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Does WME-IMG’s $1 Billion Infusion Mean the Agency Is Tight on Cash?

One agency observer said the timing of the investment without a specific deal mentioned is not a good sign

WME-IMG has built itself into the world’s largest talent agency with a string of big deals this decade, like last year’s $4 billion deal to acquire mixed-martial arts organization Ultimate Fighting Championship.

And Wednesday, the agency gave itself plenty of additional fuel, nabbing a $1.1 billion investment from Canada Pension Plan Investment Board and Singapore sovereign wealth fund GIC in a move WME-IMG says is all about growth — but may also mean the big-spending agency needed some more financial support.

William D. Cohan, a financial journalist at Vanity Fair who has written extensively about the agency, strongly disagrees with WME-IMG’s take on the new investment, saying that the agency’s banks were likely demanding an infusion of equity to reduce its leverage — which the UFC deal exacerbated.

“I think the company overpaid for IMG,” he told TheWrap. “And I think they’ve only added to their troubles by buying UFC.”

“Buying IMG was a disaster,” he added. “It was a disaster when they added UFC, and it’s still a disaster.”
He added that Co-CEO Ari Emanuel getting the Canadian pension fund to invest “strikes me as a minor miracle.”

The recent history of WME-IMG indicates its raises are soon followed by new acquisitions. Only months after a $55 million investment from Fidelity last year, the agency announced its blockbuster UFC deal. Its $1.1 billion windfall could soon be harnessed into another blue chip move — or moves — from the industry powerhouse.

The agency’s tentacles throughout Hollywood and ownership of brands with real worldwide cachet like mixed-martial arts organization Ultimate Fighting Championship and New York Fashion Week have made it a hot target for big investors, including private equity firm Silver Lake and Japan’s SoftBank. There are more and more people plugged into distribution outlets every day, and only so much quality content to go around — with WME-IMG controlling a healthy share of it.

Silver Lake first invested in WME in 2010, and has backed the agency on numerous large deals including its $2.4 billion purchase of IMG Worldwide in 2013 and the UFC acquisition. And while Silver Lake and WME-IMG splashed a cool $4 billion to buy the UFC last year, an individual close to the agency said the new money isn’t going toward any outstanding UFC obligations, but rather new ventures. In a Tuesday letter, Silver Lake said some of the funding could be used to buy out some of the fighting league’s minority partners, as well as cashing out some senior WME-IMG employees and investors. WME-IMG declined to comment beyond a statement announcing the investment.

And while one veteran Hollywood exec said Wednesday’s announcement “reinforces” Emanuel’s position at WME-IMG and said he’s only getting stronger as a leader, Cohan said that the new investment could dilute Emanuel’s ownership in the agency, diminishing his role at least in its capital structure.

“I’ve got to believe he’s getting diluted down,” Cohan said. “He’s still Ari Emanuel, he’s a force of nature as you say, but I suspect this dilutes him further and the other management owners of the company.”

While the box office may be in the middle of a summer slump, Hollywood’s drawing power with regard to foreign capital remains fearsome. The question is, is it fuel for growth — or a lifeline for WME-IMG?