Sporting Goods Business, once a vaunted jewel of the VNU Business Media group, has been handed off to SportsOneSource Group in the hope that the up-and-coming, self-proclaimed new media specialist can stop the bleeding and restore order. The sale will be complete Aug. 31.
SNEWS® has learned from insiders that shortly after the Valcom private equity group announced the successful purchase of VNU in March 2006, instructions were tendered to get rid of red ink and to get SGB off the books as quickly as possible. Taking the magazine and its liabilities off its books doesn't mean that VNU is washing its hand of SGB, though. James Hartford, president of the SportsOneSource Group, confirmed to SNEWS® that VNU Inc. has a minority interest in his company. VNU Inc. became a partner with Hartford and SportsOneSource when SportsScanInfo, a VNU-owned entity, became part of the SportsOneSource family of products.
While specific terms of the SGB deal were not announced, and Hartford declined to reveal them to SNEWS®, insiders tell us that this was a sweetheart deal offered to its existing SportsOneSource partner after several other attempts to either sell the SGB property or license it were turned down.
Hartford maintained that VNU Inc.'s share "neither increased nor decreased" in the SportsOneSource (SOS) Group with the transfer of ownership from VNU Business Media to Hartford's team. Sources told SNEWS® that little or no cash was likely tendered and that the buyout is based on performance incentives. Little wonder, since we were told by insiders that SGB and its related properties (Outdoor Business, Hunting Business, the Elite Running Conference, and SGB Forum) had lost over $800,000 in the first quarter of 2006 and were on track to lose several million by the end of the year. Obviously declining ad pages in recent issues of SGB, OB and HB are one indication of the red ink, with issues almost thinner than the paper they were printed on.
We are told by insiders that VNU Inc. owns approximately a third of SOS Investor LLC, which is a North Carolina-registered LLC formed by Hartford in May 2006. SportsOneSource LLC, which was recently merged with SportsNewsSource LLC, will be folded into SOS Investor LLC, we were told. Also involved in the deal is Michael Fines, who owns Sports Trend Inc. LLC, a Florida-registered corporation and the founder of SoundScan (sold to VNU and now operated under the Nielsen brand), and also the founder of SportsScanInfo.
SGB's slide from a struggling publication to one drowning in red ink can be pointed at a lack of leadership at the top, according to many we have spoken with over the last two weeks, including Hartford.
"When Mark (Sullivan) and his team left the company, as good as the editorial and sales teams are, they had no strong strategic direction from industry people," Hartford said. "You don't replace a Mark Sullivan and that became very apparent very quickly that was a big miss for them." Hartford pointed out that industry people are back in control of the publications again and that can only point to a brighter future.
If there is any irony in this deal, it is that just last year, in a new PDF publication "Specialty Market Retailer," Hartford stated, "We do not foresee creating a glossy trade publication because, frankly, we feel that horse has left the barn. As entrepreneurs, we feel it is important to be entrepreneurial and create products that meet the needs of a market that is very different from the days when people waited in anticipation for their monthly trade publications to arrive."
One year later, Hartford acknowledged to SNEWS®, with a chuckle, that he may have been just a bit hasty in that remark. "Our research has showed us that if we want to reach the retailers, we need to offer print. Ninety percent of our retail responses to our surveys stated that retailers get most of their trade information from print.
"We intend to take full advantage of the strength of the brands we currently have and the ones we have acquired," Hartford told us. "Will we produce things the way they have been produced in the past though? Not likely. We are a new media company that happens to do print now, not the other way around, and we believe that is a significant difference."
One property that did not go to the SportsOneSource Group as part of the SGB deal – and the only one of SGB's publishing projects that was making money, we've been told -- was the right to publish the Outdoor Retailer Summer Market and Winter Market daily papers. Bicycle Retailer and its publisher Marc Sani were awarded the right to produce the trade show dailies under a two-year licensing agreement with Outdoor Retailer that begins with the 2007 Outdoor Retailer Winter Market daily papers.
While rumors have surfaced regarding SGMA’s involvement in the SportsOneSource Group/VNU Inc. deal, Tom Cove, president of SGMA, vehemently denied them. “We are not, in any way involved, even as a behind-the-scenes partner, and we did not know anything about it until the day it was announced,” Cove told SNEWS®. He added that the rumors may have been based on some case-by-case business relationships SGMA has had with SportsOneSource, including a running forum for June 2007.
SNEWS® View: The rapid downward slide for SGB began shortly after Mark Sullivan bid adieu to VNU on July 12, 2005, over differences in management and pay philosophies and started his own publication in partnership with SGI's John Horan. A glance through the most recent issue of SGI The Magazine reveals an issue that is thick, glossy, and looks decidedly like SGB used to -- when SGB could boast having clout, influence, and was considered a must-advertise publication. Those days are gone. Hartford's challenge will be to try to steal a bit of thunder from Sullivan's success. While we won't bet against Hartford as he's managed to demonstrate solid business savvy and he's built a respectable company backed by some impressive investors, he's got a very challenging road ahead, we suspect. One, we sure wouldn't want to be going head-to-head with a Sullivan/Horan team in the sporting goods side of the business, even on a good day for us. Two, he's got to convince advertisers to return, and that's no easy sale in an age of increasingly tighter ad budgets and reluctance to support trade advertising. Hartford does have a very strong and talented editorial team he can turn to, assuming he manages to keep the likes of Judy Leand, Cara Griffin and Emily Walzer, but if the last year with SGB has proven anything, it is that good editorial alone just won't get it done.
Though certainly not impossible, it will be doubly hard for Hartford's team to generate positive cash flow quickly since VNU Inc. did not secure the right to publish the Outdoor Retailer trade show daily papers, which have always been a cash cow for the company. Bicycle Retailer and Sani were the correct choice, naturally, since Sani and team have enormous trade show daily experience as the publishers of the Interbike daily, and as former publishers of the Outdoor Retailer dailies before they were handed off to the SGB crew in 2004. Sani and team are a significant upgrade from the current publishers, and show-goers should expect a livelier and more relevant show daily that is more connected to the actual trade show as a result.
Of greater significance in all of this, though, is the question of what direction the new owners of the VNU Group will take, as well as the direction many think it will continue to go. One day after announcing that he had successfully rid VNU of the SGB red ink, Michael Marchesano was promoted by VNU from president/CEO of VNU Business Media to executive vice president and "chief transformation officer" in charge of leading the company's so-called Project Forward business transformation program.
What is Project Forward you ask? It is a documented program that VNU launched after the acquisition which is designed, over a three-year period, to "reduce costs, enhance margins, and leverage VNU resources to improve its competitive position and fund future growth." Internal documents from the sale as well as other memos indicated a company-wide call for aggressive cost-cutting across all business groups in VNU. Jettisoning SGB and removing the liability of a low-margin business is only a first step. With the SGB sale, a few long-time employees of VNU were also given walking papers as of Aug. 31.
What's next? How will the trade shows be affected? We're going to be watching, along with many others. A commitment to increase margins and to reduce costs at the trade show level means several things to us: sell booth space to any warm body, rake in the sponsorships, and cut back on services, programs and support. VNU had best watch its step very closely with Outdoor Retailer. So far, it has been a solid industry partner, but make no mistake – the outdoor industry is very firm about the fact that the shows are its own, and it has allowed VNU to run them as a strong partner. This is also the case with Health & Fitness Business, the fitness retail show in the summer. Should the industry relationship change, through cost cutting and decisions that are clearly not in the best interests of the manufacturers, retailers and businesses in either fitness or outdoor, things could get a bit messy, and VNU won't experience the smooth and profitable trade show sailing it's enjoyed until now. Could the industry show sufficient collective resolve to rise up and take back control of their trade shows if they don't like the direction VNU is headed? Let's hope it doesn't come to that as revolutions are rarely bloodless.