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SBD Global/November 20, 2012/Franchises

Rabbitohs Fans Could Become Shareholders, Thanks To Russell Crowe Selling His Stake



South Sydney fans will get a chance to buy Russell Crowe's share of Rabbitohs.
Fans of the National Rugby League club South Sydney Rabbitohs, often "regarded as the people's club," could have "the chance to become shareholders" in the club, following the decision by actor Russell Crowe to sell his stake by the end of next season, according to Stuart Honeysett of THE AUSTRALIAN. The concept, similar to the NFL Green Bay Packers, was floated by Souths Chair Nicholas Pappas Monday "as one of the solutions available to members," with the club being worth "anything from A$7M ($7.3M) to A$14M." Crowe and co-Owner Peter Holmes a Court paid A$3M for it in '06. Pappas and CEO Shane Richardson stressed that "it was business as usual despite the club facing life with Crowe when he withdraws his financial clout." Additionally, Crowe "may not be the only owner heading for the exit, with Homes a Court expected to decide by the end of the week whether he will follow suit." The pair took 75% ownership of the club in '06 (THE AUSTRALIAN, 11/20). In Sydney, Brad Walter noted the value of the 75% stake "is difficult to ascertain," as the money Crowe and Holmes a Court paid in '06 was during "a time when the Rabbitohs were struggling to pay their players." The club is "now predicting a A$1M profit" next year. However, Souths also carries debt of A$6M "from loans given to the club by Crowe and Holmes a Court to cover losses incurred between '06 and '08." A source close to Crowe and Holmes a Court said that while the club was now "much more valuable than when they bought it, that was unlikely to be a significant factor in determining the sale price." It has also been suggested that Crowe's "preference would be to sell the club back to its members as he is a life-long" Rabbitohs fan, "who only became involved to keep Souths alive and not for financial gain" (SYDNEY MORNING HERALD, 11/20).

WHEN ONE DOOR CLOSES...: In Sydney, Tim Boreham wrote the sale "opens the way for either another equally impassioned private investor to step forward" or for the shares to sold "to the devoted 22,5000 members." Another gambit is a "public listing, although the rocky public record of listed sporting plays globally suggests this could be the last-resort option." According to "those familiar with valuing sporting club assets, the latter approach is hazardous because the usual valuation disciplines are clouded by other variables, such as supporters' passion." Investors "pay more than they really should." Brand Finance Dir Tim Heberden said, "There's a bit of a chequered track record. In terms of methodology they're similar to valuing other entities in that you look at the cashflows they are expecting to generate." Heberden added: "But once you get private investors you have qualitative considerations, whether it be your love of the club or love of the spotlight" (THE AUSTRALIAN, 11/20).

WHAT THE NUMBERS SHOW: In Sydney, Paul Kent noted Pappas described Souths as the "envy of the code." Richardson explained with an example, saying that the Rabbitohs "continue to be profitable in the tough Sydney market." Richardson said, "This year is the fourth year that we'll make an EBITA profit, a cash flow profit." An EBITA profit is earnings before interest, taxes, depreciation and amortisation, and the club's true finances "are not quite so rosy." The club's last annual report revealed "the club recorded an A$864,225 loss last year, amassing A$10.6M in liabilities against A$4.6M in assets." While it has often been stated Crowe and Holmes a Court poured A$11M "of their own money" into the club, the A$6.15M was a loan, at more than 9% interest, initially due to have been paid Sept. 30." Unable to meet the payments, "the club renegotiated the loan." Repayments are now scheduled to begin on Oct. 31, 2015 and will continue for the decade after that. Before renegotiation, if Crowe and Holmes a Court had insisted in calling in the loan, "it almost certainly would have sent the club broke" (TELEGRAPH, 11/20).
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