MEDIA ANALYSIS: Octagon battles to get back on track

It’s been an eventful 12 months for Octagon, Interpublic Group’s five-year-old sports and entertainment arm, and for one part of the operation an annus horriblis would be nearer the mark.

Octagon started life after flamboyant adman Sir Frank Lowe persuaded his fellow Interpublic Group (IPG) board members to back his dream of building a sports marketing agency to rival Mark McCormack’s IMG group. IPG bought Advantage International in 1997 to use as the launchpad for Octagon, bolstered by the acquisition of Alan Pascoe’s API soon afterwards. After five years and several more purchases, Octagon is now a business operating in 24 countries with more than 1,500 employees.

But its motorsports operation has come under fire of late and it has emerged that Octagon has lost the right to event manage and sell television rights for the Stella Artois Tournament (MW last week). It is also in a row with the FA over television rights sales.

The athlete representation and television side of Octagon’s business are said to be hitting targets, but the group as a whole still reported a pre-tax income loss of $25.9m (&£16.3m) before non-recurring costs for the second quarter of 2002. For the same period in 2001 its pre-tax income was $13.1m (&£8.2m). No figures broken down by discipline are available.

In 1999 the motorsports division was created with the estimated $240m (&£160m) acquisition of Brands Hatch. The idea was to switch the British Grand Prix from Silverstone to Brands Hatch, but subsequent to its purchase it became clear this would not be possible. Instead the company acquired a 15-year lease of Silverstone.

The way both race tracks are run has come in for immense criticism. Octagon was labelled “greedy” for hiking the prices at Silverstone to make up for reduced spectator capacity, and the motorsport company has also had to endure complaints about its parking and traffic jams. It has since invested &£17m and pledged to spend a further &£28m. Brands Hatch was also said to have problems with inherited management and contracts.

Matters reached boiling point when Formula One supremo Bernie Ecclestone branded the British Grand Prix “a country fair masquerading as a world event”, causing Octagon Motorsports chief executive Rob Bain to resign. Soon afterwards, IPG placed the Octagon group of companies under its Sports & Entertainment Group, headed by chairman and chief executive Mark Dowley – not under its sister organisation the Lowe Group, as reported last week. The management team of Octagon Motorsports had an axe taken to it and IPG is reviewing the entire operation. Last month when IPG lowered its forecast for 2002 earnings to 85-90 cents per share down from $1.25-$1.35, it blamed the profit warning partly on the motorsports operation.

At a less public level, there has been a round of restructuring across all the Octagon companies. The Octagon group had previously operated under four divisions: athlete representation, marketing, CSI (its television side) and motorsports. But in December 2001 it announced plans to relocate its worldwide headquarters from London to New York, and a few months later it realigned operations from four operating groups to three regional divisions: the Americas; Europe, Africa and Australia; and the Middle East and Asia. At the same time, Octagon scrapped its marketing division and reallocated its clients to other Octagon divisions. As a result, it lost worldwide marketing division president Alasdair Ritchie, divisions managing director Matthew Wheeler and chairman Frank Craighill.

But, just seven months later, an announcement of yet another restructure made no mention of the earlier established regional roles and appeared to revert to the original format based around disciplines. At the same time Les Delano, the chief executive of Octagon Worldwide has been demoted to his former role of consultant/director, while his previous post has yet to be filled.

But some are supportive of what IPG is trying to do with Octagon’s senior management. Bears Stearns analyst Alexia Quadrani says: “It is trying to make changes to improve the performance of the company. Anything that is proactive is welcomed by investors.”

Octagon has already kickstarted the process by appointing Andrew Waller, former Walt Disney Travel Company UK director, as director of sales and marketing at Octagon Motorsports.

A sports insider, while applauding the concept of Octagon, says that its business focus is nowhere near as clear as its arch-rival IMG’s.

“Octagon is a business formed by pushing lots of different businesses together and all those businesses were run by people with big egos. There was no natural corporate position for Octagon other than world domination. I think it just can’t decide what it is about.”

Some believe that the Octagon companies will be broken up and sold back to the original heads, and rumours abound that Ritchie has made attempts to buy the marketing side of the business. Others think that only the motorsports operation will be up for sale. IPG figures due out this week may provide some clues.

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