SBJ/May 19-25, 2014/Marketing and Sponsorship

Key IMG executives commit to stay

Pyne, Sutton will remain aboard; WME prepares for potential IPO

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IMG’s current executive team will stay with the company and assist in efforts to take it public within the next few years, ending months of speculation on the future leadership at the talent and marketing agency.

IMG Sports & Entertainment President George Pyne, IMG College President Ben Sutton and IMG Media President Michel Masquelier are finalizing agreements to remain with the company in the run-up to an expected initial public offering. All three executives, who were considered key because of their history and understanding of IMG’s business, will report to WME-IMG co-CEOs Ari Emanuel and Patrick Whitesell.

Former ESPN executive Mark Shapiro will remain as a special adviser and consultant on the IMG business, according to several sources. He advised WME during the sales process and, while he was expected to have a significant position in the company after the acquisition, his role at this time is unclear.

Several senior IMG executives already have left the company since the merger closed two weeks ago, including CEO Mike Dolan; Knox Millar, senior vice president of human resources; and Jim Gallagher, senior vice president of communications. Dolan’s departure, in particular, is not a surprise considering the tension that existed between Pyne and Dolan that could be traced back to Dolan becoming IMG’s CEO in 2011, a position Pyne wanted.

Dolan last week was named interim CEO of Bacardi Limited. The other two departures are expected to be announced internally this week.

WME declined to comment for this story.

The question of who would run IMG has been an issue that’s dominated sports industry conversations since the sales process began last year. During a typical sale, the buyer reaches an agreement with the seller that is contingent upon management staying after the deal closes. But WME’s winning $2.4 billion bid for IMG didn’t include that clause, which created uncertainty at one of the sports industry’s biggest and most powerful companies.

By retaining IMG’s top executives, WME hopes to diffuse uneasiness among IMG employees. Companies typically see a lot of employee turnover during this type of merger when new management comes in to run the business. At a company like IMG, where a large portion of its business is based on relationships, significant departures could hurt its bottom line. Terms of their new agreements are not known, but Pyne will remain working largely out of New York City, Sutton in Winston-Salem, N.C., and Masquelier out of London.

Retaining IMG’s top executives also will help WME reshape IMG. WME plans to cut more than $150 million in costs out of IMG’s business, and Pyne, Sutton and Masquelier have the institutional knowledge to know where to make cuts and how the cuts will affect the business.

The cuts will be made with an eye toward increasing WME-IMG’s combined earnings to more than $500 million before taking IMG public, sources familiar with the company’s plans said.

Hitting that number will require balancing cost cuts with increasing revenue. The combined company’s earnings last year before interest, tax, depreciation and amortization were $292 million on $2.08 billion of revenue, according to financial documents that the company shared with bankers in February.

WME-IMG has a combined value of $3.5 billion and includes a variety of businesses, such as sports and entertainment representation, media rights sales, event management, collegiate licensing and digital advertising. It’s unclear how soon WME-IMG could be taken public, but the size and diversity of its business means it could hold an initial public offering as soon as management is ready, said Jay Ritter, a professor of finance at the University of Florida who focuses on IPOs.

“It’s largely a question of when [the shareholders] want to exit their ownership,” Ritter said. “The company is obviously way more than big enough to have interest from public market investors.”

The former IMG board two years ago explored the idea of taking the company public before putting it up for sale in 2013.

WME’s $2.375 billion offer beat out competing bids from CVC Capital and The Carlyle Group in December.

Private equity firm Silver Lake Partners owns 50 percent of the company, WME owns 47 percent and the Abu Dhabi-based sovereign wealth fund Mubadala Development Co. owns 3 percent of the combined company. Ritter said the decision to go public likely will come down to how early Silver Lake wants to exit its ownership of WME-IMG. The private equity company has been invested in WME since 2012.

“Private equity firms like Silver Lake need to exit an investment at some point,” Ritter said. “Their limited partners put money into investments with the expectation that money will come out at some point, and this is a good exit strategy.”

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