United Talent Agency Takes Significant Stake in Klutch, Rich Paul to Lead U.T.A. Sports

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The New York Times’ Marc Stein reported that United Talent Agency (U.T.A.) has purchased “a significant stake” in Rich Paul’s Klutch Sports Group as the Hollywood agency looks to keep pace with William Morris Endeavor (W.M.E.) and Creative Artists Agency (C.A.A.) – rivals with prominent sports representation businesses. Paul will retain “substantial control” of Klutch and lead U.T.A.’s new sports division (U.T.A. Sports); Klutch will continue to operate as its own brand. The price paid and size of the stake taken were not disclosed.

Howie Long-Short: U.T.A.’s desire to be in the sports representation business is driven by the revenue potential. Jason Belzer (agent who represents collegiate and professional coaches, manages Forbes’ Sports Agency Rankings) explained that “there are a lot of athletes that are now making significantly more money than movie stars, so why not pursue those high profile, high-earning clients. And don’t forget, U.T.A. already has the agency infrastructure in place to market and package these players and to create businesses around them.

Conglomerating an agency also facilitates self-reinforcing activity for the firm’s clients. Belzer suggested that existing relationships with television networks and movie executives could pay off for athletes under the Klutch or U.T.A. Sports banners. “When those entities look to feature players in their content or want to use them to promote their products, they’re going to look in-house before they go to another agency.” Of course, the best opportunities go to the “athletes at the top of the food chain. There’s no demand for the middle or lower tier players, so there’s minimal value in signing with a large agency for those individuals.

It’s simply not practical – no matter how large the bankroll – to start-up a sports agency without an existing book of business; the competition is far too stiff. U.T.A. reportedly kicked the tires on Tom Gores’ Paradigm Talent Agency before coming to terms with Klutch, so I wondered if Paul’s agency was the best fit for Jeremy Zimmer’s company. Belzer says that it was. “The top five basketball agencies – C.A.A., Excel Sports Management, Wasserman, Priority Sports & Entertainment and Octagon – are all already large conglomerated practices or weren’t on the market, so the only real options were B.D.A, Klutch and Landmark Sports Agency; and Klutch is certainly the highest profile of the three.

Belzer suspects that if U.T.A. were to make a similar move for a baseball agency that “they would look to buy ACES. That’s the logical acquisition.” On the football side, he says Select Sports Group or Rep1 Sports would be the companies most likely to be targeted for takeover because “Rosenhaus is probably not going to sell.

There’s an argument to be made that much of Paul’s success is tied to James – he’s negotiated just over $1 billion in contracts and LeBron has earned 342 million of those dollars. With the Lakers star unlikely to sign another basketball contract and W.M.E. representing his media company (SpringHill Entertainment), it does appear as if Paul cashed in at least some of his chips at the right time.

On a final note, James tweeted “I had it laid out before you knew what a plan was. Three Hundred mil’ later, NOW you understand us!” which lead some to speculate Klutch sold at a $300 million valuation, but that’s not the case. Even if W.M.E. was interested (as Stein noted) and there was a bidding war, Belzer says “there’s no way U.T.A. paid anywhere close to $300 million. The agency brought in a maximum of about $25 million in commissions on current contracts as of 2018. Paul has done some new deals since then, so maybe Klutch does $30 million over the next few years. You’re not getting 3x revenue for a sports agency. Assuming he got 2x, the asset was probably valued in the $50 million to $60 million range.

Fan Marino: The heavy concentration of star athletes tied to just a few agents has altered the power dynamic in the NBA. Belzer said that “these large agencies now control so many players, they’re able to dictate the future of teams.” C.A.A. orchestrating Paul George’s recent exit from Oklahoma City is just the latest example.

James didn’t own a piece of Klutch (NBA bylaws prevent it), but it’s been surmised that he and Paul are working together to buy an NBA franchise. This transaction does little to further that mission – there simply wasn’t enough money in the deal. Belzer agreed saying, “let’s assume he gave up 50% of his agency, but retained control – there’s no way he’s walking away with more than $20 million or $30 million.” NBA teams are selling for upwards of $2.5 billion.

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Author: John Wall Street

At the intersection of sports & finance.

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