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Despite costs, buying binge not over yet

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FRANK CRAIGHILL

Title: Deputy chairman
Company: Octagon
Age: 61
Education: University of North Carolina; University of Virginia Law School, 1964
Family: Wife, Marcee; three children: Amara, Frank and Hunter
Background: Awarded an Africa-Asia Public Service Fellowship by the Ford Foundation, which he used to work as a lawyer for the government of Lesotho in southern Africa for two years; returned to the United States in 1966 and clerked for a federal district judge before serving as a correspondent in Vietnam; drawing on his Vietnam experience, he co-authored the book “Ballots and Bullets”; returned from Vietnam in 1968 and joined the law firm Zuckert, Scoutt & Rasenberger in Washington, D.C., where he worked as an associate; co-founded Dell, Craighill, Fentress & Benton in 1970; the company became ProServ in 1976; co-founded Advantage International in 1982, which today is part of Octagon.

Frank Craighill, Octagon's gentlemanly patriarch, has as much claim to creating the sports marketing agency business as we know it as anyone else alive.

As a young attorney in 1970, he teamed up with Donald Dell, Lee Fentress and Ray Benton to create Dell, Craighill, Fentress & Benton, one of the first sports management firms. It evolved into ProServ in 1976, and Craighill became its president.

He left ProServ six years later to co-found Advantage International. Industry consolidation has led to the retiring of both the ProServ and Advantage names in the last year, as ProServ is now part of SFX Sports Group and Advantage is part of Octagon, a full-service sports marketing agency owned by the Interpublic Group of Companies Inc.

Craighill now serves as deputy chairman of Octagon, after being promoted from president in February.

Street & Smith's SportsBusiness Journal's Andy Bernstein caught up with Craighill days after he returned from a trip around the world, visiting acquisition targets in Hong Kong and other far reaches of the globe. They talked about the sports marketing agency business in the 21st century and the unique challenges of moving ahead in the new media economy.

SBJ: Do you expect the widespread consolidation of the last few years to continue?

Craighill: Certainly from Octagon's point of view, the consolidation hasn't ceased. I think what you see is, first of all, a bit of strategic in-fill, or geographic in-fill. We feel a need to fill in our geographic gap so that we can truly provide a global service to our corporate clients. Then I think we'll see more strategic acquisitions in terms of potential vertical integration. For example, when we bought last year Brands Hatch Leisure Group, we really vertically integrated a number of our activities that already took place at their venues.

SBJ: What are some of the disciplines that you'd like to add to Octagon via acquisitions?

Craighill: Well, I think it's more likely that what we'll do is add extensions of our current disciplines. For example, Octagon CSI has the capacity to provide television programming in terms of production and archives and other activities. And I see us growing in that type of activity as opposed to new television activity. Although, of course, the whole Internet convergence thing will change the way they do business as well. I think we have come back into an era when content is going to be more and more important.

I think you will see us buying assets in the form of [soccer] clubs around the world. We can bring both our television and our marketing skills to that activity. So I think our growth is going to be centered in all of our core businesses.

SBJ: When you talk about buying teams, the prices have skyrocketed around the world. Is there still a return on such an investment?

Craighill: Sure. I don't think the prices have skyrocketed around the world, they have skyrocketed in the U.K. There are still some bargains to be had in Europe, France particularly, some of the German teams. We are going to be seeing in a couple of years a total restructuring in Brazilian [soccer]. I think that we and Roberto Muller and [Hicks, Muse, Tate & Furst Inc.] have all been looking at opportunities in Brazil and elsewhere in Latin America. I think there are going to be opportunities in Asia. [Soccer] is exploding in Asia with the FC programs and the World Cup going there in 2002 to Korea and Japan. I think there are tremendous opportunities available in [soccer]. And it's still the largest and the fastest-growing sport in the world.

SBJ: We've seen ISL buy up the rights to market certain properties like the ATP, and they and Host Communications are going after the NCAA rights. Can you imagine Octagon following that path and putting up huge guarantees to get rights to certain properties?

Craighill: Sure. We actually offered over 800 million Swiss francs [$465 million] for the television rights to the 2004 European [soccer] Championships. We ended up coming in second to the European Broadcast Union, but I think the Premier League is going to come up in the U.K. for television. Eventually the marketing rights for some of these major properties will come up, and I certainly see Octagon being a major player in those acquisitions. We were a major player in the ATP program, in fact we brought ISL into that program to be our joint venture property partner, because we thought it was going to be a big number. And then, quite honestly, we thought it got too big and so we withdrew.

SBJ: When getting into these huge rights guarantees, hundreds of millions of dollars, is there a danger of being over-leveraged?

Craighill: We've been very careful so far. And we do think it's a danger to be over-leveraged. And it's one of the extraordinary things that we are all witnessing. I can remember back in the '80s when ISL first formed and they paid 95 million Swiss francs for the European championships and the World Cup as a guarantee, and everybody thought they were absolutely crazy and, of course, they made a fortune on it. The numbers just get bigger, and the risks do get bigger, but the reward gets bigger when you get it right.

SBJ: Many of the major ad agencies opened interactive divisions years ago. I don't see a lot of sports marketing agencies doing the same thing. Do you think that sports marketing agencies are where they need to be in terms of the Internet, or is there some catching up to do?

Craighill: That's a hard one to answer because that requires an assumption about where the Internet is. You know, you develop a strategy and it's obsolete in three months in terms of where the Internet has come and gone. I do think there is a need to transform ourselves a bit, better using the Internet as a communications vehicle. I think our corporate clients are going to demand it and I think it's going to be very important in terms of the whole scope of our activities. And we are not using our own assets as well as we should be. It's one of the things that we are focusing on at the moment.

SBJ: Would you imagine that in the future Octagon would have an interactive division, or is it something that would be spread throughout the company?

Craighill: I think we'll have an interactive division.

SBJ: Is that in the works now or is that just for the future?

Craighill: We are working on that as we speak.

SBJ: I know that agencies face challenges on personnel ends from dot.com defections. Of course, Harlan Stone [former president of Octagon's marketing division] is just one of many examples. Is that a major challenge for Octagon and other agencies right now?

Craighill: I think it's a major challenge for not only Octagon and other agencies, but the whole advertising industry. And it's probably not limited to advertising, but I think that that's where we see it the most. It will be interesting to see what effect the recent correction of the stock market is going to have on that. But there has been this aura of take less money and a lot of stock options and go and take a chance of making your $100 million. And it's been something of a drain. Losing Harlan was not our first choice, as you might imagine. From our perspective, I think we have to make ourselves attractive to the next generation of employees, the so-called "N" generation, who are really looking at e-commerce and the Internet. And we've got to be competitive to get those people if we're going to grow for the long term.

SBJ: Does that mean that sports marketing agencies are going to have to alter their pay scales?

Craighill: I don't think it's really the pay scale so much, I think it's the nature of the communications and the activity. And then I think there is some pressure to be able to provide options in one form or another that would give people the chance for a better-than-average reward.

SBJ: I hear it's not just an issue for top talent, but that it's harder than ever to hire good entry-level people, and so the sports marketing agencies that have had the luxury of paying fairly low entry-level wages because it's an industry so many people want to get into now are competing with Internet companies for those same people. Is that a particular challenge for Octagon and other sports marketing agencies?

Craighill: I think that we for many years were the hot industry, and people were clamoring and beating on the door to work in the industry. That is changing a bit. Just the fact that the dot.coms are paying a lot of money puts a lot of pressure on companies.

SBJ: Have you already instituted changes in compensation?

Craighill: Nothing dramatic, but as I say, we are constantly looking at what we pay people and how we pay them. That could be bonuses, options, incentive plans — we look at all of those things.

SBJ: What kind of impact do you think broadband will have on the global sports marketplace?

Craighill: I think it will change it completely. I don't think we quite understand it yet, but as we get to a stage where we can truly provide quality video over the Internet, it could transform the distribution of sports programming.

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