SBJ/July 28-Aug. 3, 2014/Colleges

Does IMG College face shifts in marketplace?

It wasn’t IMG College’s best month, and changes in the marketplace promise more competition in two areas where the company has traditionally been dominant — multimedia rights and licensing.

In a span of just over 30 days, IMG College lost the multimedia rights to the University of

SBJ Podcast:
College writer Michael Smith and Assistant Managing Editor Tom Stinson discuss the increased competition in the college multimedia and licensing space, why it's happening and what it means going forward.

Kentucky, lost the licensing rights at Kentucky and Miami, and endured some ugly news at Syracuse, which broke its contract to seek a new deal.

The loss of those rights, plus the potential increase in guarantees to retain Syracuse, could cost IMG College close to $5 million a year or more.

Among the disappointments for IMG College in July: Syracuse (above) broke its contract to pursue a new deal, and Miami chose to move its licensing business to Fermata Partners.
Photos by: GETTY IMAGES (2)

Parallel to those developments was the entry of two new competitors with deep resources — JMI Sports in multimedia rights, and Fermata Partners in licensing.

JMI Sports, led by former IMG College executive Tom Stultz, took the Kentucky multimedia rights away in a 15-year deal that guarantees the Wildcats $210 million. It is JMI’s first collegiate property, and it won the business in a head-to-head bid against incumbent IMG College.

JMI’s bid was $30 million more than the final offer from IMG College, which brought all of its big guns to meet with Kentucky officials at a formal presentation in April, including Patrick Whitesell, co-chief executive of William Morris Endeavor; IMG Sports & Entertainment President George Pyne; IMG College President Ben Sutton; and Hunter Nickell, the senior vice president who ran point on IMG’s bid. IMG and JMI presented separately to a seven-person UK committee that included Jason Schlafer from athletics and other UK officials from finance and development.

Even that show of strength wasn’t enough to counter JMI’s richer bid and deep ties the school has with Stultz, a Greenup, Ky., native. Stultz ran Lexington, Ky.-based Host Communications in 2004 when Host signed Kentucky to what was then a landmark 10-year, $80.5 million deal.

“There’s not really anything you can say IMG did wrong. It’s what Tom Stultz did right,” said AJ Maestas, president of Navigate Research, a firm that consults with more than a dozen universities to determine their value but did not work directly with UK. “He knows the multimedia rights business well and he knows the margins.”

The reality, Maestas and other industry experts said, is that IMG and Learfield, the two industry leaders, have undergone ownership changes in the last year and with that comes pressure to increase revenue and cut costs. WME acquired IMG earlier this year, and the Kentucky RFP represented IMG College’s first major proposal under new ownership. Learfield, which was acquired by Providence Equity Partners in September 2013, chose not to bid on Kentucky.

Those two goliaths in the market still represent 89 percent — or 58 of the 65 schools — in the five power conferences.

A spokesman said IMG College, which generated $487 million in 2013 revenue, made the most responsible bid it could, based on its knowledge of the UK property and future growth. IMG College officials would not comment further for this story.

“We set out to find the best value for the university,” said Schlafer, the senior associate athletic director who spearheaded the request for proposal and selection process. “Obviously, the dollar value was higher with JMI and they made a solid case for the kind of white-glove customer service that really made a statement to us.”

JMI’s deal with Kentucky, which will begin with the 2015-16 academic year, is believed to be the second-most lucrative multimedia rights deal nationally, behind Texas’ revenue-share deal with IMG College. Alabama’s recent 10-year joint deal with Learfield and IMG College is worth $16 million a year, but that contract includes rights — concessions, pouring rights, isotonic beverage, seat rentals and merchandise — not typically included in multimedia deals. Notre Dame’s multimedia revenue is a unique case because the school has its own TV contract with NBC.

“It’s a marketplace that’s really evolving,” said Oregon Athletic Director Rob Mullens, whose school outsources its rights to IMG College. “You really have to have an understanding of your value. The Kentucky deal definitely makes you pause.”

Perhaps just as important as the Kentucky outcome is the introduction of JMI Sports as a player in the multimedia rights market. Erik Judson, chief executive of JMI and a former Padres executive, said the San Diego-based firm will seek more deals where a premium property is at stake, like the one at Kentucky.

“The fact that there’s a new player in the market has given schools reason to pause and want to learn more,” Judson said. “That’s not just good for JMI Sports, it’s good for the market.”

But JMI will have its challenges. The difficulty in building a multimedia rights discipline is that schools rarely jump from one rights holder to a competitor, primarily because multimedia rights deals are generally long term, ranging from 10 to 15 years. That offers few opportunities for a newcomer like JMI to win new business.

The UK loss marked the first time that IMG College has lost a property to a competitor since IMG acquired ISP Sports in 2010. The last major school to jump from one rights holder to another was Northwestern in 2011, when Learfield won the rights from CBS Collegiate Sports Properties.

Not surprisingly, at least two other SEC schools, Mississippi State and Arkansas, were in talks to extend their multimedia rights deals but ended those negotiations in the wake of the Kentucky contract, wanting to take a closer look at the value of their rights. Arkansas is an IMG College client, while Mississippi State is with Learfield Sports.

“We have seen a consolidation of multimedia rights holders in the last few years, but with the introduction of JMI into the arena, some universities like ours have paused on extension talks to re-evaluate the landscape,” Arkansas AD Jeff Long said. “Competition is generally a good thing for the university.”

JMI’s commitment to build a small portfolio of big-school brands is similar to a strategy Stultz employed at Host, which had the rights to 14 schools, including Arizona, Kentucky, Tennessee, Texas, Michigan, Kansas and Nebraska. That will serve as something of a model for JMI as it attempts to deepen its presence in the multimedia rights space.

“Our goal is not to provide a one-size-fits-all approach,” said Stultz, who was at Host Communications and then IMG College from 2003 through 2011. “We’re emphasizing a top level of customer service, and that model dictates that it be done with a handful of premier properties. We’ll look for the right opportunities.”

To be clear, Stultz and Judson say JMI is not trying to replicate the Learfield and IMG College models. Learfield owns the rights to 90 schools; IMG College 80. In most cases, those firms will have the advantage in bidding for schools, Judson said.

But there will be cases where a school might find the services of a boutique firm like JMI attractive.

“We’re in the business now,” Judson said. “We’re another alternative.”

The significance of JMI’s robust $210 million guarantee to Kentucky, and the inclusion of a third major player in the multimedia rights market, “bodes well for other players in the market and for the schools,” said David Johnston, a co-founder of Rockbridge Sports Group, the firm that consulted with West Virginia on its multimedia rights deal with IMG College.

“It also affirms that you don’t have to be part of a larger network of schools to maximize your value,” Johnston said.
IMG College now finds itself deep into extension talks at Syracuse, where it is expected to commit an additional $2 million to $3 million more to the Orange’s annual guarantee of $4 million to keep those rights, industry insiders said, adding to the company’s expensive month.

Like the Syracuse deal and other extensions in front of IMG College and Learfield, it’s possible that future agreements will cost the rights holders quite a bit more, thanks to the Kentucky deal.

“Every athletic director in the country stopped and asked, ‘What does this mean for my value?’” said Rick Thompson, a former Learfield executive and UK administrator who now consults with schools. “They’re all looking at the Kentucky deal and saying, ‘Am I missing something?’ Did Kentucky just get lucky because of the timing and the relationship with Tom, or is this legitimately an industry-changing event? It’ll take time to understand it all.”

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