IMG: Show Me The Bottom Line

The razzle-dazzle style of founder Mark McCormack is gone, but profits are better

He was hailed as a genius and a visionary who practically invented the field of sports marketing. And he was a master schmoozer to boot. So when International Management Group founder Mark H. McCormack died just over a year ago at the age of 72, there was a torrent of speculation over the future of what Wharton School professor Kenneth L. Shropshire calls "the world's most powerful sports-marketing brand."

Under the charismatic McCormack, IMG became the undisputed heavyweight champion of representation, the show-me-the-money guys for sports megastars such as Tiger Woods and Peyton Manning and supermodels such as Tyra Banks. It represents about half of the world's top 20 golfers and is a dominant presence in sports such as tennis, baseball, and football. Says Arnold Palmer, whose legendary handshake with college golf rival McCormack launched the firm in 1960: "They have the right connections and the people, and they produce results." IMG's TWI unit is the world's largest independent producer and distributor of sports programming, handling such disparate offerings as Wimbledon and the World's Strongest Man competition. And its reach extends from owning sports stadiums to running IMG Models, the world's largest modeling agency.

But McCormack, who went into a four-month coma after cardiac arrest early in 2003, hardly left a house in order. Cleveland-based IMG was stretched and struggling under debt that some put as high as $200 million. It had to cope with such boneheaded and potentially conflict-of-interest-laden moves as buying a soccer team in France while at the same time representing athletes and running tournaments (worse, it was a failing team). Making money off classical musicians and theatrical events was also proving to be a Herculean task. Then there were forces beyond IMG's control, such as an advertising drought in the last recession, the bankruptcy of a key sponsor, and lukewarm U.S. interest in sports such as tennis, which is one of its largest business units. No wonder many were quick to predict that McCormack's death would be another devastating blow to the business.

Instead, IMG over the past year has taken steps to clean up the mess. "Nothing apocalyptic happened except that Mark died," argues Robert D. Kain, who now shares the chief executive title with fellow IMG veteran Alastair J. Johnston. The duo, who made their marks as agents in the tennis and golf sides of the business, respectively, say they have had none of the conflicts that often undermine shared leadership. "We have been surprised at how easy it is to have a single mind on things," notes the Glasgow-born Johnston. And that single mind is aimed at making money. Sales and billings are down to about $1 billion, from roughly $1.3 billion, but profits are up. They have consolidated business units, closed money-losing locations, and laid off 400 people in the past year to bring the staff to roughly 2,200.

Was that a painful move in the often clubby and ego-driven world of sports marketing? You bet. But the new bosses are more obsessed with bottom-line results than go-go growth. They have to be. IMG, with the help of Roger Kimmel, vice-chairman of investment banker Rothschild North America, is talking to potential investors about buying out part of the McCormack family's stake to become a minority partner in the business. It needs to show cash flow and fatter margins. While the founder's family isn't talking, it's clear widow Betsy Nagelsen McCormack, 47, doesn't aspire to run the company or sit on a huge chunk of equity when she could have the cash. Less clear is whether McCormack's three adult children, who are in the business, want out.

THE MAIN ATTRACTION

One thing is certain: The firm's key players want in. Insiders say both sides agree an outside investor is needed, and they dismiss talk of tension. Johnston explains elliptically that "participation by way of equity was not in Mark's business model." McCormack didn't let his employees in on the equity action because he didn't have to. He was the main attraction and the center of all loyalty. He was the guru who told the world What They Don't Teach You at Harvard Business School in his 1984 best-seller. And he was the manager who nurtured his top agents as if they were stars themselves.

McCormack understood that sports management is a business of personal relationships. Peyton Manning, Indianapolis Colts quarterback and co-winner of the National Football League's Most Valuable Player award for 2003, says that if the high-powered trio who work with him were to leave IMG, "it would be awfully difficult for me to stay." Now, says Randy Vataha of Game Plan LLC, an investment firm specializing in sports properties, "the concern at IMG is how to keep all the human assets as an ongoing part of the business."

One way to do that, of course, is to provide sweeter financial rewards. But insiders don't want to mimic rivals like Interpublic Group's (IPG ) Octagon Worldwide, becoming part of a bigger beast that they fear would curb their style or call the shots. Some options include finding a partner that is already public, or one that can put up the capital to buy out some of the family's stake and, as earnings grow, shift more equity to executives. Kain doesn't even rule out a public offering far down the road, but says "that's something we wouldn't consider for three [to] five years."

In the meantime, the folks who helped inspire the industry's hustling Jerry Maguire image are suddenly sounding more like accountants than sports agents. Terms such as "measured growth" and "profit incentives" are dropped casually into conversation. Even the company's agreement to let an outside investor establish a clone of IMG Academies, the famed Bradenton (Fla.) training facility, in Hyderabad, India, is being cast as a fiscally prudent licensing deal rather than a bold new venture. "We wouldn't take on that kind of risk exposure," says one insider.

The initial $135 million instead will be amassed by Fort Lee (N.J.) hedge-fund manager Andrew Krieger, who has had four of his six kids study tennis at the Florida facility. Krieger, a soft-spoken former Sanskrit scholar who heads NorthBridge Capital Management, happens to be both rich and enthusiastic about IMG. But tennis coach Nick Bollettieri, the founder of IMG's Florida tennis facility, jokingly calls Krieger a "weirdo" and won't commit to even visiting the Hyderabad operation. "I will make up my mind if I go to India," he growls. Even so, Krieger calls the deal a strategic partnership. In return for lending its name, training model, and some staff, IMG gets a fee plus an undisclosed share of the profits in the complex, due to open in September, 2006.

Luckily, the draw of the IMG brand may be all Krieger needs. Despite the challenges of surviving through a long marketing downturn and the loss of its founder, IMG's core has remained remarkably strong. With the exception of tennis powerhouse Serena Williams, whose entertainment aspirations may have prompted her to switch some business to the William Morris Agency in March, the talent has largely stayed in place. Golfer Jack Nicklaus, who left the fold in 1971, even came back shortly before McCormack's death.

More important, the new management has reined in some of McCormack's pet projects. "[Mark] kept score on the size and influence of IMG," notes Johnston. "Because he was the owner, he could wander into businesses that didn't make financial sense." Instead of 20 business units there are now nine, the heads of which were all summoned to Scotland's Gleneagles hotel in February with other senior executives to go over every inch of the IMG operation. Besides the staff cuts, a number of offices worldwide are gone and buildings in New York, Sydney, and Melbourne are for sale. A majority stake in IMG Artists, a classical music and event business, was sold to financier Barrett Wissman in September. IMG has moved out of the theatrical production business, too, but held on to its booming modeling agency. And the debt, which Kain says was never close to $200 million (though he won't say by how much), is below half that now.

There have even been cuts in the main area of sports. The Racing Club de Strasbourg, a French soccer team that IMG bought in 1998, was sold at a loss. Kain says that IMG would "rather be a supplier than an owner," though it owns other teams. IMG also sold off two of its six women's tennis tournaments, which industry observers say had appreciated in value by 50% over the past two years but were suffering from shrinking margins. While Larry Scott, CEO of WTA Tour Inc., notes that "IMG is still the most heavily invested organization in women's tennis," insiders say midlevel tennis events aren't drawing big numbers.

STAR POWER

All these changes happen to coincide with a climate that is heating up for sports marketing in general. "We're starting to see the reality that things are getting better," says rival Rick Dudley, CEO of Octagon, which has faced its own challenges and heavy losses in recent years. But he argues that the days when it was all about snagging the big deal are over. Clients want more partnerships and support to design marketing strategies that fit their needs. In a not-too-subtle jab at IMG, Dudley argues that "the sales culture of one-size-fits-all will not fit in the new world." That means less high-fiving in the locker room and more numbers-crunching and consulting in the boardroom.

While better business acumen may help bring in big bucks, success still comes down to the stars -- and IMG is the behemoth to beat in snatching them up. Manning, who pulled in an estimated $42 million last year, credits IMG Football President Tom Condon, who played for the Kansas City Chiefs, with getting him the largest contract in NFL history. "He knows how to negotiate, and the fact that he has played the game means a lot to me," says Manning, who describes himself as a "low-maintenance" client.

Is there competition? Sure. Rob Urbach of SFX Sports Group Inc. (CCU ), who helped create Michael Jordan's commercial success, is busy turning client Andy Roddick into a tennis megastar. "He's a guy that men want to be like and women want to date," says Urbach. But what IMG does better -- or at least more consistently -- than anyone in the field is turn such stars into franchises. Palmer recalls one grueling commercial shoot as a young golfer in 1960, when he quizzed IMG agent Jules Rosenthal, about his future prospects. "I said, 'This is all well and good, but what are you going to do when I get old?' Rosenthal's answer: 'We will have established you as a business, and you will not be as important."' That, says Palmer, has largely proved to be true.

Even with its sharpened focus on profits and search for outside money, IMG remains steeped in the spirit of its founder. Many refer to him in the present tense and, when pushed on the company's future course, still invoke his name. "Mark McCormack didn't build this business to have it split apart," says Greg Breunich, director of IMG Academies. But after decades of watching their founder get rich, insiders feel it's their turn to build on the legacy -- and win a chunk of the empire. As Kain puts it: "IMG is not Mark McCormack and 2,000 dwarfs."

By Diane Brady

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