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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Meredith Seeks $150 Million for Sports Illustrated

SI

Meredith Corp. (MDP), which acquired Time Inc. for $1.84 billion in January, is seeking more than $150 million for Sports Illustrated (and SI swimsuit). The company doesn’t value the brand’s male dominated readership base, with the MDP’s strengths lying in women’s magazine sales (think: Better Homes & Gardens, Martha Stewart Living). The global investment bank Houlihan Lokey has been tasked finding a buyer and facilitating the transaction, which MDP hopes to complete within 120 days.

Howie Long-Short: Meredith (the U.S.’ largest magazine publisher, owns 17 TV stations) acquired TIME to build scale as a digital publisher (now receives 170 million unique visitors/mo.), but this deal also provides them with financial strength and flexibility. MDP expects the “acquisition will be accretive to free cash flow in the first full year of operations” and anticipates generating +/- $500 million in annual cost synergies over “the first two full years.” The company shed 200 duplicate corporate staffing jobs in March and plans to cut 1,000 more within the legal, financial and human resources departments over the next 10 months.

Sports Illustrated isn’t the only label Meredith is looking to unload; Time, Money and Fortune (the most valuable of the 3) all have audiences (and advertising bases) that differ greatly from the balance of the MDP portfolio (80% is millennial women). The company hopes to get $100 million for each of those 3 labels.

It must be noted that on January 27th, MDP increased its annual dividend 4.8% to $2.18/share. It is the 25th year in a row that the company has increased its dividend and the 71st consecutive year it has issued shareholder returns. Shares are down 19% since January 31st, the day the company announced completion of its TIME acquisition.

Fan Marino: Wondering who might buy Sports Illustrated? Keep an eye on Jay Penske, the founder of Penske Media Corp. Jay recently sold a minority share of the business for $200 million in cash, to the Saudi sovereign wealth fund (so he has some cash laying around). You may recognize the Penske name. His father Roger, owns Penske Racing; which operates teams on both the NASCAR and IndyCar circuits (so he has sports ties). Brad Keselowski, Ryan Blaney, Joey Logano, Helio Castroneves and Juan Pablo Montoya are among Team Pensky’s most recognizable drivers.

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Media Sector Consolidation Continues as Meredith Corp. Buys Sports Illustrated (and TIME Inc.)

The Meredith Corporation (MDP) acquired Sports Illustrated and Golf Magazine (and the balance of TIME) for $2.8 billion ($18.50/share); after failing to acquire the company earlier this year (and an initial attempt back in 2013). The acquisition gives the Better Homes and Gardens publisher 200 million consumers across all platforms. There is speculation that with the addition of TIME’s publishing assets, MDP could spin off its broadcasting assets (including the newly-launched SI TV). Koch Equity Development is backing the Meredith bid with $650 million in financing.

Howie Long-Short: At $18.50/share, MDP paid a 9.5% premium on the price ($16.90) at Friday afternoon’s close and a whopping 46% premium over the closing price on November 15th. Earlier this month, TIME reported that Q3 revenue declined 9.5% (to $679 million); the 6th straight quarter the company missed Wall Street expectations. Magazine revenue, which still accounts for roughly two-thirds of all company revenue, was down 17% (to $1.3 billion) over the first 9 months of the year.

Fan Marino: Meredith clearly foresees a future for the magazine industry, but it’s Sports Illustrated that received recent acclaim for its fortune-telling prowess. Back in 2014, when the Astros were among the worst teams in baseball, SI published an issue predicting the team would win the World Series in 2017; with George Springer on the cover. Fast-forward 3 years, the Astros are WS Champions and George Springer was the World Series MVP.

Meredith, backed by Koch brothers affiliate, to acquire magazine publisher Time

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