For Nelligan, Learfield delivers the right deal
In a college sports marketing industry dominated by two power players — Learfield Sports and IMG College — T.J. Nelligan discovered his niche. He figured out a way that the New Jersey-based agency he founded in 1999 could make money by marketing the smaller schools.
While Learfield and IMG College attracted the elite brands in college sports with significant guarantees, Nelligan Sports struck deal after deal with midmajor and low-major schools, the kind that had been largely ignored by multimedia rights holders in the past. The agency did it by structuring profit-share contracts rather than paying the exorbitant guarantees.
|Louisville is the most lucrative of Nelligan’s contracts.
The two companies announced last week that Learfield had acquired Nelligan, making the newly enhanced Learfield the largest in the market, based on its 92 school deals. That’s more than IMG College’s 79, although IMG College does bring to the table 11 more schools than Learfield has from the five power conferences.
“The hardest part was letting go of a company that was my life,” Nelligan said of the sale. “This business has defined who I am. In the past, when I had talks like this and nothing happened, I was relieved. The Wall Street sharks don’t understand the mindset of an entrepreneur. I was happy to walk away. But this was a deal that was good for the employees and for our schools. That’s what made it fit this time.”
This wasn’t the first time that Nelligan had engaged in talks to sell his company. By his count, he had entered these types of negotiations five times with either individual companies or private equity firms.
But Plano, Texas-based Learfield was a company right in Nelligan’s wheelhouse, and vice versa. Learfield President and CEO Greg Brown had been friends with Nelligan for close to 25 years and they traveled the same college circles.
Nelligan had a pretty good idea of what to expect when Brown invited him to breakfast in mid-November. It wasn’t unusual that Brown wanted to get together, but previous meetings typically happened over dinner and, sometimes, a cigar at the Grand Havana Room in midtown Manhattan, not breakfast.
The quickest and clearest way to do that was through acquisition, and Nelligan was the most obvious target because of the depth of its school client list and how similar its multimedia rights business is to Learfield’s.
“Early on in our discussions with Providence, we identified some strategic opportunities that would be productive for our business,” Brown said. “Nelligan is consistent with the business we’re already in. This was right down the middle of the fairway for us.”
From that breakfast meeting, negotiations moved swiftly. The following week, just days before Thanksgiving, Nelligan met with principals from Providence Equity at the firm’s midtown office.
Later that night, Brown and Gardner sat with Nelligan at Grand Havana, the cigar club frequented by Rudy Giuliani, Alec Baldwin, Tiki Barber and other familiar faces. They talked for five hours, creating the parameters for a deal.
Nelligan outlined three must-haves: career opportunities for Nelligan’s employees to move up to Learfield’s larger properties; a commitment to increase resources and revenue for Nelligan’s schools; and a merging of cultures that would protect jobs and maintain “a family feel,” Nelligan said.
The merging of the two companies will increase Learfield’s employee count to 485, which includes 85 coming from Nelligan. Brown said that the amount of overlap was negligible and that he doesn’t expect layoffs.
“I’ve gone through several bouts with seller’s remorse,” Nelligan said from his office in Little Falls, N.J. “The hardest part for me was just the emotional piece of it. It’s hard selling a company you started from scratch. I choked up a little telling the employees.”
Nelligan’s clients range from the University of Louisville, which will become its only school in one of the five power conferences when it moves to the ACC this year, to the likes of Middle Tennessee State, Long Beach State and Fairfield. Nelligan lost Rutgers last year when the school paid $7 million to get out of its deal with four years remaining and seek a more lucrative arrangement. Rutgers, under the leadership of new Athletic Director Julie Hermann, signed a new deal last summer with IMG College.
Most of the multimedia rights deals Learfield and IMG College structure with schools from the five power conferences pay an annual guarantee. Nelligan’s contracts, however, share profits with the schools, a model that mitigates risk for the rights holder.
“The strength of T.J.’s company is the way his contracts are structured,” said Tom Stultz, the former Host Communications and IMG College executive. “He operates to maximize revenue and control expenses. Even though they’re not the largest schools in the space, he has some very lucrative contracts.”
The most lucrative of those is Nelligan’s deal with Louisville, which dates to 2001 when the Cardinals were still a fledgling program in Conference USA. Nelligan’s deal paid Louisville $2.5 million in 2012-13, which appears to be a bargain, given that most deals in the five power leagues range from $6 million to $12 million a year. The beauty of Nelligan’s deal is that the contract automatically extends when sales hit certain thresholds. Louisville, which has moved up through the ranks of the Big East and American Athletic conferences, officially joins the ACC in July.
“We’ve done a lot together and I’m really interested to see where we’re going to go with Learfield,” said Louisville Athletic Director Tom Jurich, who learned about the deal on Monday when Nelligan and his staff informed the ADs at the schools.
Before selling to Learfield, Nelligan was in the second year of an aggressive five-year business plan that focused on adding schools to increase overall revenue. During that time, Nelligan added 13 clients, mostly schools that didn’t have multimedia rights deals. Texas-Arlington, Louisiana-Monroe and Rhode Island were among the most recent signings.
“At the end of our five-year plan, we were going to look up and see where things stood,” Nelligan said. “I wasn’t looking to sell.”
Nelligan said he relied on Chicago-based Michael Gray and his team from the law firm Neal, Gerber & Eisenberg to work through the financial details. Learfield was advised by Deloitte Consulting, in addition to Providence Equity, while the Boston office of Weil, Gotshal and Manges closed the deal.
But it was Brown and Nelligan who crafted the deal points and sales price, which neither side would confirm. Industry experts estimated Nelligan’s earnings to be in the high seven figures to low eight figures annually.
Providence Equity bought Learfield for more than $500 million last year, and Learfield’s profits in 2012 were reportedly just under $40 million. IMG College, likewise, is going through a sale. William Morris Endeavor bought IMG, the parent company of Learfield’s chief competitor, last month for $2.4 billion.
Previously sold college sports agencies have ranged from $74 million for Host Communications to more than $100 million for ISP Sports. A once-robust industry ripe with competition is down to two dominant companies — Learfield and IMG College. CBS Collegiate Sports Properties has eight clients, while Front Row Marketing has 11 mostly midmajor and low-major schools.
“We’ve got more properties than anybody else in the industry now, and our employees and clients will have the resources of a bigger company in Learfield,” Nelligan said. “We’ll have more support, more research and more people calling on corporate America to maximize revenue.”
Still, Nelligan called it a sad day when he signed the contracts last week. It was in 1990 that he left his day job as an institutional sales and trading executive to start a radio network at St. Peters University in Jersey City.
He eventually went to work at Host Communications in the 1990s, learning at the foot of Jim Host, whose company started collegiate sports marketing. At the time, Nelligan was making half of what he made on Wall Street, he said.
Nelligan will stay with Learfield as the point person for the Louisville property and to work on strategic planning. A formal title has not been decided.
“I love this business and I want to stay involved,” Nelligan said last week before boarding a flight for Aruba, where he planned to vacation for a week. “It’s been a whirlwind over the last two months.”