The recent rush to acquire sport related agencies by companies like Chime and Havas ahead of the Olympic Games and 2014 World Cup may offer acquirers some attractive short term gains, but what about the longer term?
Sports and pop stars are notorious for their need to be cosseted, and their earning capacity tends to peak at a relatively early age. Insofar as these people are an important component in generating fees for an agency, or in the marketing of events to sponsors and advertisers, the reputation of the agency, the quality of the personal contact with the stars, and the ability to replace such precious short-life assets are all critical.
But from the moment of acquisition those critical features come under threat because most sellers of agencies do so with a clear desire to exit at the earliest opportunity. Once the earnout has been completed, the glue between the stars and their agency may begin to dissolve. That places the onus on the acquiring group to offer the selling executives meaningful inducements to remain with the group. Of course the management of any acquiring company will assert that it is well aware of this need and that the earnout period also allows enough time to develop other relationships with sporting personalities.
All of that may be true. However, the validity of the management’s assertions will not become clear until after the earnout has been concluded – by which time we shall all have forgotten the Olympics and the one-off marketing opportunities it is providing.
Not all sports marketing relies on the close involvement of sports stars. Some agencies have developed expertise in marketing the sporting events, and winning sponsorship for them, almost irrespective of the starring participants. That type of business may be less vulnerable to the temperament of short-lived stars. So it’s important for investors to look carefully at how sports agencies’ profits are being made.
A decade or more has passed since people learned that the word “digital” did not of itself guarantee super profits. It’s just possible that a similar lesson has yet to be learned about the words “sports marketing”.
Bob Willott is editor of “Marketing Services Financial Intelligence”