ABG’s Purchase of S.I. Could Signal Broader Trend of Media Companies Diversifying into Licensing, Commerce

SI

Merideth Corp. (MDP) has agreed to sell Sports Illustrated (in its entirety despite reports to the contrary) to Authentic Brands Group (ABG) for $110 million, with the brand management company agreeing to license the label back to the Des Moines based publisher for the next 2 years. MDP will continue to publish the famed magazine, manage SI.com and handle all advertising, video production and social media responsibilities over that time. While Merideth operates Sports Illustrated’s publishing arm, ABG intends to build up the brand’s licensing business across a multitude of verticals including; consumer goods (think: apparel), events (think: conferences), sports gambling, coaching (think: sports-skills classes), physical therapy locations and themed restaurants. CEO Jamie Salter also believes there is value in S.I.’s extensive photo library. Financial terms of the licensing agreement between MDP and ABG have not been disclosed.

Howie Long-Short: MDP put S.I. up for sale shortly after completing its acquisition of Time, Inc. in January 2018. The publication remained on market for over a year because Merideth held firm on a $150 million price tag, when even $100 million was considered “a tough sell.” Some of the media has faulted MDP for falling short of their target price, but the $150 million figure assumed FanSided would be included in the deal. It wasn’t – separating the two assets created the opportunity to drive more value (a fast-growing digital media property should be valued differently than a legacy publication) – and with “Meredith receiving offers in the range of $30 million” for the company, it reasons to believe that the assets combined will net out close the figure they sought.

Houlihan Lokey managing director Chris Russo (who led the sale process on behalf of Merideth) suggested that FanSided would “be interesting for high-net worth individuals, gaming companies and media companies.” The network of 300+ sports & entertainment websites is appealing to many across the sports ecosystem because it “maintains attractive user demographics, has demonstrated tremendous traffic growth and sits among the top-10 sports media properties” (based on comScore).

It’s possible that MDP could have sold S.I. for more money had high-net worth individuals been considered, but Russo said that with sports media being such a competitive category “it really made a lot of sense to combine ABG’s expertise in brand licensing with Meredith’s publishing infrastructure to propel the business forward. This deal gave the business the best of both worlds.

Sports Illustrated has gone the licensing route before (think: bathing suit lines to go along with the annual swimsuit edition), experiencing minimal success. Slim margins and nominal sales prevented the company’s merchandising program from having an impact on top-line growth. One executive suggested that in a best case scenario revenue from S.I.’s licensing arm “might amount to high seven-figures” (over its lifespan), so it’s worth wondering why ABG would pony up nine-figures for a brand with a perceived lack of opportunity.

The fact is that Sports Illustrated “didn’t have the infrastructure or resources (under Time or Merideth) to really create a great licensing strategy” and editorial conflicts hampered the company’s licensing arm, so past performance is irrelevant. Russo agreed saying, “when you can combine the power of the S.I. brand with a company set-up to properly execute a licensing operation there is tremendous opportunity.”

With publishers today forced to diversify revenue streams and brands in search of new ways to market their products, it’s worth wondering if this type of partnership is the beginning of a larger trend. Russo believes that it could be. “When we talk about media companies with multiple revenue streams, that often means advertising, subscriptions and events, but a licensing and commerce model can be successful too.” The problem is that few sports media companies maintain the iconic status that Sports Illustrated has. ESPN may be the only other with the cache needed to enter multiple new verticals.

MDP has made a name for itself in women’s lifestyle publications, so Sports Illustrated never really fit into its portfolio; which explains why the company had been looking to unload it. The decision to license the brand back wasn’t a change of heart as much as the solution to a core problem encountered in negotiations – you can’t sell a magazine business to a company that has no publishing infrastructure.

Fan Marino: Despite concerns that Meredith may shy away from costly investigative journalism in favor of clickbait – some believe that since they no longer own the property, their incentive to invest in the publication is minimized – but look for S.I. to continue churning out top-notch journalism because it’s good for business. The value of the brand (from both a media and licensing perspective) is driven by the quality of the content that their readers and advertisers have come to expect.

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Author: John Wall Street

At the intersection of sports & finance.

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