IMG, a global sports, media, events and talent management company, uses indirect network effect to develop the three business sides of the company’s triangle of athletes, advertisers and agents, in a way that the bigger one side gets, the bigger the other two will be. Forstmann Little, a New York PE firm purchased IMG in 2004 for $750 million. A decade later, in December of 2013, the powerhouse talent agency William Morris Endeavor (known as WME) announced the acquisition of IMG for $2.4 billion. This acquisition represents two things: the enormous value IMG created as a leading sports agency by using indirect network effects as a major lever to its growth, and the consolidation in the talent agency industry, where the size of your agency’s network is crucial for success.
IMG attracts athletes by employing many agents and by providing marketing services for companies who want athletes to endorse their products. The more agents working for IMG, the higher the ratio of agents to athletes. This means IMG can devote more attention and resources to each athlete because agents have fewer athletes to focus on, they can more effectively manage their athlete’s needs, such as travel logistics and professional contracts. IMG’s marketing service also serves athletes because the more companies and advertisers that use it, the more likely IMG’s athletes will be to get either an individual endorsement campaign, or a campaign that groups multiple athletes together.
Similarly, IMG attracts advertisers by representing many athletes and employing many agents. By working with IMG, advertisers have access to a wide selection and variety of athletes who could endorse a marketing campaign either individually or in groups. The more agents that IMG employs, the more time each agent has to connect with the Chief Marketing Officers at different advertising companies. This means that an advertiser who chooses to work with IMG will get a highly customized and personalized endorsement for its business.
Finally, IMG attracts more agents by representing more athletes and attracting more advertisers. The more athletes that IMG represents, the higher the athlete to agent ratio is. This means agents have more opportunities to represent highly talented athletes, and collect more fees from the athletes’ salaries. With more advertisers working with IMG, there are more opportunities for athletes to sign an endorsement campaign, which means even more value for the agents who represent them.
By simultaneously developing the three sides of their business, IMG not only attracted athletes such as Tiger Woods, Maria Sharapova and Payton Manning, but also sold media rights to sporting events such as Wimbledon and the Australian Open. In addition, IMG orchestrated deals with big companies such as Nike and Pepsi.
WME, a similar talent agency which was founded at 2009 and represents artists across all media platforms, specifically movies, television, music, theatre, digital and publishing, understood that in order to succeed in the talent agency industry, it has to grow by increasing the size of its network. For this reason, WME decided to acquire IMG. In an industry where businesses are dependent on network effects, mergers are necessary for a company’s survival. Agencies that do not control a big chunk of the market are probably doomed to fail. A good example of an agency that failed by not adopting the IMG model is LRMR. LRMR was founded by NBA player LeBron James after he fired his former agent. LRMR aimed to attract other players and athletes by leveraging James’ superstar brand and reputation. However, since founded on 2008, no other well-known athlete has signed with LRMR, which proves how crucial the network strategy is for talent agencies to succeed.