Blame the Internet for Sports Illustrated’s Fall, Not Private Equity

Blame the Internet for Sports Illustrated’s Fall, Not Private Equity

Sports Illustrated reportedly gut much of its staff after parent co. –Arena Group Holdings– had the publishing license to the label revoked. Brand licensor Authentic Brand Group pulled the company’s print and digital rights after Arena withheld a $3.75 million quarterly payment.

Longtime fans and former employees of the once powerful publication have been quick to lament private equity’s role in SI’s fall from grace. But the blame is misguided. It belongs with the internet. 

“This isn’t about [ABG or] Arena Group. It’s about the depreciation of the value of the written word,” one well-placed media executive said. Long-form content no longer pays the bills, and “journalists simply can’t grapple with the reality their ASME winning stories aren’t helping their employers keep the lights on in a post TikTok digital world…Even in ’24, they choose to ignore how this business works.”

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The relationship between ABG and Arena Group seemed to be working fine on both sides until Manoj Bhargava's Simplify Inventions took majority control of Arena Group in August ’23. The 5-Hour Energy founder subsequently let go of senior personnel, established himself as interim CEO (a position he has since resigned), and Arena defaulted on the loan payment.

That decision drove ABG to place Arena into breach of contract, and to terminate its publishing licensing agreement. 

Bhargava subsequently sent a letter to the SI Union informing its members of their tenuous future. The move sparked outrage amongst the journalism community, led to a public funeral for the brand on social channels, and spawned the narrative that PE killed Sports Illustrated.

But SI isn’t dead. 

It is currently operating, and even if Arena is unable to reobtain the license, the publisher is obligated to continue running it for some time. ABG would almost certainly have another publisher in place before the grace period expires. 

SI has gone through ownership changes before. The label was sold from Time to Meredith in 2018 and then from Meredith to Authentic Brands Group a year later.

But unlike Time and Meredith, ABG is a brand management company. Its expertise is in licensing and merchandising, not publishing. So, the holding co. licensed SI’s print and online publishing rights to Maven (now Arena Group).

The SI brand was two decades past its prime when ABG took it over. Any suggestion it or Maven/Arena is solely to blame for tarnishing its once pristine reputation is misleading. 

There’s an argument to be made ABG could have elected a better steward for the media property. Maven/Arena has made some highly controversial decisions (see: use of independent contracts, accusations of AI generated articles). 

But it’s difficult to fault the publisher for emphasizing clicks and traffic over investigative and long-form journalism. It’s happening across the digital landscape. Legacy brands are doing what is needed to survive and appeal to today’s consumer.

SI also still employs some of the industry’s best writers (see: Pat Forde, Jon Wertheim). So, while the overall product is not as good as it once was, the business is profitable and remains viable within the marketplace.

Authentic Brand Group (think: Reebok, Brooks Brothers) controls SI’s licensing rights. 

It purchased the company from Meredith for $110 million in May ’19 and had a 10-year $15 million/year publishing agreement in place with Maven before the end of the June. So, its starting point on Sports Illustrated is profitable.

And because Arena employs all the content creators, its overhead is lower and margins are much higher than they would be for a traditional publishing co.

ABG has since introduced an SI branded sportsbook, ticketing platform, premium hospitality concept, and it is reportedly working on several hotel projects (including: Ann Arbor, Michigan). 

Those efforts do not even have to pan out for them to be worth ABG’s involvement. Licensing companies typically structure deals to include minimum guarantees (there may be success-based kickers to create upside opportunity).

ABG is building a high-end ticketed events business with the SI brand too.  

“They’re literally doing what Meredith, Conde Nast, Hearst, and most digital publishers have been trying to do for 20 years and haven’t been able to figure out,” the media executive said.

ABG has seemingly cracked the code on how to extract maximum value from a brand in a business that is in secular decline–minimizing the content side of the house from business decisions. Arena is solely responsible for writing, editing, publishing, and distribution.

“They don’t get a seat at the table for licensing deals, events, [partnerships], or any of the other things they get to weigh in on at other places that they have no expertise to weigh in on,” the media executive said.

ABG handles all the omni-channel opportunities demanded by today’s consumer as the licensor. 

The only issue with ABG’s model is that it is reliant on a publisher, which it does not employ, to uphold the brand’s editorial product and to manage the team who produces the content and sells the ads. And contract stipulations can only ensure so much. 

Licensors will often factor the loss of control into their models, but asset quality still needs to remain at sufficient levels for the brand to expand into ancillary categories.

Up until this point, Arena had upheld its end of the bargain. Its recent decision to skip a payment, and the subsequent fallout, may have changed the calculus for ABG. 

It’s hard to understand what Arena’s end game was/is. But it’s nearly impossible to believe a billionaire bought a majority stake in the company only to unload its biggest asset within a matter of weeks. One must assume Bhargava has a plan for SI moving forward. 

Whether ABG can or wants to trust him to operate the publication is another discussion. 

“If you’re degrading the value of the brand, you’re degrading the partnership or its potential impact [for the licensor],” the media executive said.

ABG does not need the next publisher to re-establish SI as the ‘Porsche’ of sports media to build a lucrative licensing business. But it can’t get to ‘Honda’ levels, either. The next SI publisher simply needs to come in and churn out quality content. 

Junior Bridgeman, Vox, and Penske Media are among those who have reportedly expressed interest in taking SI over should ABG choose to go in another direction.

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