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

November 05, 2001

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 protege 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."

COLOR PHOTO: JOHN W. MCDONOUGH

SFX Sports represented more than 15% of NBA and Major League
players, including Kobe Bryant

"It was too many egos," says Gutkowski. "These guys were not used
to taking orders."

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