In absorbing IMG, WME suddenly gets a whole lot bigger -- larger in size and international scope than its foremost rival, CAA. There was immediate chatter on Wednesday that WME's bulk-up, through the transaction financed largely by its private equity partner Silver Lake, will set off a new round of merger conversations among other agencies. UTA, which has staked out a position as the strongest alternative in film, TV and digital to the big-ness of CAA and WME, is seen as an asset that both of those agencies would covet as they joust for showbiz percentery supremacy. (That's not to say UTA's for sale or that CAA or WME is courting, at the moment.)
Observers note that adding IMG to the fold will not have as much immediate impact on WME's core business of representing creative talent as it will extend its reach into new sectors far removed from film and television. IMG generates less than 10% of its revenue from traditional talent representation of clients in sports, fashion (models, stylists, photographers), music, media and entertainment.
IMG makes most of its money -- earnings pegged at about $160 million annually in recent years -- from less-sexy but lucrative activities such as negotiating marketing deals for college sports teams and venues around the world. Another big focus is staging sporting events in the U.S. and abroad (tennis, golf, hockey, track and field, auto racing etc.) which draw sponsorship bucks, and in most cases IMG profits from selling TV rights to those events.
Interestingly, IMG's strongholds are in areas where CAA is not active or just starting to plant roots. CAA's push to grow sports over the past eight years has so far concentrated largely on athlete and coach representation in the U.S.
In October, IMG teamed with Reliance and Rupert Murdoch's Star India to launch an Indian soccer league -- one of many such partnerships IMG has with foreign sports teams and leagues. Fashion shows and music festivals (IMG is huge in the classical market) are another revenue driver.
None of these are businesses that are high on Hollywood's radar, but they will definitely diversify WME's revenue base. Diversification is a mantra for all Hollywood agencies as studios tighten their fists even for top talent and digital disruptors eat away at the traditional content profit sectors. The same issues that drove Endeavor and William Morris Agency to tie the knot in 2009 have only become more pronounced in four year's time.
Over the long term, WME's goal is likely that IMG's earnings bolster the combined enterprise, and IMG's depth in marketing services, corporate connections and international savvy will lead to all manner of innovative opportunities for WME clients as well as IMG's. In a world where marquee clients like Oprah Winfrey and Seth MacFarlane are brands unto themselves, having that kind of expertise in-house can prove valuable.
At the same time, the IMG acquisition comes with some debt to service, which means there will be pressure on WME to generate cost savings through streamlining wherever possible. With its offer pegged at $2.3 billion-$2.4 billion, WME-Silver Lake ponied up significantly more than the other two contenders that made it to the last lap of the IMG auction: Chernin Group/CVC Capital, which offered about $1.8 billion, according to sources, and ICM Partners/Carlyle Group, which was just under $2 billion.
Percentery competitors were already talking about the prospect of some fallout for WME among clients and agents as company leaders focus on getting a handle on the much larger new addition to the family: IMG has 3,500 employees in more than 30 countries; WME has about 1,000 staffers, mostly in Beverly Hills and New York.
But any shakeup post-transaction (which is expected to take two to three months to close) is likely to fall harder on the IMG side. As co-CEOs of the combined entity, WME's Ari Emanuel and Patrick Whitesell will have some serious talent relations tasks ahead. IMG will need to retain key senior execs in the near term, and some of those insiders are about to realize a big windfall from the sale.
As with any merger, there may well be challenges ahead in terms of melding cultures. WME is known for its formidable team spirit that stretches across departments and disciplines -- a mentality that was a big factor in Endeavor's swift rise to the top. IMG is said to be run as series of fiefdoms, in part because its business operations are disparate and far-flung.
As WME works to make the math work on what Silver Lake surely hopes will be a one-plus-one-equals-three equation, hovering over it all will be questions about the endgame. The private equity template is to buy, spruce up (or in some cases, strip down) and sell assets over a five- to 10-year time period. So is an IPO in the offing for WME-IMG? Certainly, IMG's long-term sponsorship pacts, rights deals and management contracts will be more attractive in a prospectus than the more unpredictable business of representing movie stars, directors and showrunners who can leave at any time.
None of the principals would comment on deal terms, but after financing the IMG buyout, Silver Lake surely will have a bigger stake in the enlarged agency than the 31% interest that it has held in WME since 2012.
Sources close to the situation emphasize that the management of WME-IMG will be left entirely to Emanuel, Whitesell and Co. Silicon Valley-based Silver Lake Partners has some $20 billion in assets in its portfolio, which is largely centered on cutting-edge tech investments. In other words, the firm's leaders have bigger fish to fry when it comes to day-to-day matters at its portfolio companies.
As Hollywood dealmaking winds down for the Christmas and New Year's holiday, the impact of WME-IMG on the town will be much discussed. Will CAA make a move to counter WME's growth spurt? Will UTA, ICM Partners or Paradigm feel the urge to expand in other areas? Will more private equity money flow into the talent representation biz?
Watching the maneuvers that follow WME 's bold play could be a more engaging spectator sport for bizzers than anything IMG will stage next year.
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