Analyzing the proposed running/multisport mega-merger

I'm assuming all these deals close, which is by no means a certainty. This game is in overtime, Falconhead Capital has the ball on the opponent's 10-yard line. All it has to do is kick the field goal. But, wasn't that all the Indianapolis Colts had to do in San Diego a few weeks ago? Nevertheless, let's assume Falconhead puts it through uprights. Let's handicap this thing.

But first, a recap. Falconhead Capital is buying, or merging, or causing to merge, a variety of media and event properties, including but not limited to: Triathlete Magazine, Elite Racing, Competitor Magazine, City Sports. It's looking like Sea Otter Classic may be a part of this, such acquisition occurring at a later date if at all. This appears the beginning of an industry mini roll-up, and that's happening on the peripheries of our sport (Active.com has quietly grown to 1500 employees and has largely cleared the deck of competitors; SRAM has now acquired Rockshox, Sachs, Truvativ and Zipp); and now this.

From where does the money come for these types of purchases? In the case of Active and SRAM it's home grown: A company of that sort spins off enough cash to acquire a direct competitor, expand its customer reach, or round out its portfolio of products. In the case of this current set of acquisitions, this is private equity money. And, to be precise, these aren't exactly acquisitions: technically they are mergers — mergers that feel and taste and smell like acquisitions, which is why the term acquisition, though imprecise, can arguably be considered accurate.

WHY THIS DEAL WILL WORK

Let me put myself in the driver's seat of Competitor, Inc., post mergers, and metaphorically take the wheel. What do I do to leverage all these resources I now own or control?

The putative reasoning behind an event and media buy is that one cross-pollinates the other. I can promote my events with my magazines. I can assure coverage of my races. I can drop a magazine in the goodie bag of every entrant to one of my events, or market my magazine to those registering for my races online.

But the first thing I do on the very first day is rearrange the seating at my conference table. Nobody monetizes a book like John Duke. Say what you want about the editorial (though I think editorial is fairly well done under Mr. Duke's charge), whatever titles you put under his direction will get fatter, and half the fat will be the ads. Put him in charge of Time magazine a decade ago, and it's buying AOL instead of the other way around. Okay, I embellish, but he is good at what he does.

Then I sic a key accounts salesman on the top endemic (e.g., Nike, Gatorade) and non-endemic (e.g., big pharma, Detroit, banking and finance) advertisers and provide one-stop shopping opportunities geared to our demographic. My guess is that Peter Englehart will bring out a top salesman from the East to do just that. Otherwise he's got brilliant key account sales talent right in San Diego (in the person of triathlon's Mike Plant, for example).

What do I mean, "one stop shopping?" Remember, Elite Racing produces its own TV progamming, and it certainly has the world class events to televise. But it has had no one of the stature of Mr. Englehart, a sports programming master almost without peer, especially when it comes to endurance sports. I can sell an advertiser endemic print, on-site, television and internet coverage all in one fell swoop.

That may be the large potatoes, because sports programming is not a business about which I have knowledge. Even excluding the above, what follows below is not small potatoes.

In all of endurance sports there are few trademarks that have proven a near-guarantee of success: Ironman and Danskin come to mind in triathlon. Produce an Ironman in Yellowknife or Tierra del Fuego and either will sell out. Danskin races, while excluding half the population, are among the World's largest triathlons.

While Rock & Roll is not quite the guarantee of success that Ironman is, it is close. Rock & Roll Marathon is a trademark made of gold. While private equity is typically a vehicle for acquisition, not start-ups, in this case I make an exception. I produce one Rock & Roll Triathlon, then another and then, like Ironman and 70.3, I go national.

Michael Gotfredson (Roadrunner Sports) has already broken down the Chinese wall between media and retail with his own magazine so, me, I'd be sore tempted to do the converse, and buy an underperforming shoe retailer with a fabulous virtual storefront and strong back-end. Why not? I've got probably 400,000 people who run competitively to whom I'll sell something under this umbrella of companies.

If that Chinese Wall is just too formidable to scale, then at least I'm rev-sharing with Roadrunner Sports, or another in its competitive set.

Put mayonnaise in the tuna can! No, feed mayonnaise to the tuna! There are almost too many ideas, all of which seem worth pursuing.

THE PITFALLS

While they all work on paper, most acquisitions don't work in practice. I've been involved in the successful ones, and in the "other" ones, both as an acquirer and as the acquired. I have had the unique thrill of having personally flubbed an acquisition or two, so I know whereof I write.

For starters, can a shirt-and-tie New York operation properly manage a set of San Diegans? I remember my first finance meeting with a New England based public company that had acquired my start up. The division managers spent 30 minutes on whether they should continue casual Friday through the Winter. Not wanting to leave out the new guy, they asked me about our West Coast division. "We've got a strict dress code," I answered, "If you come in with long pants we send you right home." Don't underestimate the nature of the culture clash.

Then there's the fact that each of these company heads — most or all of whom will retain some managerial role, that is, almost nobody is just taking his money and running — are entrepreneurs. Tim Murphy (founder and owner of Elite Racing) is enough subject matter, all by himself, for a semester-long Harvard Business School class. Competitor's John Smith and Bob Babbitt would do fine, but Messers Murphy and Duke are iconoclasts. What makes them great at what they do may make them each a difficult fit inside a corporate structure.

There is, of course, the obvious: Is it appropriate to own both the events, and the magazines promoting and covering them? This is the issue that'll generate the hand-wringing, and could serve to cause a rift between, say, Triathlete Magazine and the events with which they have strong partnerships. But I see this as the lesser of several concerns. Let's face it, magazines already live with the financial tension of covering the events from which they derive income. It may be cold comfort, but I don't think the conflict of interest can get any worse than it already is between publishers and the goods and services about which they write.

The biggest single public relations hurdle will be the site fees large events charge metro areas in order to come to that area. If you want to attract an event that'll place 20,000 marathoners in your town, in your hotels, and your restaurants, and you want the high profile, upscale visibility that demonstrates your town is with-it, that comes with a price. Typically, city services are offset by grants against those services, that is, the police, emergency medical, public works, harbors and beaches, they can't charge the organizer or he'll choose another town for his mega-event. These abated fees can run into the several hundreds of thousands of dollars (or more). It's one thing when a small entrepreneur owns the event, it's another thing when New York Finance stands to "profit" from the townspeople's tax money paying for these services.

This is an issue, but it shouldn't be. Mississippi doesn't turn down the new Toyota or Hyundai factory just because the corporation is domiciled in Asia. Upscale cultural events are good for these communities, because of the intrinsic value to residents and the extrinsic dollars that flow in from the outside. The skillful massaging of the visceral reactions (however misguided) to the equity makeup of the "new" Competitor, Inc., by those in cities where these events will take place will enhance the bottom line.

Then there is that pesky Rock & Roll Man in metro Atlanta. Will this cause any problems if and when Competitor, Inc., gets around to trademarking Rock & Roll for triathlon?

ON BALANCE

There are certain mergers and acquisitions that make sense. When Bell Sports bought Easton, that one made terrific sense: Shared markets include baseball, hockey and cycling. Bell has reps that probably earn at or below 5 percent in commissions, who can now sell Easton products previously sold by a distributor that probably pocketed 25 percent. What's not to understand about that deal?

This one is not quite so straightforward, nevertheless the opportunities are legion. Plus, I'm probably sufficiently obtuse as to miss the big picture: television programming. I don't know what the economics are, but they probably exceed whatever my limited scope can imagine.

Yes, there may be some loss of competitiveness (obviously there would have been if Velo News and Inside Tri had been part of the deal). But there are other areas where new competition will arise.

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