Dentsu’s stake values Athletes First at $50M
Japanese ad giant Dentsu valued Athletes First at $50 million in its deal announced last week, paying $16.5 million for its one-third stake in the football agency that represents 180 clients, including quarterback Aaron Rodgers and coach Chip Kelly.
The parties announced the alliance last week but not the deal’s financial terms. Athletes First President Brian Murphy agreed to confirm the price because Dentsu, which is a public company, will report the financials.
Values for sports teams and ancillary businesses are soaring as demand for live content continues to surge. While consolidation in the sports agent businesses has been occurring for several years, the Dentsu-Athletes First deal offers a rare glimpse at the economics of the business.
Financial sources who worked with potential buyers of Athletes First in the past few years said the agency’s cash flow is about $7 million annually, meaning Dentsu paid a multiple just over seven times cash flow. That likely would have been a notch higher for full control. By contrast, sports teams now are trading for double-digit multiples, and big premiums are placed by investors in sectors such as sports technology, data and fantasy.
One sports investment banker familiar with the agent sector said the ability of athletes to switch agents keeps the margins in the business low. That potential movement of clients can depress a desire to invest long-term in any one particular firm.
Another financial source who advised a potential buyer of Athletes First last year contended the lack of guaranteed contracts in football kept a lid on the price.
The late Ted Forstmann, when he bought IMG in 2004, famously sold off much of the company’s team agent business, contending its margins were too low.
That is in part why Athletes First, started in 2001 by Murphy and David Dunn, sought out a firm like Dentsu, an international marketing and advertising giant with thousands of clients. Murphy envisions the firm diversifying into businesses, but Dentsu touches many aspects of the sports business in the U.S. already through its relationships with agencies such as Team Epic and MKTG.
“This allows us to expand Athletes First in additional directions and expand into other sports, or sports marketing,” he said.
When that might happen is uncertain. Osamu (Sam) Urushido, the Dentsu executive who will move to California to oversee the investment from Athletes First’s offices, said there is no hurry to expand. Dunn also does not see his agency aggressively expanding any time shortly.
To expand, the funds will not come from Dentsu’s investment. That money is going to the principals of Athletes First personally, Murphy said.
More immediately, Dentsu, which is strong in international sports with its deep client base and ad strategy during the FIFA World Cup and the Olympics, might offer opportunities for Athletes First clients in that respect. That is what Dunn plans to tell his clients if they ask what it means that one-third of the firm is now owned by Dentsu.
Joe Ueberroth, son of sports industry titan Peter Ueberroth and managing partner of Bellwether Financial Group of Newport Beach, Calif., brokered the deal. He knows Dentsu from his time investing in Japan and is friends with Murphy.
Athletes First had been in the market for the past several years seeking a deal. The agency, which has 19 employees, talked to several firms, many endemic companies like Wasserman Media Group, but those talks ended in part because Murphy and Dunn did not want to cede control.
The deal with Dentsu also adds that company to the list of foreign-based businesses that are seeking a greater foothold in the United States. Among those others are CSM Sport & Entertainment and MP & Silva.