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SFX Needs an Rx
L. Jon Wertheim
November 05, 2001
SFX Sports was supposed to be the ultimate in players' reps, but it's struggling
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November 05, 2001

Sfx Needs An Rx

SFX Sports was supposed to be the ultimate in players' reps, but it's struggling

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When Robert F.X. Sillerman announced plans in 1998 to form a superagency for athletes, his concept had the potential to change the face of sports representation. Sillerman's two companies, the Marquee Group and SFX Entertainment, were international leaders in marketing, concert promotion and live entertainment production. A sports group was a natural fit. At a time when the lines between sports and entertainment were blurring, athlete-clients would receive one-stop shopping for their marketing and negotiation needs. The new company could use its resources to achieve what's known in business school as vertical integration.

"Imagine an event, be it a tennis tournament or a summer basketball game, in which one company provides the athletes, the venue, the marketing, the sponsorship, the television rights and the television production," says Jan Chason, a former Marquee executive, who's now a consultant to the firm. "There'd be a hell of a lot of money to be made."

To that end Sillerman went on a shopping spree, gobbling up top sports agencies like Pac-Man. In 18 months SFX disgorged more than $150 million to buy established firms such as ProServ and ISI as well as the businesses of prominent agents like David Falk, Arn Tellem, and Randy and Alan Hendricks. When Sillerman's acquisition binge was over, the new company, SFX Sports, was the agent for more than 15% of all NBA and major league baseball players, including Michael Jordan, Kobe Bryant and Roger Clemens. In early 2000 Sillerman described the firm as a "totally new global template."

Two years after SFX Sports sent tremors through the industry, it remains a major player, one that represents nine first-round picks in the 2001 NBA draft and three of the top five NHL picks, and has a strong motor sports presence. Still, after an exodus of key personnel and a sale to a bigger company, the firm bears only passing resemblance to the juggernaut that was going to revolutionize athlete representation. By most accounts SFX Sports is little more than a loose association of autonomous branch offices. The synergy that was to set it apart from the competition never materialized. "It's a lot of competent agents doing their thing," says an agent who sold his business to SFX Sports in 1999, "but my biggest connection to SFX is that it's on my letterhead."

What happened? From its inception SFX Sports was beset by infighting. In one of the first power plays Falk, who brought Jordan to SFX Sports, and Bob Gutkowski, the founder of the Marquee Group, became locked in a struggle to run the company. Falk prevailed, but after barely a year he resigned for personal reasons and now has only a nominal affiliation with SFX Sports. In another conflict Falk prot�g� Curtis Polk and Bill Allard, formerly of ProServ, fought over who would become SFX Sports president. Allard emerged with the title but resigned last March also because of personal reasons. Polk, meanwhile, left the company in August.

They weren't alone. Agent Ivan Blumberg, who was named president of SFX Sports Talent Representation in 1999, is now only a consultant. Patricio Apey, a top tennis agent, left to start his own firm in London. Baseball agents Bob Gilhooley and Jim Bronner, whose clients included Pedro Martinez, were fired by SFX Sports after bringing suit against the company for $60 million in federal court. (Their suit alleges that SFX deceived them by withholding information that SFX was negotiating to be acquired. SFX denies those allegations.) "It was too many egos," says Gutkowski. "These guys were rivals for years and not used to taking orders."

The structure of the firm also changed when Sillerman sold SFX to Texas-based communications giant Clear Channel for $4.4 billion in August 2000. While the sale made Sillerman a billionaire on paper, it also altered the sports group's business model. Sports generates less than 10% of SFX's business, and SFX is less than 10% of Clear Channel's. "Suddenly," says Allard, "we were part of this big company for which sports wasn't a core business."

Compounding matters, when players' unions learned that Clear Channel's principal shareholders included Texas Rangers and Dallas Stars owner Tom Hicks, and Minnesota Vikings owner Red McCombs, they complained about the potential conflict of interest. To prevent team owners and agents from acting in concert, Clear Channel restructured, dividing SFX into several independent operating businesses. That served to further Balkanize the sports group.

As SFX Sports seeks to steady itself, its executives say that reports of the firm's demise are exaggerated. "We're doing well," says Jeff Lewis, the Clear Channel chairman who oversees SFX Sports. "We've worked through some issues, but it's an evolutionary process."

In the eyes of industry analysts, though, the company is merely a comet, its meteoric rise to be matched only by the force of its return to earth. "The real shame of SFX is that the original vision was a good one," says Gutkowski, who runs Magnum Sports Entertainment in New York. "The failure was in the execution."

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