CAA, Endeavor Acquisitions Capture an Agency Biz at a Crossroads

CAA, Endeavor Acquisitions Capture Agency Biz
Variety Intelligence Platform

It was hard to shake the feeling that it wasn’t coincidental Monday, when hours after CAA stunned the entertainment industry by announcing its intent to acquire rival ICM, yet another rival, Endeavor, declared a $1.2 billion acquisition of its own with Scientific Games’ sports betting business OpenBet.

After all, the competition between these two venerable agencies has always been bloodsport; it’s part of the culture here in Hollywood. They obsess over each other’s every move, and the one-upmanship is deeply personal.

So, dueling acquisition announcements make perfect sense: No talent agency can soak up the spotlight for too long before the competition finds a reason to shove it out of the way.

But to understand the implications of these deals, look beyond the companies jockeying for attention. This M&A flurry illuminates the divergent paths laying ahead of the talent agency business as the field of major players shrinks to three, including UTA.

Consolidation among talent agencies should never be shocking, of course, given Hollywood history. As with earthquakes, you almost get a little nervous if too long goes by without a bigger fish swallowing a smaller one.

That ICM itself hasn’t been constantly engulfed in consolidation rumors over the years is a testament that though the agency has never been considered a truly top-tier organization, it has always held its own thanks to an enviable client list.

The ICM announcement was of those moves you don’t see coming but when it happens you wonder why something so inevitable wasn’t obvious from the jump. Yes, there’s CAA parent company TPG’s need to bolster its portfolio as it heads toward IPO. But more to the point, the agency world has to shrink for firms to grab additional leverage on the opposing side of the negotiation table to increasingly big entertainment conglomerates doing consolidating of their own and the tech giants with whom they’re trying to keep pace.

But one agency buying another strikes me as a short-term maneuver, a doubling down on the fast-eroding core competency of talent representation rather than the diversification maneuver that is really more of what’s called for to protect long-term interests.

Diversification is the direction rival Endeavor went, albeit it to a fault: The knock on Ari Emanuel's strategy is he has a collection of assets that don't give a clear idea of how the sum is greater than its parts. That's what motivated the pre-IPO move to buy all of UFC: Never mind if you don't understand what bull riding and sports betting have to do with each other; just think of Endeavor as "UFC plus everything else."

Don't believe for a second that buying ICM is the entirety of CAA's strategy. Sure, the acquisition brings blue-chip TV-lit clients that are as close to a goldmine as a talent agency can have. But even the value there will erode in a post-Netflix world in which the rich back-end deals of yore fade in a world where the new economics of streaming will cap the revenues coming to profit participants. Not a bad business to be in, but it will never be as good a business as it used to be, either.

Like a lot of industries, the agencies were weakened by the pandemic, but they were additionally hampered by a face-off with the Writers Guild that deprived them of owning production companies. Their go-to diversification move was blocked.

Emanuel's derring-do in recent years has meant Endeavor has eclipsed CAA in the perception game around town on which agency had the hottest hand. While CAA-ICM may mean it's a bigger business than Endeavor, it's not so clear that it's still top dog. Because buying another agency is too much a 1+1=2 equation at a time when 1+1=3 is called for, with out-of-the-box thinking that launches agencies into new businesses.

Which leaves the larger question these deals always raise: How much does CAA-ICM soften the earth for another landscape-reshaping deal? We already saw the distant-fifth player in this category, Paradigm, shed its music division last year to the Wasserman Group. Surely, what's left standing can't stand on its own much longer, and Paradigm is not new to the M&A rumor mill.

Regardless, it's acquisition opportunities outside Hollywood that will ultimately matter more. What acquiring ICM does is buy CAA some time to explore bigger diversification plays.