Why we need to privatize domestic leagues in South Africa
Sport business growth and transformation depends on our intentionality
In South Africa, the ongoing debate around the privatization of State-Owned Enterprises and other public institutions polarizes society and is regressive in nature. The problem is that the debate is led by rent-seeking politicians and greedy capitalists who both do not have the interest of society at heart. Nonetheless, I do not intend to discuss the inner logic of the political economy of South Africa. Instead, I would like to use this opportunity to persuade the reader why the privatization of domestic professional sport is necessary for the growth and transformation of sport business, and sport in general, in this country.
Let me begin by defining privatization: privatization in sports refers to the transfer of ownership and control in sports organizations or facilities from the public sector to private entities. Sports is generally administered by public institutions that are governed under the National Sport and Recreation Act of 110 of 1998. The domestic sports that I believe should be geared for privatization are the high performance sports controlled by South African Sports Confederation and Olympic Committee (SASCOC). For example, this includes sports like cricket, rugby, etc. This process would include the reconfiguration of SASCOC to service the sport industry more efficiently and effectively.
Sports is currently administered through public institutions as suggested above, with government involvement from youth, amateur, professional and national levels of sports. I believe the government has an important role to broaden access and participation through schools and university sport. This must be done primarily through the delivery of programs to ignite mass participation. What I am suggesting is nothing radical or groundbreaking it’s simply a return to basics. That’s how I was introduced to sport in the township, and the evidence locally and abroad suggests that unlocking mass participation at grassroots is the most reliable method of developing the sports industry.
What is to be done?
Now with the privilege of hindsight, from more than a decade in professional sport and sport administration, I wish to provide some foresight on where the sport sector needs to go for fast growth and maturity. Without fear of any contradiction, I believe the time has come to privatize professional domestic leagues in South Africa. And I must confess that I have resisted privatization in cricket and sport in general. The reasons for resistance had nothing to do with the principle of privatization; rather I rejected the handing over of state assets to private entities without them paying a fair price for those assets.
Our pro sports desperately need the innovation, efficiency and competitive elements associated with privatization in sports. Moreover, the investment from private entities is needed to inject capital into the industry to improve the business of athletes, transform facilities from cost centers into profit centers, leverage sport content ownership for increased revenue generations, and deliver an enhanced fan experience. In the developed economies, the sport business sector is reaping the rewards of private sector investment into pro sports according to report below:
According to PitchBook, over the last 18 months, Private Equity (PE) firms have taken on passive stakes in professional sports franchises and leagues after the NBA, MLB and Major League Soccer loosened ownership rules to include institutional investors. In addition, there’s now funds that are focused solely on sports, including a $1.5 billion fund from Arctos Sports Partners and a $2.6 billion fund from RedBird Capital Partners. The total value of private equity investments in sports teams and leagues has doubled in the last three years, from $3.3 billion in 2018 to $7.1 billion in 2021. - Winna Brown
What we see above is a major shift and transformation of sport business with investors and PE firms betting on the growth prospects of sport. These investment decisions are grounded on the understanding that professional sport and the sport industry is considered an asset class by large investors. And more importantly, it is an asset class that is uncorrelated to the economy, for example, unaffected by the global financial crisis and Covid-19; with consistently surging revenues from broadcasting, streaming etc. Therefore, sport acts as a good investment diversification tool.
The trend around the world shows that there’s a case to be made for the privatization of pro sport in South Africa. I would argue that we have a solid investment case given the quality of athletes, competitive sport industry, sound infrastructure and a vibrant sporting culture. Moreover, I believe privatization will provide solutions to the challenge of transformation and development in the township. This will include strategic partnerships, with schools and government to better track, coordinate and manage the flow of the talent pool. The transformation we witness in rugby, for example, is influenced by the majority and minority shareholding stakes by private interests within the domestic pro teams.
Therefore, by creating room for private sector participation in pro sport leagues this will free up government and public institutions to focus on their core business; (a) creating access and grassroots participation, setting an enabling regulatory framework, safeguarding national teams and the prestige of the national colors. This will allow the private sector into the engine room of sport business and catapult the industry to new heights.
Excellent article.