SBJ/Jan. 6-12, 2014/Marketing and SponsorshipPrint All
Ari Emanuel watches the Lakers with son Leo and recording artist Rihanna, a WME client.
Photo by:GETTY IMAGES
Forstmann, whose company Forstmann Little bought IMG for $750 million in 2004, shot the proposal down. No way. Not any time soon. IMG would be far more valuable after a few more years of operation.
Last month, both men were proved right. William Morris Endeavor paid $2.4 billion for IMG. The deal gave Emanuel the company he wanted and gave Forstmann Little investors a healthy return on their investment. It also brought an end to a tumultuous sales process that was punctuated by an internal power struggle among IMG leaders, public accusations that IMG divisions missed their revenue goals and confusion over IMG’s accounting practices.
“Everyone complained that this was a poorly run process, but those guys really rocked it with William Morris Endeavor,” said one source. “That was a great deal.”
Talk of a sale of IMG began immediately after Forstmann’s death in 2011. There were 15 limited partners that invested in Forstmann Little’s final fund, which bought IMG in 2004, and they had the option to force a sale of IMG after Forstmann’s death. But they extended the expiration of the fund until this year, setting in motion an auction process that began in August.
Mark MacDougall, a litigator with Akin Gump Strauss Hauer & Feld, ran the process. Forstmann gave MacDougall power of attorney before his death, and the attorney ran what many described as a rigid process that was as focused on getting the right price as making sure the company was sold in a way that couldn’t be questioned afterward. Work on the sale was often scheduled around his day job at Akin Gump, where he was working on a lawsuit in London.
“He was the key driver but very out of his element,” a source said. “Normally, people know the business and buyers, but he relied on others for that.”
Adding to that unique dynamic was tension in IMG’s executive ranks. Prior to his death, Forstmann promoted IMG Chief Financial Officer Mike Dolan to CEO. It was a job that IMG Sports & Entertainment President George Pyne had wanted. A natural friction arose between them.
Ted Forstmann, with Eli Manning in 2007, steered IMG away from athlete representation in his time leading the firm.
Photo by:SHANA WITTENWYLER
Most of IMG’s senior management, including IMG College President Ben Sutton, IMG Academies President Sam Zussman and others, reported to Pyne and aligned themselves with him.
The rift between Pyne and Dolan was visible to those inside and outside the company. In addition, sources said Dolan was unhappy Pyne wound up on IMG’s board after Forstmann’s death, and Pyne blamed Dolan for leaking a story that blamed IMG’s sports and college divisions for missing their revenue goals.
Tension also developed between Dolan and MacDougall. Dolan traveled to the Middle East to meet with a sovereign wealth fund interested in acquiring as much as 20 percent of the company. MacDougall did not like the idea that Dolan was shopping a portion of the company that was supposed to be sold in its entirety through an auction process, sources said.
In August, MacDougall led a process to select two banks to oversee the sale. Forstmann had close relationships with Goldman Sachs, JPMorgan and The Raine Group, and all of those banks thought they would win the business. But in the end the sales process went to Evercore and Morgan Stanley.
Tension developed between IMG CEO Mike Dolan and others both inside and outside the company.
Photo by:MARC BRYAN-BROWN
IMG management made it clear that it didn’t want another agency to buy the company, and it was most opposed to CAA and WME, a pair of agencies built on talent representation. IMG, under Forstmann’s direction, largely pulled out of the athlete representation business. Management’s stance didn’t mean those bidders would be eliminated, but it set the table for having to negotiate a deal that wasn’t contingent on management staying with the company after a sale.
Bankers began accepting bids for the company in late September. It trimmed a list of more than 35 interested bidders to 10 finalists and held management meetings with each.
Each sale presentation started with Dolan giving an
Photo:COURTESY OF AKIN GUMP STRAUSS HAUER & FELD
Each presentation lasted more than three hours, and they were scheduled in tight succession. There were moments where one group exited the room and walked in one direction around rectangular halls at Morgan Stanley’s offices while another group walked down the hall in the opposite direction and entered the room for the same presentation.
The bankers trimmed the list of 10 to four finalists in November. It was at this time that CAA was cut due to a low bid. The finalists were: WME and Silver Lake Capital; CVC Capital and Peter Chernin’s Chernin Group; Carlyle Group and IMC; and KKR.
KKR submitted one of the highest nonbinding offers, indicating it would pay $2.5 billion to $2.7 billion for IMG. The leveraged buyout specialist was a finalist for Learfield Sports, IMG College’s biggest competitor, which sold for more than $500 million last year, and it was considered by some executives on the sell side to be a darkhorse buyer.
The $2.7 billion number was leaked to the New York Post, which erroneously reported the bid came from CVC Capital and the Chernin Group. The price tag caught everyone by surprise and immediately upped the anticipation across IMG that the company would sell for at least that.
But KKR, which actually had submitted that bid, bowed out of the process a week before final and binding offers were due.
The company’s exit left just WME, CVC and Carlyle in play. Both WME and CVC had shown the most interest in the company to date. The detail of the questions they asked showed how serious they were. One asked an executive with IMG Media what kind of flame retardant the company had to protect its video archives in the case of a fire.
“Helium,” an IMG Media executive said.
“What kind of helium?” the potential buyer asked, to the surprise of people in the room.
It was during the management interview process that Emanuel began to win over IMG management. He projected a far different image of himself than the fictionalized version from HBO’s “Entourage,” where he was the inspiration for Ari Gold. Unlike Gold, who actor Jeremy Piven portrays as aggressive and bombastic, Emanuel came off as curious and subdued, qualities that ran contrary to his reputation. He also liked the college business despite not knowing much about it.
Just before final bids were submitted, bidders publicly questioned IMG’s financial statements. Forstmann Little said IMG this year would earn $200 million earnings before interest, taxes, depreciation and amortization (EBITDA). But in a story leaked to Bloomberg, bidders argued that the joint venture business should be reduced by $19 million and nonrecurring revenue in the college business should drop earnings another $20 million. Doing so would take total EBITDA from $191 million to roughly $150 million.
“There was a lot of funky accounting and no one could get comfortable with the numbers,” a source said. “That led to a divergence of views on what IMG was worth. It wasn’t a divergence of multiple. It was a divergence on a multiple off of what.”
Final bids were submitted Dec. 13. WME put in a nearly $2.4 billion bid. CVC put in a bid valued at $1.9 billion that would have required some IMG shareholders to retain a 20 percent stake in the company. And Carlyle submitted the lowest bid, a move that some interpreted as an effort to get IMG on the cheap if concerns about the EBITDA scared off other bidders.
George Pyne led the push into college sports, and most senior management reported to him.
Photo by:GETTY IMAGES
In the end, WME was able to offer more than CVC because it saw more efficiency between its business and IMG. CVC would have been buying IMG and operating it as it is. It saw about $30 million to $40 million in costs it could cut from the business. But WME plans to roll it into its existing operations where it believes it can cut as much as $100 million in costs and boost total EBITDA of the combined company to more than $350 million.
The deal was announced Dec. 18. Emanuel and his co-CEO Patrick Whitesell didn’t celebrate. They went straight to work, flying to Winston-Salem, N.C., to meet with staff at IMG College and London to meet with the group at IMG Media.
From the time Forstmann bought IMG in 2004, the company has operated under a certain amount of tension, knowing it would be sold in the future. Nobody knew when. But they knew a sale was inevitable.
As the company marched toward that day, Forstmann, Pyne and others transformed IMG into a company that its founder, Mark McCormack, wouldn’t recognize. Athlete representation, which marked the start of the company, became a sliver of its overall business. Its media and college divisions drove its bottom line.
WME is poised to reshape IMG all over again. It plans to push the company back into talent representation, acquire more media rights and continue to grow its college business.
The deal won’t close for three to six months. When it does, IMG’s name will remain. But it will finally be part of Endeavor, just like Emanuel proposed five years ago.
Staff writer Michael Smith contributed to this report.
Editor’s note: This story is revised from the print edition.
Everyone wants to know what the new William Morris Endeavor/IMG will be called and what it will look like.
While all of those answers haven’t yet come to light, there are early indications of what IMG’s new owners intend to do with their $2.4 billion acquisition.
Once the deal closes in three to six months, WME co-CEOs Ari Emanuel and Patrick Whitesell will take over IMG operations. The impending transformation will completely change the look of the sports business.
According to multiple sources, what’s left of IMG’s agents, largely in media, golf and tennis, is expected to fold into WME’s talent representation. WME’s Jill Smoller, the agency’s primary sports talent representative, works with Serena Williams, Kevin Garnett, Andy Roddick and others.
IMG’s other lines — licensing, college, consulting, national sales, events and academies — likely will be brought together to form a WME sports division, sources said.
WME has offered to retain IMG Sports & Entertainment President George Pyne and IMG College President Ben Sutton. They were both expected to make a decision in the coming weeks about their future with the company. In a statement, Emanuel and Whitesell praised IMG’s management team and said the company’s “leadership across sports, fashion and media are a strong complement to our business.”
Sources said that Pyne and Sutton most likely would be put in charge of the sports enterprise. Emanuel will oversee all of the agents.
IMG Chief Executive Officer Mike Dolan is not expected to remain with the company. He declined requests for comment.
WME’s immediate focus will be on growing IMG Media’s business and expanding its talent representation. On the media business, which posted more than $70 million in earnings this year, WME sees opportunities to increase earnings by acquiring and creating more content. Emanuel is expected to be heavily involved in that aspect of the business because of his passion for it, sources said.
WME wants to push back into talent representation by recruiting new athletes and hiring additional agents, possibly through more acquisitions. It hopes to use its deep ties to the entertainment world to help it recruit players.
The company sees opportunities to replicate the success it has had with current client Michael Strahan. When the former Giants defensive lineman retired, WME arranged for him to join Fox’s NFL pregame show and replace Regis Philbin on “Live! With Regis and Kelly.”
IMG’s college business has grown from $10 million in earnings four years ago to close to $70 million in 2013. The 1,000-employee college division was formed through more than $300 million in acquisitions to buy Collegiate Licensing Co., Host Communications and Sutton’s former company, ISP Sports.
IMG College has grown to become close to 40 percent of the company’s overall earnings, and it’s the most foreign to WME’s leadership, which is why Whitesell and Emanuel have pushed to retain Pyne and Sutton. Pyne was the architect of IMG’s college business, and Sutton has led it since IMG acquired ISP in 2010.
IMG College has expanded from a multimedia rights and licensing business into ticketing, seating and fundraising. Those new lines represent close to 12 percent of the earnings in the college division, and they’re expected to spur further earnings growth in the future.
There also could be the possibility for further expansion into the college business, most notably in digital rights, where IMG typically outsources those rights to the CBSSports.com College Network or NeuLion.
In the meantime, IMG has told its college clients that it’s business as usual.
Other lines of business within IMG are more likely to see a shake-up in the near term.
Presently, the tennis and golf businesses operate in their own silos. That almost certainly will change. WME is said to see an opportunity to cut costs out of the business lines by separating event management from talent representation and letting an event management group run golf, tennis and all of IMG’s other events.
Based in Bradenton, Fla., this 400-acre complex hosts more than 30,000 athletes a year who spend their weeks, weekends or summers training in tennis, golf, soccer, baseball, football, lacrosse, basketball and other sports. There’s also a year-round K-12 school that prepares students who are training to be top athletes. Andre Agassi, Maria Sharapova, basketball’s Michael Beasley and soccer’s Michael Parkhurst are among today’s sports stars who trained there.
Though it’s one of the newest areas of the company’s business, it’s considered to be one of its strongest. IMG said Dec. 17 that the college division generated $483 million in revenue in 2013. The company built the division by acquiring Collegiate Licensing Co. and Host Communications in 2007 and ISP in 2010. It has rights to more than 75 properties, including Georgia, Kentucky, Michigan, Ohio State and Texas, and two conferences, the SEC and the MAC.
The company has a staff of more than 125 people that provides sponsorship marketing advice to more than 50 corporate clients worldwide. Its roster of clients, which includes Allstate, British Airways, Coca-Cola, GE, Visa and others, spends more than $2 billion on sponsorships annually. The consulting group does everything from strategic planning and negotiation to activation and hospitality management.
The company distributes more than 21,000 hours of content from 400 events to broadcasters worldwide. It has offices in 21 cities on all seven continents. It also has video archives that include classic Premier League matches, the PGA Championship, Wimbledon and a host of other events.
The company manages some of the biggest fashion shows in the world, including New York, Milan, London and Tokyo. It also has a consulting division and a licensing group that works with Vera Bradley and Perry Ellis. Its management division represents Kate Upton, Miranda Kerr, Kate Moss and others.
The company owns and manages a host of events across sports ranging from surfing to cricket and figure skating to tennis. The best-known properties that it owns include the ATP Sony Open, the U.S. Open of Surfing and Smucker’s Stars on Ice. It also operates 15 PGA and LPGA events, and manages cricket’s Indian Premier League and the Chinese Super League, a 16-team soccer league. It recently invested in starting a pro basketball league in India.
The company largely withdrew from the talent representation business over the last eight years, though it still represents some of the biggest names in sports and entertainment, handling endorsements for Peyton and Eli Manning, Danica Patrick, Justin Timberlake, Taylor Swift and others.
WME: Beverly Hills, Calif.
Silver Lake: Menlo Park, Calif.
Ari Emanuel, Co-CEO
Patrick Whitesell, Co-CEO
James Davidson, Co-founder, managing partner and managing director
Glenn Hutchins, Co-founder
David Roux, Co-founder
Egon Durban, Managing partner and managing director
Mike Bingle, Managing partner and managing director
Kenneth Hao, Managing partner and managing director
Greg Mondre, Managing partner and managing director
Note: Mark Shapiro, a former ESPN executive, served as an adviser on the IMG purchase.
Motion Pictures and Film
SILVER LAKE DIVISIONS
Silver Lake Partners
Silver Lake Sumeru
Silver Lake Debt Strategies
Silver Lake Kraftwerk
SILVER LAKE PORTFOLIO (INDUSTRY)
Alibaba Group (e-commerce websites)
Allyes (online media)
Avaya (enterprise communications solutions)
AVI-SPL (video communications solutions)
BlackLine Systems (enterprise accounting software)
Dell (PC and enterprise solutions)
Eka (commodity management software)
eRecycling Group (mobile device trade-in and reuse)
friedola®Tech (recycled lightweight plastics)
Gerson Lehrman Group (expert consultant network)
Global Blue (transaction processing)
Go Daddy (web hosting and domain registration services)
Groupon (collective purchasing)
Hillstone Networks (network equipment)
Intelsat (fixed satellite services)
Interactive Data Corp. (financial market data)
IPC (communications solutions)
Locaweb (hosting and cloud computing)
MedSeek (health care IT)
Mercury (merchant acquiring for integrated payments)
Mobile Messenger (mobile payments)
MultiPlan (health care cost management)
NXP (silicon solutions)
Opera Solutions (data analytics software and services)
Sabre (travel distribution solutions)
Serena (change management software)
Smart Modular (memory systems and solid state drives)
Spansion (flash memory solutions)
SunGard (software and processing solutions)
Talend (open source data management software)
Vantage Data Centers (data centers)
Velocity Technology Solutions (enterprise cloud application hosting)
Virtu Financial (electronic market making)
William Morris Endeavor (entertainment and media)
Zynga (online social games)
— Compiled by Brandon McClung, SportsBusiness Journal research
WME hopes to cut more than $100 million in costs from IMG’s business, according to sources familiar with its plan.
WME’s earnings before interest, taxes, depreciation and amortization (EBITDA) is $90 million, and it hopes efficiencies between its business and IMG, which has an EBITDA of $191 million, will allow it to boost the combined EBITDA from the two companies to more than $350 million.
“The challenge will be making it work financially,” said David Falk, a former chairman at SFX Sports Group. “Ari is as talented as anyone I know, so I am rooting for him.”
The company’s success will be contingent upon blending two distinct cultures and two very different companies.
IMG has more than 3,500 employees and 130 offices worldwide. Its primary offices are in New York, London, Cleveland and Florida, and its biggest businesses are IMG Media, IMG Sports & Entertainment and IMG College. Talent representation is no longer the focus of its business.
In contrast, WME is defined by its talent-representation business. The company, headquartered in Beverly Hills, Calif., with offices in New York, London and Nashville, represents some of the top names in film and television, including Robert Redford, Emma Stone, Christian Bale, Martin Scorsese, Aaron Sorkin and others. Its music group works with Tom Petty, Adele and Blake Shelton, and its literary clients include Malcolm Gladwell and Facebook’s Sheryl Sandberg.
“Integrating these two companies — if that is the plan — is difficult,” Octagon CEO Rick Dudley said. “Culture and business models in sports and entertainment are different. Not necessarily better, but different.”
Momentum CEO Chris Weil agreed, adding, “The sports culture is a little more relationship-based and not quite as cutthroat as the Hollywood culture.”
Staff writers Daniel Kaplan and Terry Lefton contributed to this report.
The acquisition of IMG by William Morris Endeavor shifts the center of the sports industry from New York to Los Angeles where Creative Artists Agency, Wasserman Media Group and now WME-IMG are headquartered. It also sets the stage for a more heated rivalry between entertainment industry competitors CAA and WME.
“This creates instant credibility in sports for WME and a two-horse race with CAA as the leading entity to harness the power of sports and entertainment for their clients,” said Michael Neuman, managing partner at Scout Sports & Entertainment.
With a powerful position in Hollywood, CAA jumped into the sports business in 2006. It now employs more than 150 people in sports and represents more than 800 athletes and coaches. CAA Sports’ agents include NFL heavyweights Tom Condon and Ben Dogra, baseball agent Brodie Van Wagenen and Olympics agent Lowell Taub.
Condon is a former IMG agent and was part of a host of agents who left the company following Forstmann Little’s acquisition of IMG. Under Chairman Ted Forstmann, IMG moved out of the talent representation business. It still represents Danica Patrick, Novak Djokovic, Venus Williams, Maria Sharapova and Peyton Manning (for marketing), among others, but its roster is much smaller than it used to be.
WME wants to push back into the talent representation business. Jill Smoller, who heads WME’s sports group, already works with Serena Williams, Kevin Garnett and others. WME co-CEOs Ari Emanuel and Patrick Whitesell want to expand that roster in the months and years ahead. Doing so will escalate their competition with CAA, which has taken a lead in that area of the sports business.
“These big agencies — CAA, William Morris, WMG, Excel — will be battling it out galactically for the big stars, the way ICM, CAA and [William] Morris battle it out in Hollywood for the big acting and directing talent,” said David Falk, a former chairman of SFX Sports Group.
Staff writer Terry Lefton contributed to this report.