soccer field

Steinhoff, the cost to South African rugby?

March 12, 2019

The Steinhoff Saga, possibly the biggest case of corporate fraud in South African history, has dominated South African and global news headlines since the company’s share price collapsed on 5 December 2017, when its CEO, Markus Jooste, resigned and the company admitted to accounting irregularities.

In 2016, Steinhoff was ranked amongst the top 50 global shares to watch by Bloomberg. Prior to its collapse, Steinhoff operated in over 30 countries, employed 130 000 people and was the world’s second-largest furniture company after IKEA. Steinhoff was seen as a South African success story and the darling of the Johannesburg Stock Exchange (JSE).

Between 5 and 7 December 2017 Steinhoff's share and bond price plunged. Moody's downgraded Steinhoff bonds from investment grade (Baa3) to junk (B1). The South Africa's Public Investment Corporation (holding 7%), Coronation and BlackRock all made multi-billion rand losses. The European Central Bank sold its Steinhoff bonds after they had depreciated by 50%, while JPMorgan, Bank of America, Citigroup and Goldman Sachs all reported substantial loan losses. The South African Government Pension Fund lost approximately R20 billion ($1.4 billion).

As a result of Jooste's resignation, $11.4 billion was wiped off the value of the global furniture and clothing retailer. This in turn had a ripple effect on several other companies, including its subsidiary Steinhoff Africa Retail (Star). In seven days of trading, the JSE was hit by losses totalling about R295 billion ($24 billion), equivalent to 8% of South Africa's GDP.

In addition to massive financial consequences, the Steinhoff Saga has also negatively impacted South African rugby, in ways which cannot yet be fully appreciated.

The small town of Stellenbosch, surrounded by vineyards and rolling hills, is the location of Steinhoff’s headquarters and is the place where Markus Jooste and many of Steinhoff’s senior managers first met in the late 1970s, while attending Stellenbosch University. So close was its link to the small picturesque town that this close-knit group of Jooste and Co. were often referred to as the Stellenbosch Mafia.

In support of it senior management’s Alma Mater, Steinhoff was the sole sponsor of almost all of Stellenbosch University’s sports teams and was the major benefactor for the University’s Rugby Club, Maties as its more commonly known. The Steinhoff logo was on everything from the University’s rugby posts to score boards, tickets and athletes’ uniforms. One could easily have mistaken Stellenbosch University for a Steinhoff Campus.

Since its collapse, Steinhoff had to withdraw its sponsorship at Stellenbosch University. Athletes were forced to unstitch its emblem from their jerseys and ground staff had to remove the posters and signs that adorned the campus. The University Rugby Club which is the largest rugby club in the world by number of players and teams even had to reprint tickets to its games.

It wasn’t only Stellenbosch University that benefited from Steinhoff’s sponsorships. South Africa’s 2017/2018 World Series winning rugby sevens team, the Blitsboks, were sponsored by Steinhoff. The team are also based in Stellenbosch of all places. It’s no wonder that Stellenbosch is referred to as the home of South Africa rugby. The Stellenbosch University Rugby Club consists of more than 50 teams and has over 1300 registered players. The club has produced more than 175 Springboks and 15 Springbok captains.

In addition to its sponsorship of the Blitsboks and Maties, arguably the most important rugby club in South Africa, Steinhoff was also the largest sponsor of the Varsity Cup, South Africa’s premier universities rugby tournament. The tournament launched in 2008 and has had 45 players who have gone on to represent the Springboks. Since its inception, Steinhoff has been the tournament’s main benefactor and organiser. Many of the tournament’s administrators were also Steinhoff employees. As a result of its Varsity Cup sponsorship, Steinhoff sponsored more than 200 rugby team across 17 universities, which meant they were supplying more than 4500 Steinhoff branded rugby jerseys each year.

It’s difficult to accurately determine the extent that the Steinhoff Saga has and will continue to have on South African rugby. What is clear however is that three major Springbok feeder structures have lost a very important funder. While all three structures have managed to find alternate sponsors, it’s understood that the value of their sponsorships have decreased markedly. It will remain to be seen the full extent on South African rugby.