While past acquisitions were seen as growth-oriented moves in a business — live sports and broadcasting — that thrived as other forms of media experienced headwinds, even live sports faces a challenging environment now. Dominant companies like ESPN are showing signs of struggle, and according to some industry experts, multimedia marketing has not grown as much as some expected.
In that light, the potential merger — which would eliminate duplicative functions and most likely include some layoffs — seems less aggressive and more cautious, the corporate equivalent of the prevent defense.
The multimedia rights that companies like IMG and Learfield buy and sell are not the rights to broadcast games themselves — those are typically sold by conferences to large broadcasters like ESPN, Fox and CBS. Instead, they sell the rights to radio broadcasts of the games and surrounding programming, including on digital platforms, and they sell ads in places like game-day programs and the stadium video board.
At major sports programs, these rights are often the third or fourth biggest revenue streams for athletics departments, behind TV rights fees, ticket sales and fund-raising.
It is difficult to compare how much each school earns from these rights because the deals can be constructed in creative ways. But, for example, in 2014 Learfield bought Alabama’s multimedia rights for 10 years in a deal worth $15 million to $16 million annually.
George Pyne, who was the president of IMG Sports and Entertainment when it entered the college athletics business, said the demographics of college sports fans — a young, wealthy and diverse fan base of almost 200 million people — attracted IMG. The company also wanted to take advantage of a multimedia marketing business that was fragmented and localized.
One of the big challenges in monetizing college sports is that the most important programs are not necessarily in the largest media markets. “If you are a national sponsor, and say you want to be in the top 25 markets,” said Tom Stultz, president of JMI Sports, which owns Kentucky’s and Clemson’s multimedia rights, “that doesn’t necessarily include Tuscaloosa, Ala.”
If a company could acquire the multimedia marketing rights for enough colleges, it would effectively have a large enough network to sell sponsorships nationally. But the theory hasn’t necessarily been matched by the reality.
“We all thought that there were opportunities to really grow the business,” Stultz said. “I think there has been some success of that, but not what everybody thought it would be.”
Learfield and IMG are betting on the idea that their previous scale was not enough, and the solution is even greater scale, a one-stop shop for any advertiser wanting to reach the vast landscape of college sports fans. With the multimedia rights to about 85 percent of the major programs — as well as some associated licensing, naming rights and ticketing businesses — the merged Learfield and IMG will come as close to that as possible.
“There is no question of power and efficiencies in big business,” Palisi said.
But the merger is also a retrenchment. Both companies are structured similarly, and when combined will have redundant functions. The euphemistic “efficiencies” that will come from the merger are likely to include layoffs. Perhaps reduced costs will achieve the profits that scale alone could not.
Given that the new company will be the dominant player in the industry, the potential merger will surely attract antitrust scrutiny. In 2010, when IMG purchased ISP Sports, the Justice Department closely examined the purchase and raised some concerns, before eventually approving it. If the market is defined specifically as college athletics multimedia marketing — as opposed to the entire college sports business, or the more general sports multimedia marketing — the merger could be in trouble.
The Justice Department declined to comment on the proposed merger.
Pyne said he thought the idea that the merged company would monopolize the business was overblown. “There are no barriers to entry in college sports, and I don’t think that is ever going to change,” he said. “The schools will have the final say in how their products and services are distributed to their fans.”