Trying to ‘make noise’ in growth markets
|Since taking over as CEO of the company in November, Dolan has focused on global reach.
■ The question everyone asks about IMG is, “When is it gonna be sold?”
DOLAN: Not soon, and part of that reason is the trajectory of our growth. This was a 50-year-old company that really had done very, very little in terms of what I would call best business practices. We have put ourselves in a position where it is now a really well-run company, in terms of the quality of earnings, the quality of accounting, the quality of control and governance. So if we were to do something now, you’d be forgoing all of that profit growth and giving it away. So the question becomes, at what point do you monetize the investment made in the company? At some point, the investors, largely pension funds, will want to see some return. The question is, what is the right time?
■ So how will you determine when that right time is?
DOLAN: You look at the profit potential and see where you stand against the large [marketing] conglomerates out there as a proxy for a level of profitability. The other factor is determining what the maturity is of some of our joint venture arrangements. That begins to attract the attention of investors. The big issue is, how do you get money back to investors? There are three ways: You can sell the company outright, which people reflexively think is the answer. The second thing is, you IPO the company, like we did at Y&R. The third thing is you roll out the current investors and bring in new ones. That doesn’t preclude some current investors staying.
The renovation of the Estádio do Maracanã in Brazil is key to that country’s sports growth.
DOLAN: We had a huge number of calls when Teddy was ill. Everyone was thinking that a sale was automatic and that they could buy it cheap. That has really slowed down. There are still a lot of inbound calls, and what we say is, “We are not for sale.” Anyone who claims there are [sale] conversations going on is just blowing smoke. It is just not happening.
■ Have you explored a public offering?
DOLAN: No, it’s too early. Having gone through this with Y&R, and again with Viacom, when we spun off from CBS, there’s an enormous amount of work required to do that, and we are focused now on running the business. Once we make a decision on what to do, I am sure we will turn our resources to that.
■ So you are telling your investor group to wait because of anticipated increased growth and profits? What kind of growth are you projecting?
DOLAN: North of 20 percent a year, and what they say is, “Why would I give up that growth to anybody else?”
DOLAN: Ted hated the word agency. We position ourselves as sports experts. When we talk to people in Brazil or Turkey or India, the proposition is that we will help you build out a sports infrastructure in your country. We have people who understand all the technicalities in whatever sports, league and federation. When I was with Y&R, all the major global agency companies looked the same. There’s really no competitor with IMG’s reach and capability globally. The representation piece is critical to the brand and is still what everyone thinks of when they think of IMG. When you look at our total economics, it is a very small part of the new IMG.
■ How much is IMG College contributing to your bottom line?
DOLAN: Without giving specific numbers, since we are private, I’ll tell you that it is one of our two largest contributors of EBITDA in the company. It has a long way to go in terms of potential. Media is the second largest, though they flip-flop. Both have a lot of upside. The third piece is joint ventures, which report to me: China [with CCTV], India [with Reliance Industries], Turkey [with Dogus Group and CEO Ferit Sahenk] and Brazil [IMX with Eike Batista, chairman of EBX, IMG’s partner]. What you see in all of these fast-growing markets is that as economic activity increases, interest in fashion and sports increases as well.
■ What is your revenue split, foreign versus domestic, and what should it be?
DOLAN: It was 60 percent international before the acquisition of ISP. Now it is more 50/50. The big growth drivers over the next five to seven years will be in these joint ventures. Just take Brazil, for an example. We are now looking at a series of acquisitions there to fold into the joint venture. You’ve got the modernization of Maracanã [the Estádio do Maracanã in Rio] and, concurrently, there are four new Wembleys being built for the World Cup and the Olympics. We are involved in bidding on all four of them. The amount of business available in Brazil is just astounding. We bring a unique expertise to all of these markets. Turkey is the same kind of situation as Brazil. They are going to bid for the Summer Olympics and the economy is absolutely booming. If you look at India, we own, with Reliance, the rights to create a super league in soccer for the next 15 years. We have the rights [from the federation] to create an Indian basketball league, with Reliance, for the next 30 years. No one else has that. The NBA doesn’t have that.
■ Where are you on setting up that Indian basketball league?
DOLAN: We are looking at who is the right set of partners that we need or want to have. It’s a three-way dance; it is us, our partners at Reliance, and the third party, either the NBA or some other group, that would have to say this is something we’d want to be part of and what are the terms. The No. 1 sport in India is cricket, by far. But if you look at the demographics, people older than 35 or 40, around 80 or 90 percent will say their favorite sport is cricket. Under 40, only 50 percent will say that. There is a good infrastructure of [5,000- to 7,000-seat] basketball arenas, because of the Commonwealth Games they had a few years ago. There is a trickier set of issues when it comes to soccer pitches in India. There are probably half a dozen international-quality pitches and there probably needs to be double that in order to fill out the league to the right level.
■ When do you see profits out of your joint ventures in China and India?
DOLAN: The JVs take some time to ramp up. In the case of Brazil, I’ve been surprised at how quick we came out of the blocks. We’ve [hired] a management company, more is in the pipeline, and the developer of Maracanã will be selected by the government Sept. 1. By the end of the year, we could be in a position in Brazil where we could have four or five major pieces of business that will begin to show real revenues in 2013 and beyond. [The joint ventures] are all different. In the case of India, one of the big revenue sources will be the sale of franchises. People will be looking at what we were able to do with the cricket league, and we have had some exciting conversations with European clubs which will be part of this effort in India. I think we will be up and running in India with a soccer league by the end of this year and with a basketball league at the beginning of next year. So we are farther and faster in Brazil than with the other JVs, and close behind that is India, with China and Turkey just started.
■ What do you look for in setting up these joint ventures?
DOLAN: What used to drive Ted crazy was getting a fee for service only and not an equity interest. So all of our recent JVs are based on the premise that we want to be an owner with someone in the local market. We bring a unique kind of expertise to a place like Turkey. They are going to bid for the 2022 or 2024 Olympics. Their economy is booming, and a result of that Olympic bid will be that they are going to need more stadia and arenas, which plays to our expertise. Turkey is like Brazil, with a five-year delay.
■ Digital and social media are two areas where IMG is perceived as lagging behind …
DOLAN: We’ve been behind the curve. Ted had scar tissue about digital. The error IMG made was trying to build a big digital group internally. The error we made when I was at MTV was trying to acquire those companies. In most of the acquisitions, the guy who was the star was required to stay a year, and a day later they were gone. We have a small group focused on digital, and what we’re doing is reaching out to the digital community to see how they can work with us. We have a few things going on in college, like Silver Chalice, and we’ve done some e-commerce work with GSI. Beyond that, we are doing some things in fashion that are really focused more on digital and trying to see how we can leverage our presence in fashion there. What people want to do is buy what they see on the runway with e-commerce. How do we partner with people that can do that? We don’t want to buy digital companies or build the capabilities inside. Good digital people don’t want to work for Google or Facebook. You are kidding yourself if you think they are going to work for IMG. So we want to do seed investments and partner, but not try to fool ourselves into thinking that we are going to be a digital company or acquire those companies at some kind of ridiculous multiple.
■ You have no regrets on any of the expenses it took to set up IMG College?
DOLAN: When we acquired the companies to set up that business, our whole premise was that you’ve got this enormously attractive set of demographics, better demographics than the NFL, MLB, NBA. Talk to any CMO and they get it, but they want to know how to play in that. So our revolution is taking what has been a locally run set of marketing initiatives and professionalizing it. The key is bringing in and embedding people who have come in from the pro leagues, and we have invested there. We have seen growth in revenues and profits there and we expect to see significant increases in both, and in the margins going forward.
■ Other than college, where do you see the growth for IMG domestically?
DOLAN: We are looking at “bolt-on” acquisitions, things that are small and complementary. We have a great licensing business, and that is a mom-and-pop industry where our global structure would be a great backbone. We are looking at some bolt-on acquisitions in consulting, to build out what we’ve got and the set of offerings.
■ What is your global economic forecast and how will that affect your business?
DOLAN: I am no economist, but what I am hearing is that Europe will be low growth, or maybe higher in the Northern European countries and no growth to negative growth in the southern countries for the next 10 years. The expectations for the U.S. are low, single-digit growth, although better than Europe, until we have sorted through all of our economic and banking issues. You see headlines in some of the developing markets about “growth stalls to 7.9 percent” and you just laugh. You have countries like Brazil or places like Nigeria where there are millions coming into the middle class. There was a phrase they used at Pepsi when I was there: “Fish where the fish are.” You want to be in those growth markets, and that is where we are trying to make noise. The Holy Grail in IPOs is a company with Western governance, accounting and controls that has a lot of exposure to developing markets. That’s what we offer.