Sports Direct has missed out on a chance to expand its business in Ireland after a court ruled that a management-led buyout should take over the struggling Elverys chain. The ruling is a disappointment for the British retailer, founded by the Newcastle United owner, Mike Ashley, who tried to elbow his way into takeover talks in January.

Sports Direct already owns a 50% stake of the Heatons department store chain in Ireland but hoped the acquisition of Elverys would help it get around restrictions on its sales of replica local rugby kit by the sports brand Adidas.

In a similar move to its restriction on supply of Chelsea replica kit to Sports Direct and other stores in the UK, the German brand intends to limit supply of the Munster rugby team kit, a bestselling range, to Heatons from this autumn.

Elverys has been on the market for months as its owners, John and James Staunton, try to settle debts with Ireland's National Asset Management Agency, the "bad bank" that took on property development loans after the financial crash.

A deal had been agreed with the management team, but after Ashley personally intervened with a higher bid, Ireland's high court appointed an examiner to lead a legal process to manage the sale of Elverys. Interested parties, including Sports Direct, had to submit investment proposals to ensure the survival of the business.

On Monday, the examiner, Simon Coyle of Mazars, an accountancy company, announced that the management team led by Patrick Rowland had been approved as the preferred investor in a move that should secure the future of its 700-plus employees.

A source close to Sportsworld, the Irish division of Sports Direct, said: "We put forward a compelling bid that was, in our view, in the interests of all stakeholders including the Elvery's employees, creditors and Irish consumers … The great news for Ireland is that the capital that was earmarked for this transaction will now be used to invest in Sportsworld, to develop the business organically."