It is in everybody’s sights right now,” says the Interpublic Group’s brusque chairman and chief executive officer Phil Geier. “It has established a clear lead in the market and it is up to everybody else to catch it.”
But Geier, described by fearful IPG insiders as “God”, is not talking about Omnicom, he is not even talking about WPP – he is talking about a company that has never produced any advertising but represents everybody from the tennis player Pete Sampras to the Pope – Mark McCormack’s International Management Group (IMG).
It is this desire to take on McCormack that explains the deal Geier has struck to buy outright one sports marketing agency, the US-based Advantage International, and 60 per cent of the London-based Alan Pascoe International (API) (MW May 22).
Advantage clients include tennis stars Steffi Graf and Michael Chang, cricket’s Darren Gough, golfer Sandy Lyle and the Davis and Cricket World Cup events, while API has a list that includes the Whitbread Round the World Race, the Benetton Formula One team and Allied Dunbar’s sponsorship of English rugby union from next season.
Some observers see it as both a coming of age for sports sponsorship but, more significantly, it is further evidence that IPG is looking outside its traditional core business for income streams – last year it bought the US design agency Diefenbach Elkins for an estimated $100m (62.5m) to sit inside the McCann-Erickson network which has global billings of 6.1bn. Throughout its global network IPG companies are under pressure to develop separate income streams from non-advertising areas.
It is entering sectors that offer not only new opportunities but often greater – and growing – margins. In the world of “Jerry Maguire”, margins can be as high as 30 per cent on business that can be less labour intensive than producing ads.
Geier makes no bones about IMG being his target. “There is growth in this market and I think it will continue that way. The US market, however, is quite mature. I would expect most growth in the future to come from Europe and the Far East. That is what I like about this deal; one company is strong in America and one is strong in Europe. That gives us the base we need,” says Geier.
The addition of the second and third largest sports marketing companies in the world, with combined turnover of 347m, shifts IPG from nowhere in the market to second place.
The division, IPG’s seventh, will sit alongside the advertising networks McCann-Erickson Worldwide, Ammirati Puris Lintas Worldwide, The Lowe Group; media buying agency Western International Media; the Allied Communications Group; and direct marketing agency DraftDirect Worldwide, which was brought into the group 12 months ago.
Although the two companies will form a single division they will operate separately until the end of the year. Officially the line is that the two companies will merge when the time is right. API chairman Alan Pascoe says: “The merger could happen in six months or six years.”
But sources close to the deal say that the plan for merger is actually more advanced. One source at Advantage says that next summer was the favoured date when Pascoe, Geier, and Advantage chairman Frank Craighill hammered out the details of the merger earlier this year.
No party will give a hint as to the name of the new company or who will head it. The two probable candidates are Pascoe, who along with 20 other senior executives retains a 40 per cent stake in API, and Craighill who enjoys a close friendship with Lowe Group head Frank Lowe.
Pascoe plays it straight when asked if he would like to lead the merged company. “Frank (Craighill) and I can live very happily with each other at the new company. I certainly am very committed to it and intend to remain a part of it. API has been looking for an alliance for some time and this gives us the chance to make that step to be a major global player.”
The reason for merging the two companies could not be clearer. IMG is the oldest and largest sports and entertainment agency in the world with turnover of $1bn (630m). It represents artists and athletes ranging from Arnold Palmer, Pete Sampras and André Agassi to Michael Johnson, the violinist Itzhak Perleman and Kiri Te Kanawa.
It works as either a consultant, a sponsorship agent, or as seller of TV rights for an array of blue chip competitions and bodies including the FA Cup, Wimbledon tennis, Major League Baseball, the Nobel Foundation and the Rugby World Cup.
If it had started from scratch it would have taken IPG forever to challenge McCormack. In theory, the Interpublic deal gives the new sponsorship agency access to clients of the three advertising networks, DraftDirect and anywhere else in the group.
But that does not sit easily with an IPG culture which not only insists that its various networks work independently, but has fostered competition between them. McCann, Lowe Howard-Spink and Ammirati Puris Lintas regularly appear as rivals on client shortlists around the world.
However, there is a strong argument for making an exception with this new agency. A senior UK source in sports marketing says: “One of the good things about the move is that it gives the companies access to the IPG client base. There will be literally scores of new clients that they can begin talking to.” The list includes General Motors and Unilever.
But Geier remains adamant he will not change the working practices of the network to accommodate the new agency. “The policy of competition within the network works well for us,” he says. “There will be no obligation on any part of the group to put business the way of the new division. We have made an investment in this group and we will want a return on it straight away.”
Pascoe sees the relationship with IPG clients somewhere between the two extremes – not unnaturally, as he wants to keep his options of working with other agencies alive. “The only way to run a successful sponsorship is to fully integrate it into the client’s marketing strategy, from direct mail, to TV advertising, to the event itself. We expect to work closely with IPG agencies but we also want to work closely with agencies from other networks as well.”
Effectively the deal means that major sports stars or entertainers will have an agency other than IMG to protect and market their interests. Secondly it should also put sporting bodies, with major events to sell, in a stronger position, because they will be able to play one agency against the other – which will increase the price of their properties.
In the longer term, the creation of a second major player will lead IMG, which already does it on a small scale, and the new merged company to create their own events featuring their own stars. The agencies will then sell the TV rights to recoup the anticipated increased costs of signing players and buying event rights.
But competition will not only come from traditional agency sources. Nike is planning to create a separate division to exploit its 250m sponsorship deal with the Brazilian national football team. The deal gives the sports shoe company the right to stage five games a year over ten years for which it can sell the worldwide TV rights. Pepsi has signed a similar agreement with the Argentine national side.
“There will be much more of this kind of deal (Nike events) in the future,” says Pascoe. “Over the past five years the industry has come of age. And there is a lot more competition from companies whose core business is another area totally.”
That includes IPG. “The sports marketing industry is a lot more accountable now and that is something that attracted us to it,” says Geier.
A man who never lets his eye stray far from the bottom line, Geier will be looking for some of that accountability from Pascoe and Craighill if the venture does not deliver the big names and big events he is expecting.