SFX became one of the top sports representation firms in the nation by acquiring the smaller companies of top agents. But like other management firms that grew this way, SFX now faces a challenge from one of the agents it bought out.
The contract of agent Arn Tellem, whose star-studded NBA and Major League Baseball client list includes Tracy McGrady, Reggie Miller, Jason Giambi and Hideki Matsui, expired on Sept. 29. Since selling his Los Angeles-based company, Tellem & Associates, to SFX in 1999 for about $25 million, Tellem has helped the District-based company become a premier sports agency with revenue that tops $100 million a year. If he leaves SFX, which is owned by Clear Channel Communications, many of the more than 20 NBA and baseball agents he oversees -- and the more than 200 athletes they represent -- could follow him, say sources within the company.
"Arn has the loyalty of every agent in this place," said one SFX agent, who requested anonymity. "Within six months, the entire basketball and baseball staff would be out the door with him. . . . If they let him leave it would say to us that they aren't willing to grow the business."
An SFX spokeswoman said agency executives are confident that they can keep Tellem, who was out of the country and unavailable for comment. SFX is offering Tellem a larger role within the firm, say sources inside SFX, but he has told friends and co-workers that he wants to avoid making a long-term commitment. Should the two sides fail to cut a deal, Clear Channel could soon find itself competing against one its former top agents, a position that is not unique within the sector.
Lured by fat profit margins and white-hot growth, conglomerates such as Clear Channel, Assante and Interpublic Group spent billions in the late 1990s to acquire sports agencies. From 1998 to 2000 broadcasting company Clear Channel bought such firms as Fame, Hendricks Management Company and Sports Management Group, and began representing 300 elite athletes, including Michael Jordan, Roger Clemens and Jerry Rice.
Canadian financial services firm Assante bought about a half-dozen agencies, which included paying $125 million for Steinberg, Moorad & Dunn, headed by Leigh Steinberg. Some of the athletes that came under Assante's umbrella were Troy Aikman, Manny Ramirez, Pavel Bure and Kenyon Martin. Advertising giant Interpublic Group launched Octagon in 1997 and they obtained the firms that represented David Robinson, Anna Kournikova and Michael Vick.
The buying binge came as sports reached the apex of its popularity.
The NBA, NFL, NHL and Major League Baseball were attracting record audiences. Athletes' salaries surpassed the $100 million mark. As a result, the celebrity of agents such as Steinberg, David Falk and Scott Boras began to eclipse their clients. Their mystique only mushroomed after the industry became the focus of hit TV shows and films, such as HBO's "Arli$$" and the 1996 movie "Jerry Maguire."
What appeared to matter little to the big corporations was that they had no experience operating sports agencies, said David Moross, a managing partner in the sports investment firm Sports Capital Partners. He suspects that their executives may have been wowed at the prospect of working with athletes.
"These [sports] agencies are extremely attractive, sexy assets," Moross said. "There's a perception of enormous power and prestige surrounding them. But what invariably happens is that institutional owners learn that these aren't businesses that can be owned institutionally.
"The assets of these companies are the agents themselves. They tend to have large egos and know they are in control, which makes them difficult to manage. If the asset goes down the elevator at the end of the day and doesn't come back up the next, you've paid a fortune for what?"
The trouble began once the agents joined the corporations.
Selling their firms made them millions, but some of the top agents joined the heavyweight companies to exploit their strong ties to advertisers and the entertainment industry, say insiders. For instance, IMG, one of the world's biggest management companies, represents actors, broadcasters, authors and athletes. SFX operates or owns 120 live entertainment venues nationwide.
For agents, the thinking was that they could strike better endorsement deals for their clients, as well as catapult them into show business if they threw in with one of the bigger companies.
"These crossover deals turned out to be nothing more than smoke and mirrors," said one agent who formerly worked for one of the heavyweight agencies. "I'm still waiting for the film careers of Paul Pierce, Jason Kidd or Kevin Garnett to get off the ground."
"In this industry there is no big advantage to being with a big agency," said Joel Bell, a former Octagon agent who now represents Washington Wizards reserve guard Steve Blake. "Athletes follow people, not a company name. If any of the top agents in these big companies moves to his own office across the street, the athlete is going to get the exact same service. That's cause a good agent is experienced at marketing their people and negotiating contracts."
Bell uses Blake as an example. In only his second season in the NBA, Blake is hardly a household name around the nation. He averaged 5.9 points and 2.8 assists in his rookie year last season. Yet Bell has obtained Blake endorsement deals with sneaker company And1, three trading card firms, car maker Toyota and helped him launch a basketball camp in Germantown this summer.
Other agents fled because they found the corporate environment constraining.
"The clash between the entrepreneurial spirit and corporate culture was quite evident," said agent Bill Strickland, who once worked for IMG. "One could either endeavor to fit in or endeavor to survive on their own. Given these guys' former lives as entrepreneurs, many of them elected to leave."
A source within SFX said that fitting in at a company like the 30-year-old Clear Channel has not been easy for Tellem, who recently helped Kobe Bryant and Memphis Grizzlies forward Pau Gasol sign contracts worth $136.4 million and $86 million, respectively.
"We don't fit in," said the source. "Clear Channel is a staid old company, and we're hip. We should have been spun off from the beginning. They demand unrealistic year-to-year growth even while their stock has taken a beating this year. In my opinion, if Arn stays it's only going to be for the short term. At some point I would expect him to be on his own again."
Despite their troubles, some agencies continue to draw huge interest. New York buyout firm Forstmann Little & Co. is trying to finalize the purchase of IMG, which represents Tiger Woods, Joe Montana and Derek Jeter, for $700 million. The price tag isn't a surprise to Moross.
"Some of these institutions forgot who they were dealing with," said Moross. "These people [agents] negotiate for a living."
Researcher Julie Tate contributed to this report.