Lessons from the past

August 17, 2011
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Lessons from the past should provide the Lions rugby union with the vision needed to get them out of their current administrative crisis.

The 21st century has not been kind to the Pride of Ellis Park (yes I know it’s called something else now but bare with me – there is an historical lesson in all this).  The union last won South Africa’s most prized domestic title, the Currie Cup, in 1999, and although there was a glimmer of hope in the early 2000’s under Kiwi coach Laurie Mains, the once mighty Lions have been reduced to whimpering little pussy-cats.

For the best part of the last 10 years the Lions Rugby Union seemed to move from one crisis to the next – if it is not at boardroom level there is some crisis with the coaches or the players.  It is this constant crisis management which has seen the union focus on everything but results, both on the field and off it.

Last year it was announced that the Lions have taken a major step forward when 49% of their shares were sold to the Guma TAC group.  An investment reported at the time to be worth around R80-million.  It was hailed as the dawn of a new era and the beginning of the dominance we became used to in the 90’s from this union.  Fans became optimistic again, rugby lovers expected the sleeping giant to awake again, but in the end it proved yet another false dawn when it was recently announced that the same group have pulled out of the deal.

The Guma group claimed that they weren’t allowed to form part of the decision making processes of the union from a commercial level, which made little sense for any investor as a large portion of the money and how to use it was theirs.  It also made claims that the union is bankrupt, something the union has refuted.

All in all, it was another very public, and very ugly end to what promised to be the start of something great.

They were in this situation before

The year was 1984, and the union were R37-million in debt to what was known as Volkskas Bank at that stage – a massive amount of money even in today’s terms.  It was so bad that the interest on the debt amounted to a staggering R20 000 per day!

This situation forced the president of the time, Jannie le Roux, to be ousted through a club revolt, and in came one Dr. Louis Luyt – a self-made millionaire.

Under the guidance of Luyt and in a relatively short period of 9 years, the union paid off all its debt in 1993 and went on to become one of the most successful teams of the 90’s and also, one of the richest.

The union did have to sell its soul a bit for a short period of time to eventually wipe out the dept, but in the end they became the most powerful union in SA Rugby, if not the world.

De ja vu

The year is 2008, the Lions are again in trouble apparently owing millions in debt and also losing players by the dozen.  Their on-field results are shocking and the clubs decide to step in.  Out goes president Prof. Jannie Ferreira, and in comes Kevin de Klerk.

The union gets audited, the players get audited, and changes are aplenty!  Some guys gets appointed and starts showing immediate results and some okes get fired for incompetence – most importantly, changes are taking place and the results of these are starting to show.

It will take time

It will be easy to get negative about the Lions Rugby Union, there is plenty of material and references out there to support this stance, but it would be unfair.

Most people will point at the recent failed partnership between Guma TAC and the Lions union as an example of how ‘incompetent’ the people in the union are, especially given the claims of bankruptcy which was levelled against the union by the outgoing partners.

We have seen the audited financial statement of the Lions, and we disagree.  Yes it does not look pretty, but I can pretty much guarantee you not one union in South Africa’s financial statements looks great.  In fact, it was suggested a year back that the only union in South African rugby to turn an ACTUAL profit in the last couple of years, was the Griffons rugby union!

It is not our place to discuss the financial statements of the Lions rugby union in public, they can do that themselves, but two independent financial experts that analysed these statements on our behalf both agree that it is not an impossible situation to reverse.  Some bad business practices in the past are still affecting the union today, but it is nothing that cannot be fixed under the guidance of a clever and astute business man, with the help of investors from the outside – as was the case in the mid-80’s.

It took Dr. Luyt 9 years to turn the Lions around in the 80’s and early 90’s, and although I do not think or believe it could or should take that long today, it is not going to happen overnight.

It all has to start with small things being fixed one problem at a time, starting with the right person to lead them, and every single person I have spoken to suggests that Kevin de Klerk is as good as any available.

The right attitude

Perhaps even more than the right leader, is having the right attitude and there is no better example of how this has changed at the Lions than what happened a week ago.

According to reports, Lions scrumhalf Jano Vermaak promised his coach and boss that he will stay loyal to the union at least until the end of the year and that he is not in talks with any other union.  All of a sudden we receive a press release that the Blue Bulls has signed Vermaak!

Most of us expected a massive backlash from the Lions Rugby union, with threats to sue everyone involved and doing everything to hang onto one of their star players – I mean it is what we became used to from them!  What did we get?  Nothing.

A week later Jano runs out for his new team the Blue Bulls and the Lions simply carry on with business, beating yet another team to retain their unbeaten run in this year’s Currie Cup – also something we are not used to given the recent past of the union.

It’s not surprising that in this day and age of microwave dinners and entertainment on demand that fans are frustrated from not seeing results sooner.

My advice to you, start by celebrating the small victories, it’s the start of winning the bigger battles, and there are a lot of small, but very important victories the Lions Rugby Union are currently winning…

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42 Comments

  1. avatar DavidS says:
    August 17th, 2011 at 2:51 pm

    Amen Morne and great piece!

    Hope the WP are waiting for heir mauling with trepidation…

    :twisted:

  2. avatar bryce_in_oz says:
    August 17th, 2011 at 2:57 pm

    Very interesting read…

    To turn around R36mill in the amateur days is quite some achievement when one considers how the profit-sharing in today’s comps like Super-rugby are shared… quite some achievement!

  3. avatar Kat says:
    August 17th, 2011 at 2:58 pm

    Thanks Morné. Appreciate this article. We Lions fans need to hear this. I hope my fellow Lions supporters will come read hear and comment.

  4. avatar LionsinPTA says:
    August 17th, 2011 at 2:59 pm

    Nice arti Morne :applause: . Yip will take some time, but I think, well believe, the Union can turn things around with KdK at the helm.

    Reply to DavidS @ 2:51 pm:

    I see Volstruis Plonker is in charge of the game. The Lions have lost that game all ready!

  5. avatar Morné says:
    August 17th, 2011 at 3:11 pm

    Reply to Kat @ 2:58 pm:

    Spread the word, copy and paste it if you want! Re-publish it – go wild!

  6. avatar Kat says:
    August 17th, 2011 at 3:34 pm

    Reply to Morné @ 3:11 pm: Dankie Morné.

  7. avatar Kat says:
    August 17th, 2011 at 4:03 pm

    Article up at WeTalkRugby.com and LionsWorld.co.za for comments.

  8. avatar Boertjie says:
    August 17th, 2011 at 4:17 pm

    I’ve read a piece where Jano said he left AFTER
    Mitchell said he won’t select him.
    :whatever:

  9. avatar DavidS says:
    August 17th, 2011 at 4:57 pm

    Reply to LionsinPTA @ 2:59 pm:

    What a twarq that dude has become…

    Reply to Boertjie @ 4:17 pm:

    Dead right

    Mitchell has made it dead clear even in All Black and Force days that if a player is not part of his team he drops him out of the squad. Mitchell has a plan to grow the Lions and if a player feels he is not part of that he gets dropped. Mitchell made that crystal clear to all players. Look at the way he dropped Rory Kocott…

    So gaan trek eerder jou eie draad… maar jy’s seker so oud en jou pielietjie so verimpeld en ongebruik jy kan nie onthou wat om met ‘n horing te maak nie… moet hom net nie in jou gat druk as jy een kry nie… al vertel die Kaapse mans jou almal dis wat hulle doen..

  10. avatar Timeo says:
    August 17th, 2011 at 7:41 pm

    I’m no financial expert but common sense tells me that in the case of rugby unions, bankruptcy or liquidation are not viable options for creditors.

    The reason is because the most valuable asset, the right to play in a specific competition, or the control thereof, cannot transfer to the creditors.

    Thus, the situation is never beyond repair. Good management can always turn things around. Creditors will always be prepared to renegotiate. Just like Volkskas did. They have no other options.

    The only entity that can really do the Lions in is SARU. They can take SR franchise away. A similar threat was not on the table in the 1980′s.

  11. avatar Timeo says:
    August 17th, 2011 at 7:49 pm

    No Union is suppose to make profits. All incoming monies should be spend. It is how they spend it that makes the difference.

  12. avatar Morné says:
    August 17th, 2011 at 8:01 pm

    Reply to Timeo @ 7:49 pm:

    Mate when I read that my first reaction was “what kak are you talking” but I believe you have arguably made one of the most important points in rugby union since the game went professional…

    Let me mull on this for a day or two.

  13. avatar Timeo says:
    August 17th, 2011 at 9:26 pm

    Reply to Morné @ 8:01 pm:

    Mull over the equity partner concept also.

    You pay R80 for a 49% share and you get a minority seat on the board.
    No managerial control.
    No dividends.
    No capital growth. (Has any equity partner ever sold his shares for a profit? Has any ever sold for anything?)

    The only value I can see then is having your name connected to the team.
    In other words, it is not an investment but rather a large, upfront sponsorship with an indefinite term.

  14. avatar DavidS says:
    August 17th, 2011 at 9:32 pm

    Reply to Timeo @ 7:49 pm:

    I wonder if that is accurate in all circumstances and if we are not just playing semantics games here…

    Surely if we refer to “clubs” in the European context the idea IS to be successful and give the shareholders a return on investment…

    Regarding the mixed schizoid way we have set up unions with amateur arms and professional arms run by amateurs one can arguably make out a case that profits are meant to build and support amateurs in the feeder area of the union… but would that be accurate… that the union needs to plough its profits back into its community when it has divided itself into a professional and an amateur side…

  15. avatar DavidS says:
    August 17th, 2011 at 9:33 pm

    Reply to Timeo @ 9:26 pm:

    SARU rules prohibit unions’ professional arms from disposing of more than 49% of shareholding… and yes you are correct

  16. avatar Kat says:
    August 17th, 2011 at 9:41 pm

    Wokaai. The Lions own Ellis Park. Creditors can take that and sell it to cover bad debt. It is true to say there is nothing that creditors can do. A union must be able to back loans with assets, etc just like any other entity wanting to borrow money. Holding on to Ellis Park was a big issue for Louis Luyt … it became an obsession. Today the Lions is the only union to own its stadium outright (not to br confused with EPWOS that manages EP).

  17. avatar Kat says:
    August 17th, 2011 at 9:42 pm

    I meant to say “It is not true to say …”.

  18. avatar DavidS says:
    August 17th, 2011 at 9:44 pm

    I must admit I am unaware of any shareholder disposing of ahreholding at a profit… I know that SAIL took shareholding in almost all the baby unions like SWD at a 25% rate at some point and eventually like in the case of Border just walked away from it and abandoned it. However I beliecve you have correctly stated that

    1. Shareholding in a South African union is meaningless from a value perspective (i.e. dividends and profit)

    2. Control of the professional arm will never happen

    In different circumstances like say with Manchester United or Barcelona or say Stade Francais or Saracens I can see owners extracting value, dividends and selling shareholding at a premium at some point… somewhat like I believe the Motaung and the Khoza families are not poverty stricken paupers from their 100% ownerships of their teams in SA soccer… which would tend to disprove what you have stated as a genralism.

    I would agree with the postulation but only in respect of a South African rugby context and its peculiar … shall we say… “particularities and complexities”…

  19. avatar DavidS says:
    August 17th, 2011 at 9:51 pm

    Kat

    Two years ago WP were playing with the idea of going to the new soccer stadium…

    They then wanted to sell Newlands…

    On being valued (they were thinking in terms of zillions) they were told that basically the stadium just on its own is worthless and the lanbd it is on is worth the most… think of that… what value does a stadium have for anyone other than the team that calls it home…

    Think on that… the land is worth the most… and where is Ellis… in fact the whole stadia surrounding it… Standard Bank Arena, Jhb Stadium…

    All nestled in an area between Bez Valley, Yeoville, Doornfontein and Hillbrow… probably the most worthless land in Johannesburg…

    The stadia complex is worth zippo to a creditor without a team that calls it home…

  20. avatar DavidS says:
    August 17th, 2011 at 9:51 pm

    In order to financially exploit the land a creditoir will need to wreck the stadia first… and can you guess THOSE costs?

  21. avatar Kat says:
    August 17th, 2011 at 9:52 pm

    A union can also only become better (grow) when there is profit, so making a profit is important. The Lions was very profitable in the early 90′s and build up a huge cash reserve … which was squandered in record time under Brian v R. Profit enables teams to buy the best players and staff, and create the best infrastructure. No dividents does not mean there is no incentive to make profit. Profit makes all kinds of things possible, including investments for increased profit. It is one of those investments that went sour (Australia) that created financial stress at the Lions.

  22. avatar DavidS says:
    August 17th, 2011 at 9:59 pm

    Andy Turner also played his part burning away the massive cash reserves GLRU had built up…

    I recall in 1998 the GLRU was the richest rugby union in the world… richer than SARFU and all the European teams and even some soccer teams…

    The GLRU had assets like the stadium which were owned through a complex filter of trusts that Luyt set up and which he and his family owned…

  23. avatar DavidS says:
    August 17th, 2011 at 10:00 pm

    Hence the infamous nickname

    Andy “Burner”

  24. avatar Kat says:
    August 17th, 2011 at 10:00 pm

    DavidS, the value of the asset is not the issue; the fact is there is a system that ties loans to security. Yes, Ellis Park may not be worth much, but it will be enough to cover all outstanding debt, and that is the issue. A union cannot get loans without security (things creditors value more that the loan in case of non payment).

    The Newlands thing is more complex than just the value of infrastructure and land. I know because I’m close to that process.

  25. avatar Kat says:
    August 17th, 2011 at 10:03 pm

    Yep, Andy … :noshake:

  26. avatar Timeo says:
    August 17th, 2011 at 10:05 pm

    Reply to DavidS @ 9:44 pm:

    It was said in a rugby context.
    In the USA the team owners are mostly guys that made their money elsewhere with the idea that the team is an expensive toy to spend it, but sometimes they can make huge profits by selling.

    George W. Bush invested around $800K for a 2% share in the Texas Rangers and got about $15M when it was sold 10 years later.

  27. avatar Timeo says:
    August 17th, 2011 at 10:11 pm

    Reply to Kat @ 9:52 pm:

    It’s cash flow that enables them to buy players, not profit. If there are profits, they are not doing there jobs. They should be using that money to buy better players and coaches or upgrade facilities.

    The last thing they should be doing with extra cash is invest it in Australia. It’s a Rugby Union, not Hedge Fund or a REIT.

  28. avatar Kat says:
    August 17th, 2011 at 10:13 pm

    I’m not sure how it would have worked with the GumaTAC arrangement but I would imagine that if an entity owns 49.9% of the union it owns 49,9% of the assets … i.e. 49.9% of any profit made if the stadium were to be sold. There must be more into it than just handing out money for nothing.

  29. avatar Timeo says:
    August 17th, 2011 at 10:14 pm

    Reply to DavidS @ 9:51 pm:

    Spot on. A stadium only has value if a team is playing in it.
    Newlands itself has no value. The land it is on may have.

    Ellis Park only has value if the team/s that play there can draw crowds. The land value cannot be very much.

  30. avatar JT_Proooooovince! says:
    August 17th, 2011 at 10:14 pm

    Fasanating stuff – thats why i love this site! thx guys :applause:

  31. avatar Kat says:
    August 17th, 2011 at 10:15 pm

    Reply to Timeo @ 10:11 pm: Fact is the Lions at the time did make huge profits and invested it in Australia. They were winning everything so had no need to invest in better players etc.

  32. avatar Timeo says:
    August 17th, 2011 at 10:19 pm

    Reply to Kat @ 10:13 pm:

    If (big if) a stadium is sold for a profit, why on earth would the clubs that control 50.1% of the voting rights give half the money to the partner as a profit?

    At best they’d use it to improve the rugby. At worst they’d use it to re-stock their bars.

  33. avatar Timeo says:
    August 17th, 2011 at 10:20 pm

    Reply to Kat @ 10:15 pm:

    Then they should have invest it in their clubs. Rugby fields, club houses, gyms and so on.

  34. avatar Kat says:
    August 17th, 2011 at 10:22 pm

    The land Newlands Stadium is standing on is worth a fortune. The current infrastructure not. WP will never sell that land. They will be far better of redeveloping that land (turn it into a shopping complex for example in partnership with the likes of Old Mutual Properties etc). They will then get a substantial income on an ongoing basis from something other than rugby and the land will always remain their property. That is if they were to move to Cape Town Stadium.

  35. avatar Timeo says:
    August 17th, 2011 at 10:24 pm

    Reply to JT_Proooooovince! @ 10:14 pm:

    So JT, if your team was popular enough that all of Innsbruck showed up and pay to watch them play.

    What would you do with the money?

    Improve your facilities, contract a top player or two or invest in Australia?

  36. avatar Kat says:
    August 17th, 2011 at 10:26 pm

    Reply to Timeo @ 10:19 pm: They got R80 million up front from the partner. Why should the partner then not be entitled to a share of such profit?

  37. avatar Kat says:
    August 17th, 2011 at 10:29 pm

    Reply to Timeo @ 10:24 pm: The idea with an investment is to grow your money and that growth is then ploughed into all the stuff you mention. Makes sense if the investment is done correctly/wisely. The Lions invested unwisely and lost millions.

  38. avatar Kat says:
    August 17th, 2011 at 10:32 pm

    Whoever sold the investment to the Lions at the time made a fortune … and the Lions lost everything. Stupid people got hoodwinked.

  39. avatar Kat says:
    August 17th, 2011 at 10:33 pm

    Must go. Lekker slaap ou grote.

  40. avatar JT_Proooooovince! says:
    August 17th, 2011 at 10:48 pm

    Reply to Timeo @ 10:24 pm:

    invest and build facilities to improve the blood line (Youth etc.) in the area to be stronger and build the longevity of the club.
    Start with getting a HOME for example pitch, clubhouse, set up an academy etc.

  41. avatar Timeo says:
    August 18th, 2011 at 1:40 am

    Reply to Kat @ 10:32 pm:

    Exactly.

    They are a Rugby Union and should have stuck to investing in rugby. That is their expertise and that is where they would have get the best returns.

    As is was they won only 3 CCs and no Super titles under professional rugby, so really, the money was needed in Gauteng and not in Australia.

  42. avatar namboer says:
    August 19th, 2011 at 11:37 am

    Reply to DavidS @ 4:57 pm:
    Oom Dawie, ek dink daai laaste stuk is swak styl en ongevraagd voor. Dit het dooi niks met rugby uit te waai nie en ‘n man kan ‘n ander opinie as iemand anders hê sonder om sulke tipe snert rond te gooi. Wragtag.

    Dalk mis ek iets en was dit net ‘n grappie, maar selfs dan is dit ‘n redelik treurige ene.

    Ek hoef seker niks te gesê het daaroor nie, maar ek wou. So laat waai maar met die riposte, ek verwag niks minder as 3 paragrawe nie.

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