the tackles all this type of stuff it's going to be a fly half it's going to be a wing or a fullback or whatever it might be if it is going to be a forward it's probably going to be someone like ebonet savett who's absolutely massive and you know martin johnson who just carries that vast presence with them and wins line outs and all this type of stuff.

1:04:33I think it's going to be super, super difficult to make a global star out of Henry Pollock, no matter how charismatic he might be. So it just seems to me like a sort of storm in a teacup that's been blown up for no obvious reason. And it doesn't seem to have any underpinning in, like, if he does go in to see Prem Rugby and if he does go in to see the RFU and says, I should be running rugby, I could do it like I run snooker, like my dad runs snooker and darts. If I was at the RFU, I'd be doing it and saying, right can you actually explain what that looks like in terms of how that actually translates through into dollars for the sport right i can see how you could make some more endorsements for your player and by the way knock yourself out we've got no problem with that whatsoever if you manage to get henry pollock a bunch of endorsements great fantastic but if what you're saying is that we should build a marketing strategy around a player who might not even be selected not sure about that not sure about that how can you do that you know when he's talking about this I think in this statement he's talking bigger than Pollock he is yeah he is and that's the bit that just again as I said I'm a big fan big matrim fan big fan of everything but it doesn't mean you can walk anywhere and be a success in it there has to be a respect now do I think that the structures in rugby are correct and are well positioned and optimised absolutely not but for you to be able to affect the change you have to appreciate what the landscape actually is on the day you walk in.

1:05:57And I have met a lot of people who are either running rugby or have invested in rugby. And the thing that comes up every single time is I didn't realise how hard it would be for me to do my job. Okay. Well, look, we'll watch with interest. We need to catch up about the Women's Tennis Association, right, the WTA. And it's actually along slightly similar lines, right? So just to go back on what's happened in the last few weeks, which is that during the run-up to the US Open, which was two weeks ago, so the week or two before that. So over the last month, there have been meetings between the Women's Tennis Association and representatives of the players and various others, which has been made pretty clear that Women's Tennis Association is potentially on the edge of bankruptcy.

1:06:46And the reason it's potentially on the edge of bankruptcy is because they have done exactly what Eddie Hearn is advocating that rugby should do, which is that they've started paying their players far more than the revenues that they have would support and they've effectively mortgaged their future to do so because ultimately if you're not getting the money to increase the pay through revenues where you get it from has to come from somewhere else and that doesn't come for free so what actually happened in women's tennis just to be clear on that because i just want to that's not inflammatory they're basically at the current financial rates they will run out of money by about August to September next year.

1:07:25This time next year. This time next year. Yeah. That's what the figures show. 11 million in cash at the end of this year. They've got 11 million pounds in cash at the end of this year and their current run rate is around about a 20 million pound loss a year. Right. So in other words, they are projecting that next year they are basically going to be short of money. What's led up to this is that I think it was about four years ago, three to four years ago, the WTA decided that they wanted to pay the players more, right? It's not immediately clear to me why, because there wasn't an alternative tour.

1:08:04There wasn't a live equivalent that Arena Sabalenka, Iguz Fiontek, and Eleanor Rybakina were about to go off onto. It more was to do with this vexed topic of equality of pay. We want the female tennis players to be paid the same as the male tennis players. Why? Because that's equality. Anyhow, in the absence of the revenues that would support equality of pay, what they did is they went to CBC, ironically, the entity that also pumped a lot of money into rugby, English club rugby that is, and said, can you make an upfront payment of$150 million, which is$30 million a year over five years. And in return for that, we will give you 20 % of the proceeds from our commercial rights.

1:08:52In a separate vehicle called Ventures. In a separate vehicle called Ventures. Right. So effectively, they were doing what we call in football factoring. They were saying, right, we will give a chunk of our future revenues away to you in return for you giving us money up front. But it's worse than factoring. Oh, way worse. It's way worse than factoring. Because in factoring, once you've paid back the original amount that was fronted up to you, plus the interest, goodbye, you're done. In this thing, it's 20 % in perpetuity. So CBC get 20 % of the proceeds of the WTA commercial side in perpetuity in return for 150 million bucks.

1:09:30Now that's something that you might do if you're trying to build a new stadium, if you're trying to construct some other major piece of infrastructure, or potentially if you're about to go on a massive new marketing push that's going to open you up into new markets, which is then going to drive bigger commercial revenues, which is then going to exceed the 20 % that you're losing in the future, whatever it might be. Instead of which, they took CVC's money and they pumped it into prize money, right? The WTA borrowed effectively their future, mortgaged their future in return for short-term injections of cash into prize money.

1:10:06And that money has almost all now gone the commercial revenues have not risen right of course not why would they why would they the product it's the same place you haven't done anything different other than say cool there's a few events here where they value the joint events on the atp tour atp tour which generates nearly 300 million dollars a year and the wta which did 142 i think last year hey they value the women's game at 40 of the men's game which is not fair so I just wanted to just, you skated over that, right? Because it's core to the event. There are three different buckets of events.

1:10:44You have the Grand Slams, which do have a quality of pay. The Grand Slams are independently owned, massively profitable, make a huge amount of revenue, and slightly grudgingly, they've said, okay, we'll give the women the same amount of money as the men. You've then got a pot of tournaments, which are much smaller tournaments that the WTA runs, which are standalone women's tennis tournaments over here, which have much lower prize money. There's then a bucket in between, which are the events outside of the Grand Slams where there is a men's event and a women's event. And this includes most of the biggest tournaments outside the Grand Slams, whether it be the Madrid Masters or the Miami Masters or Indian Wells and all these types of things.

1:11:25And it's at these events that what Charlie said has historically been the case, which is that broadly speaking, the women's prize money is about half that of the men's prize money. The reason being that those events have to make their own finances work, right? They can only pay what they make. They can't do more than that. And because most of their ticketing and most of their commercial revenue is linked to the men's side of that particular event, they have to be careful to pay enough of the prize money to the men. So the WTA have stepped in and used their pot of money that they've raised from CBC to bump up the prize money in those events, which effectively, think of it this way, under the previous dispensation, the likes of Sabalenka, Sviontek and Rybakina who win these events, at the end of the year, their annual prize money level might have been 14 or 15 million.

1:12:19As a result of this 30 million a year that's been pumped in, those players have been earning five or six million dollars a year extra each during that period. And that's where the money's gone. so effectively the players of tomorrow are going to have 20 % less commercial revenues in the tour that they're playing in to pump up the prize money packets of athletes who are already the highest earning female athletes in the world now it is bonkers Charles it's really do you know rarely do you actually get annoyed you look sad I'm sad well do you know why I'm sad because women's tennis is great as a product it is the most successful as a product women's sport I said to you watching the the Sabalenka-Rabakina match for the US Open final I enjoyed more than I enjoyed the Shelton-Zverod match you have seven of the top ten most marketable highest earning athletes female athletes female athletes in the world in tennis the only three that are in that top ten that aren't are Eileen Gu Nelly Corder and Caitlin Clark the WTA have chosen to put money into the growth of those pay packets rather than the growth of the sport as a whole to capitalise on all of this opportunity that comes from having athletes.

1:13:32We've just spoken about rugby's need to have talent that can really bring the value of the collective together. Tennis has that. The WTA has six commercial partners. The ATP has 18. The WTA does not have a single female-only brand behind it to capitalise on it. Meanwhile, Irina Sabalenka is walking around the US Open with about$1.5 million worth of jewellery on her, proving the value that she has, the power that she has to brands. Why is that exclusive to individuals when the WTA could bring some of this stuff, they could bring some of this value into the broader collective game? Now, to do this, as you said, to take that investment would make sense.

1:14:14If the ambition and structure and strategy was really clear on how we are going to develop this so that CVC, that money is not only going to help us be a better business, but it's also going to increase the future value of your investment. So I'm really also pissed off from the CVC side because how were there not stipulations that prevented this from happening? How did CVC not put something in place which said you cannot put all of this money we are giving you enterprise money because what we need to see on this investment is an increase in what we are putting in? Well there's a number of reasons.

1:14:52Firstly was it 150 million in you know funds that are 16 and 22 billion size recently? Is that a big enough investment that they really give a shit? Really? Who knows? And within these plays, when you're making them, right, they've also put 2 billion into La Liga. Much more. Much more. On a similar kind of basis. On a similar kind of basis. With many more strings attached. Exactly. So I just want to read that out. The injection, and this is on the La Liga site as well, when the deal was announced with La Liga, this injection of nearly 2 billion euros commits the clubs to allocating up to 70 % of the funds to investments linked to infrastructure, international development brand and product development communication strategy innovation and technology and content development plan for digital platforms and social media up to 15 can be used to sign players with the remaining 15 used to reduce debt now the wta doesn't own stadia right it doesn't own it so front up we can say it would be very hard for you to put that money towards an infrastructure play like we've said in football but the rest of it international national development, brand and product development, comms strategy, innovation and tech.

1:15:54They could have had a strategy around all of that to improve product women's tennis owned by the WTA. They didn't. CVC made this mistake when they went into Prem Rugby. They bought 27.5 % of Prem Rugby in 2018 or 2019, 2018 I think, for 200 million. And they didn't put the protections in place to stop that money being spent in ways that do not grow the overall value of the sport. And unfortunately, and it was unfortunate, when COVID hit, a huge amount of that money went to the OPEX and attempted survival of these clubs rather than the traditional growth capital that it was designed for. But there was nothing that CBC could do about it because there was nothing in the contracts that prevented that money being spent in those ways.

1:16:36So from an investor's perspective, it drives me mad because, Charlie, it's a bit like a child. You give a child a tenner and tell them to go into a shop. They're walking out with a bag of sweets, right? They're just walking out with 10 pounds worth of sweets. You know that. They're not going to go in and buy ingredients, are they? They're not going to go and buy what you need for dinner. No, because ingredients mean time. They take skill and knowledge to put together. Much better for you in the long run, but it doesn't give you that immediate hit and that feeling that makes you go, yeah, do you know what?

1:17:08I really enjoyed that. This is how I kind of look at that. The sports organizations, and it's not letting them off the hook, But, you know, are they genuinely, they're not proving it, capable of managing this amount of money responsibly? I don't think so. In a lot of cases, I really don't think so. So if you're putting that money in, you have a responsibility. And as I said, you could look at this and go, do they really care? You know, it's one of those. They had big fun. They had a big exit from Formula One. And there was a few of these investments that they've made off the back of it. Okay, let's just give it a crack.

1:17:37There's also the flip side, which is everyone fucking hates, you know, the old models of private equity. And they think they're asset strippers and they think they're bad money. Well, this type of behavior doesn't help the argument that institutional cash coming into sport is a good thing because there is a responsibility when you do invest in these types of organizations, I think. Naive, maybe, yes, but there is a responsibility that you have to the sports that you invest in, the fans that follow it, to actually try and do best by that organization, by that sport. And if it does, I mean, I don't know, short of them selling more equity and trying to find more value in this venture, which obviously is just going to reduce the value that they can extract from this.

1:18:16I don't know where the solution could lie. Well, it's a sad state. It is a sad state. It is a sad state of affairs. I mean, it sort of feels to me. Sorry, a bit of a rant. Yeah, it's actually nine months in. That's the first time I've heard my ginger friend really go off on one. normally he belies the reputation of redheaded people for hot temper he's normally a very calm calm person but he absolutely went off on one there by the way which i totally agree with the gist of what he was saying whatever happens there's going to need to be a significant reduction in prize money um outside of the grand slams right that's that's absolutely clear but i'm worried that even with that with them having sold 20 of their future revenues that you that the reduction in prize money is going to be very very extreme and may you know you may be even getting to the stage where you do start to look at potentially a challenger of some kind coming up and saying well actually we don't need to carry that baggage of the past charlie i don't know about you i'm quite surprised that this hasn't got more attention and maybe it hasn't got more attention in the main and when i say attention i mean the mainstream media attention maybe because it's just it does sit in that uncomfortable area of you have to really reflect on the things that we've been pushing for when people have been pushing for for so long pushing against and we've been pushing against purely for the reason that to be able to do this as this shows you have to have the business behind you to support those kind of changes there's a total non-secular say in professional sport right so just to make clear what happens in professional sport people like me who are operators sit in the middle and people who pay to watch either live in a stadium or on tv through their subscription banks they pass money to me and i then pass money to the performers.

1:19:56That's what it is. That's professional sport. And the more money that we get from ticketing and from TV rights revenue, the more money we can pass to the performers. And generally speaking, the operator who sits in the middle doesn't make very much, if anything, and sometimes even loses money. That's just the reality of sports business. What you cannot do is start chucking money to the performers, which isn't justified by the ticketing and the TV rights. It's not just bad business in terms of puts your organization in a very precarious state. It's bad business because it means you're not confronting the fact that you're not making enough revenue.

1:20:31So you're not actually doing the hard yards of thinking, how are we going to drive more revenue? Because ultimately, we would like to pay the performers more. Instead of which you're reaching for, as you put it, the sweet shop. You're saying, what's the short sugar hit, right? And the short sugar hit here is that various executives want to go to various conferences around the world and say equality of pay and everyone claps and goes, yeah, yeah, great, fantastic, equality of pay. It's just meaningless bullshit. It's absolutely irresponsible. It's meaningless if it means the end of the product itself.

1:21:04Yes. Which realistically were being as direct as possible. What they've done here is they've taken pay which should have been paid to players in five years time and forwarded it to players who are playing now. in what way is that responsible or ethical right it's not it's absolutely terrible anyhow there we are let's see what happens I think for all of us who like women's tennis and watch women's tennis we hope that they do sort it out just at the moment is looking all pretty precarious thanks guys thanks as always for tuning in and we will see you next week thank you thank you as always for joining us for a packed chat this week So much to cover and so much to speculate over.

1:21:49As always, we want to hear your thoughts, so please keep the comments and opinions rolling in. We are off to substack to look at whether English football is about to change forever. Dramatic, I know. So come and see us there if you want to. If not, we'll see you next week. This episode of The Breakdown is brought to you by Fanbase. Imagine being asked how many season ticket holders haven't attended for six weeks, or how many first-time fans came through the gates at the weekend and needing three people, two systems, and a spreadsheet to find out. Imagine your marketing manager sending the same email to every supporter because they can't easily see who bought what, who attended, who renewed, or who hasn't been back in months.

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