A little more than a year after closing a "blockbuster transaction" to acquire IMG and its IMG College business, WME is "busy mending strained client relationships, dealing with inflated projections inherited from the previous owners of 55-year-old sports agency," according to James Rainey of VARIETY. IMG-WME is now "facing broad structural and secular changes that were squeezing the margins of the very division that was billed an earnings champ" during the competitive auction process." Analysts had predicted the "real revenue booster-rocket inside the new super-agency would be IMG College -- a less-glitzy business unit, but one that would churn out millions of dollars by helping university sports programs secure rich media rights and licensing deals." Today, IMG College is "fighting to repair relations with some clients, confronting formidable new competitors, and coping with educational institutions that increasingly are thinking about dumping agency middlemen in order to cut TV, radio, branding and merchandising deals on their own." Sources said that IMG College's profits "have fallen far short of projections made before" the May '14 merger with WME, with EBITDA of about $60M last year, compared with the $90M projected for '14, and the more than $100M envisioned in '15. A consultant who reps many college clients said, "IMG College will still make money, but there isn’t as much promise as there was before.” However, WME-IMG reps "sharply dispute that assessment, noting that they still have long-term contracts with 80% of America’s top university sports programs."
NOT TO BE WRITTEN OFF: Even critics "agree that IMG College remains a formidable business." But colleges "increasingly are fighting to keep a bigger slice of the pie, so that they can build mega-stadiums, hire star coaches and field the winning teams their fans demand." IMG until recently "had only one large competitor in the field, Learfield Sports." The two agencies "still represent nearly 90% of the 65 schools that make up America’s five most powerful sports conferences." But some college clients "have come to believe that private equity control of the agencies has led to cost-cutting and bottom-line imperatives that do not serve them." What "could be more problematic in the long term is a fundamental change that some college presidents and athletic directors are demanding: They want to keep for their schools money the intermediaries are now banking." Arizona State Univ. last October "kicked out IMG and took the business inhouse, saying the agency had failed to maximize revenue for the university." But the big agencies "are also being challenged by upstarts like JMI Sports." In April, WME’s "archrival, CAA, bought another small but growing competitor, Atlanta-based sports licensing agency Fermata Partners" (VARIETY, 7/14 issue).
