Giants are emerging in the sports marketing landscape with multi-billion dollar agencies coming to the fore. Frank Dunne looks at how the arrival of the newly merged forces has affected the balance of power in the sports industry.
Since the beginning of 2014, WME-IMG, Wanda and Infront and WPP’s link-up with Two Circles have forced the rest of the industry to sit up and take note. The rivals have been forced to act, with some branching out into unknown territories, while others have gone a step further by changing their identity in order to keep pace with their new heavyweight competitors.
Despite changes in agency ownership, the game is the game, according to many of those working on the front line of the sports marketing industry. There are signs, however, that below the surface the tectonic plates are shifting in a way which will have far-reaching consequences.
If you were to draw up a hierarchy of the players in the sports marketing industry today it would look broadly similar to that of three or four years ago. The same majors, most of the same second-rank agencies, and many of the same specialists, advisers and consultancies.
Yet the 18-month period from the beginning of 2014 to the summer of 2015 has been one of profound change, with a strong sense, as summer turned to autumn, that the rate of change might be about to accelerate – and take some unpredictable turns – as a consequence of the liberalisation of the Chinese economy and that country’s decision to embrace the commercialisation of sport
This period of change began with the $2.35bn sale of the biggest and longest established sports marketing agency, IMG, by its venture capitalist owners Forstmann Little to United States talent agency William Morris Endeavor (WME) in a deal funded by WME, venture capitalists Silver Lake and Mubadala Development Company, the investment arm of the Abu Dhabi ruling family.
In July, another industry giant, Infront Sports & Media, also changed hands, when Bridgepoint Capital sold the company to Chinese conglomerate Dalian Wanda for €1.05bn.
A few weeks later, Shanghai Oriental Pearl, a subsidiary of Shanghai Media Group (SMG), and China Media Capital, a private equity fund run by former SMG leader Li Ruigang, jointly acquired a five-per-cent stake in the agency from Dalia Wanda.
The ownership of a third major agency – MP & Silva – has also been the focus of much industry attention. Speculation has been rife for over a year that a big fish in US private equity circles was about to bite but for the moment there appears to be more circling than sinking of the teeth. In the meantime, co-founder Andrea Radrizzani swapped a chunk of his equity in the agency for rights plus cash with his fellow co-founder Riccardo Silva to fund his Eleven Sports Network channels.
There were failures too in this period, most notably those of Kentaro and Medge Consulting Sports. And there have been questions about the long-term survival chances of the three agencies most heavily implicated in the Fifa football scandal: Traffic Sports, Full Play, and TyC Sports.
The ramifications of the FBI investigation into football corruption, and the likelihood that it will expand, could yet be the single biggest factor in changing the way business is done in the industry, though it is likely to be in ways that are not visible to external observers. One possible negative outcome is that US private equity houses start getting cold feet about possible investments.
As one insider put it, “the US authorities and the global banking system have red-flagged anything to do with sport. The Swiss authorities have red-flagged anything to do with sport.
This will extend around the world. After the Fifa scandal there are a lot of private equity guys who have concluded that it is not worth being pictured on TV in an orange jump suit.” If nothing else, due diligence on intermediaries looks set to become a far more forensic activity.
The sector has, however, seen the arrival of two new entry players who could yet have a big say in the shape of the market in the coming years in Chinese media company LeTV and WPP-backed agency ESP Properties. Allied to the investments of Dalian Wanda and venture capitalists such as Silver Lake, these developments point to an underlying confidence that the sector is primed for continued growth.
There is no shortage of industry experts who see an upward trajectory for the sports industry and the sports market sector for many years to come.
A director of one of the major agencies argues that all the macro-economic factors are positive right now.
“There is huge liquidity in the market and there is a lot of M&A (mergers and acquisitions) activity out there, not just in our sector but everywhere in the world,” he said.
Karl Bistany, president of the Octagon CSI agency from 1996 to 2004 and now a media rights adviser, said that the sports marketing ecosystem was big enough, and expanding rapidly enough, to house its biggest beasts without a head-on confrontation.
“Margins have been squeezed and the real fat dollars are going straight into the rights-holders’ pockets,” he said, “but the overall market is growing exponentially. The sports marketing universe keeps expanding, the pie gets bigger.
There is still a lot of work to be had and a lot of revenue to be had because there is still a demand for agency expertise out there. And the market is big enough to sustain several big players. So far, for example, Infront and IMG have both been able to grow without taking chunks out of each other.”
Price of Passion
For Rick Dudley, president and chief executive of Octagon Worldwide, the differentiator behind that growth can be summed up in one word: passion.
“We are talking about content about which people are passionate,” he said. “It talks to who they are and what they think about day and night. If you then consider that we live in a fragmented world, and have a platform that delivers an audience in real time – you can’t TiVo it or time-shift it – you see an area of growth.
“The potential for growth is what draws in private equity houses who can see substantial returns being made in a relatively short space of time. It’s why people are investing and getting involved in the sector, including the hedge funds, whether they are Silver Lake, TPG [shareholder in CAA] or whoever. They see growth. We like to see investment all around, even if it’s in our competitors.”
And there is no end in sight right now to that growth.
So far, for example, Infront and IMG have both been able to grow without taking chunks out of each other
“Experts have been thinking that the price tags would flatten out for years. But it’s just continuing to go up. It’s a great way to reach audiences, and remains an impactful marketing platform,” he said.
The sports boom provides more than just a medium-term return for private equity players.
For industry players with roots in other sectors, it offers a fresh path to growth where core business activities have come under stress, whether that be the entertainment industry (WME, CAA), the publishing industry (Lagardère) or broadcast media (Discovery Communications.)
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