SBD/September 19, 2017/Colleges

Learfield, IMG College Close To Merger In Deal That Combines Industry's Biggest Players

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Learfield and IMG College have agreed to a blockbuster merger that will combine the two marketing and media behemoths in college sports, sources say. Learfield President & CEO Greg Brown will run the merged business, which will be a 50-50 split between the two companies, sources said. The merger is expected to be finalized in the coming days, but sources say that contracts have not been signed yet and both sides are working through the final details. The move will create the most dramatic consolidation of the fragmented collegiate industry by bringing the multimedia rights to 200 schools under one banner for the first time. Until now, a brand that wanted a truly national college sponsorship had to execute multiple contracts across different agencies because rights were splintered among six major rights holders, Learfield and IMG College being the two largest. Merging the two businesses will create the closest thing to a one-stop shop the college space has ever seen and, theoretically, make the unified company a much more effective sales engine for college sports. Combined, Learfield and IMG College will be a company worth close to $2B, industry analysts say. Because the companies are structured similarly with significant overlap, a merger could result in millions in cost-saving cuts that could enhance the bottom line. Learfield and IMG College each employ close to 1,000 people. The two companies will continue to operate independently until the deal closes. Both companies operate under private equity ownership, and sources say negotiations to put the two businesses together have been active at the highest levels. Learfield is owned by Michael Angelakis’ Atairos Group, which acquired the company last year for $1.3B. Silver Lake Partners, run by Managing Partner Egon Durban, is the majority stakeholder in WME-IMG. Both Angelakis and Durban, as well as Learfield’s Brown and WME-IMG’s Patrick Whitesell, have been involved in the talks, sources said.

SOLVING AN ONGOING PROBLEM: The merger for WME-IMG enables it to pivot away from the college business that has been such a riddle. Since WME acquired IMG in ‘13, the college division has undergone a series of leadership changes and property losses that stunted its growth, which led to consistent industry chatter about the state -- and the future -- of the business. Projections at the time of the sale four years ago had IMG College making in excess of $100M by now in EBITDA -- up from $66M in ‘13. Instead, annual earnings have sagged to $60M, sources said, in the most recent annual report. Losing the multimedia rights to Auburn, Cal, Georgetown, USF, Villanova and UCF, among others, has subjected IMG College to a series of body blows that damaged the bottom line as well as the perception of the company. Going into business with Learfield and turning the reins over to Brown allows WME-IMG to hit the reset button on the college division without completely unloading it. WME-IMG was approached at least one other time this year about selling off its college assets, but declined.

STILL A MAJOR PLAYER: It is easy to understand why WME-IMG might be reluctant to give up on college, despite its difficulty in growing the division. IMG College, which owns the multimedia rights at 75 schools and the licensing rights at close to 200 college properties, remains a massive force in the college space. In addition to working with blue-chip brands like Arkansas, Florida, Michigan, Ohio State, Oregon, Tennessee, Texas and UCLA, IMG College has deep ties with the NCAA as a sales agent and it owns the licensing rights to the College Football Playoff. In fact, IMG College has more Power Five schools than Learfield. All of that, plus a growing business in seating and ticketing, make IMG College’s assets extremely attractive for Learfield, which already owns the rights at 125 schools and is trying to develop its own licensing business. Additionally, Learfield and IMG College already are in business together on some fronts. IMG Learfield Ticket Solutions is a joint venture between the two. They also are partners on some college properties, like Alabama, where Learfield owns 80% and IMG College has 20%.

QUESTIONS STILL PERSIST: While both sides are ready to move forward together, the merger does present several questions and potential obstacles. First and foremost, what does it mean to the college clients? Most industry analysts believe the schools will not be happy because a merger eliminates one of the top two bidders for college rights. How will schools such as Arkansas and UCLA react after recently signing long-term extensions with IMG College? Also, what kind of scrutiny will the merger attract from the Department of Justice regarding antitrust laws? The DOJ spent several months looking into IMG’s ‘10 acquisition of ISP Sports before approving it. Any deal like this that combines two industry leaders with 86% of the market share in the Power Five is sure to draw attention, sources say. On the other hand, sources note a competitive marketplace, with Fox Sports, JMI Sports, Outfront Media and Van Wagner Sports & Entertainment also owning college rights. Schools have the option of operating their multimedia rights in-house as well. Of the 65 schools in the Power Five, Auburn (Fox), USC (Fox), Michigan State (Fox), Clemson (JMI), Kentucky (JMI), LSU (Outfront), Maryland (Outfront), Virginia (Outfront) and Notre Dame (free agent) do not have their multimedia rights with Learfield or IMG College.

WHAT ABOUT THIRD PARTIES? It also remains to be seen if the merger will affect ongoing negotiations, especially talks involving mega-brands. Notre Dame is currently seeking a third-party rights holder and both Learfield and IMG College have talked to the school. Meanwhile, Ohio State has been in a negotiating period with incumbent IMG College. Until the deal formally closes, it is business as usual, which means the new merger partners could still find themselves competing against each other for the time being.
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