Is Sports Illustrated Fiasco a Weird Game of Chicken?
There’s a lot going on over the past week that reminds me of the meme where a guy pushes a stick into the spokes of his bicycle wheel and then blames someone else when he falls. Can’t help but feel like there are a lot of own goals going on in media right now… but whatever the case, let’s jump in why don’t we.
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Sports Illustrated misses a payment
There’s an inherent challenge with being a licensor of brands. You are effectively trusting someone else to run things and not destroy what you own. While you don’t have to carry the cost of running that brand while still cashing checks, you’re limited in your control.
But what happens when the checks stop coming?
On Friday, multiple sources reported that Arena Group, which licenses Sports Illustrated, would be letting go a large percentage of the team. According to Variety:
According to Arena Group’s SEC filing, the layoff of more than 100 employees represented approximately 33% of its current workforce. The company estimated it will incur $5 million to $7 million in total restructuring charges, substantially all of which are related to employee severance and other termination benefits.
Okay, but why? In an SEC filing:
As previously reported, on January 2, 2024, The Arena Group Holdings, Inc. (the “Company”) failed to make a quarterly payment due to ABG-SI LLC (“ABG”), pursuant to the Licensing Agreement, dated June 14, 2019, by and between the Company and ABG (as amended to date, the “Licensing Agreement”), of approximately $3,750,000. On January 18, 2024, ABG notified the Company of its intention to terminate the Licensing Agreement, effective immediately, in accordance with its rights under the Licensing Agreement. Upon such termination, a fee of $45 million became immediately due and payable by the Company to ABG pursuant to the terms and conditions of the Licensing Agreement.
Let’s stop for a moment and just explain all the parties involved. ABG, otherwise known as Authentic Brands Group, is the actual owner of the Sports Illustrated brand. It acquired it in 2019 for $110 million from Meredith (who had gained control of it when it bought Time Inc. in 2018). In that same year, The Arena Group, which used to be known as Maven, signed a 10 year license for the brand. Then Arena Group didn’t pay $3.75 million in licensing fees. Authentic Brands warned Arena Group that it would terminate the agreement if the bill wasn’t paid. And when the bill wasn’t paid, the agreement was terminated.
There’s a lot going on here and I have a number of questions. The immediate one is: why would Arena Group take on the “$5 million to $7 million in total restructuring charges” if that is more money than the $3.75 million that it owed to Authentic Brands?
The second one is: why would Authentic Brands run the risk of destroying the asset that it owns—and paid $110 million for—over $3.75 million? To answer this question, I turned to a friend of mine who has done licensing deals with numerous media companies. While he requested anonymity, this is what he said:
It actually makes all the sense in the world if ABG actually has another licensee lined up in the wings that can bring the brand back to where they need it. In this scenario, it means they were just looking for a breach excuse to terminate the license agreement and a failed payment is a clean cut means to do that. ABG usually doesn’t make mistakes.
That said, the counter argument is that thesis is a long-shot because SI has been so damaged for so long and I am not sure who would want the task of a third time back-from-the-dead-brand-relaunch. I don’t see how SI recovers anytime soon given the damage the licensee [Arena Group] has done.
The Arena Group is willing to pay more for restructuring than it would cost to continue licensing. And simultaneously, Authentic Brands is willing to let the asset that it owns get gutted, even in the short-term, in order to sever its relationship with Arena Group.
This looks like a game of chicken that has gone a lot farther than either party might have expected. This statement made to Variety only reinforces that belief that for me:
The Arena Group is “in active discussions with Authentic Brands Group — but we understand we aren’t the only ones,” a spokesperson for Arena Group said in a statement to Variety. “Even though the publishing license has been revoked we will continue to produce Sports Illustrated until this is resolved. We hope to be the company to take SI forward but if not, we are confident that someone will. If it is another business, we will support with the transition so the legacy of Sports Illustrated doesn’t suffer.”
Unless Arena Group’s statement is blatantly false, it seems that they are seeking to continue negotiations with Authentic Brands. The question is whether other parties are willing to make a play for the Sports Illustrated license. That would be the best hope for Authentic Brands because the longer Sports Illustrated is dealing with this problem, the more damage is done to it. And that can have long-term impacts for the owner. However, would any other party be able to turn the brand around?
Nevertheless, I don’t suspect this is the end of negotiations. While the SEC statement says that Arena Group owes $45 million to ABG, I’m unsure where that’s going to come from. According to Arena Group’s Q3 earnings, it only had ~$7.3 million in cash and cash equivalents. Hard to pay a bill when you don’t have enough cash.
Hey, taking a quick break from the newsletter to let you know that on February 29th, I’m heading down to New Orleans for BIMS 2024—a great b2b media event with operators from some of the leading b2b media companies. This event brings together various companies, including Active Interest Media, Endeavor Business Media, FreightWaves, and more.
If you want to grab your ticket, head to BIMS’ website and pick one up. But hurry… the team tells me tickets are moving fast.
Pitchfork shutdown: financially necessary; tactically wrong
If one magazine going through trouble wasn’t enough, we move on to last week’s announcement that Pitchfork would be merging into GQ. According to Variety:
“Today we are evolving our Pitchfork team structure by bringing the team into the GQ organization. This decision was made after a careful evaluation of Pitchfork’s performance and what we believe is the best path forward for the brand so that our coverage of music can continue to thrive within the company,” Wintour wrote in the memo.
The internet was full of stories lamenting the loss of the brand. In one Guardian story about the news, the author confused me by arguing that:
Condé Nast’s gutting of the esteemed alternative publication and its staff is the latest example of media conglomerates prioritising capital over culture.
Well, yes… I’m surprised that it needs to be emphasized, but whether Pitchfork was independent or owned by Condé Nast, its financial viability was crucial. The reality is, Pitchfork was dependent on advertising to survive, and it has been a tough time for consumer advertising. Not to mention, Condé Nast overall has had to make cuts, so shutting down what could be financially weaker assets is a necessary move.
From a tactical standpoint, though, this move feels peculiar. Aram Zucker-Scharff who works at The Washington Post had a good thread about this news. He wrote:
TLD+1 (the base domain) is becoming an increasing focus for ad tech tools around contextual targeting, privacy sandbox, and antifraud. Minimizing domains you hold will almost certainly be looked back on as a tactical error.
What media brands should have done/do is create hub -spoke models for their topical verticals that doesn’t isolate sites but leverages aggregation tools to have central sites lending authority to new domains. But they’ll overcorrect and then it will fail and over correct again.
In other words, as we move more and more toward contextual advertising, more niche websites will perform better than larger, generalist sites. And to be clear: this is not new. The entire Dotdash Meredith model supports this theory. That’s why the team broke up About into many smaller sites.
Ultimately, here’s the issue for Condé. It’s massive, it’s got bloat, and it’s going to incrementally need to make cuts to ensure it’s not burning cash. But that’s how any media company is. We shouldn’t be surprised.
AMO Pro: B2B needs to pay attention to TechTarget/Informa deal
In Friday’s AMO Pro edition, I went into more depth about the upcoming TechTarget/Informa deal because I believe this is very important for b2b media. In the piece, I explained why the new TechTarget would become a must-buy for b2b marketers:
First, TechTarget will have scale. The team is talking a lot about the fact that it’ll have 50 million known users with 1st-party data. While 50 million is only a fraction of the size of a platform like LinkedIn, the big difference here is that TechTarget will have an immense amount of behavioral data that helps it prove buyer intent. In other words, it can anticipate which of its users are more likely to want a specific product or service based on their content consumption behavior. LinkedIn can’t do that.
Second, it can work across many more industries than it used to thanks to the addition of Industry Dive, which means its big advertisers can become even bigger. Think about a company like Oracle. If you look at the industries it serves, it’s wide in scope: education, food & beverage, healthcare, industrial manufacturing, retail, etc. These are all industries that Industry Dive already serves and so Oracle can push more spend across the TechTarget ecosystem.
But the third reason is the real powerful one. When this deal is done, b2b marketers will be able to reach scale across a wide breadth of industries and do it self-serve with real-time reporting. In other words, a marketer won’t have to sign an insertion order or anything like that to get a campaign running and they won’t have to wait until it ends to know how things worked.
I then broke down exactly what publishers need to start prioritizing if they are going to be able to compete—even a bit—with the new TechTarget.
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