Lagardère lays out financial impact of CAF move to terminate contract

The immediate economic impact of the move by the Confederation of African Football to cancel its global media and sponsorship rights agreement with the Lagardère Sports agency was today outlined by Lagardère, as the France-based conglomerate vows to do “whatever it takes” to defend its interests.

CAF has informed Lagardère of its decision to cancel the 12-year agreement, which is due to run from 2017 to 2028 and is worth $1bn (€890m) in a move described by the France-based conglomerate as “unlawful, unreasonable and unjustified”.

Following the announcement on Tuesday evening of CAF’s “unilateral decision” to cancel the contract, the group’s market capitalisation – the total value of the company’s shares of stock – has lost between €160m ($174.7m) and €170m in value, according to Arnaud Lagardère, the group’s general and managing partner. He said that the impact on stock was “just as a consequence of the potential contract resiliation [cancellation]”.

Lagardère also outlined today that the average recurring Ebit (earnings before interest and taxes) from the CAF contract would be forecast at around €10m per year for the 2020 to 2028 period.

Lagardère has stressed its intention, if necessary, to “defend its interests and obtain compensation for any harm it may suffer” and Arnaud Lagardère underlined that position today as the group reported its third-quarter results.

He said: “We have here a very very strong case and we’ll do whatever it takes either to maintain the contract or deal with more changes or get a significant amount of cash…

“…we are a respected company, we’ve served the CAF during all these years with efficiency, loyalty and dedication. So this is really unfair and even if I know that no one should be too candid or naïve in this business, I think we don’t deserve such a treatment.

“We will make our voice sound loud and clear to protect the interest of our company’s shareholders. Whatever it takes. We hope that we won’t need to do it but if needed, we’ll do it.”

The termination of the CAF agreement would mean Lagardère, which continues negotiations to sell the sports division, is deprived of two contracts previously regarded as the two ‘crown jewels’ of the division. The Asian Football Confederation business will end next year after DDMC Fortis won the contract from 2021 to 2028.

Properties covered by the CAF contract include the flagship Africa Cup of Nations, the Africans Nations Championship and the CAF Champions League. The deal has long been a controversial one and has come under pressure from competition probes. It has also been the subject of much scrutiny since Ahmad Ahmad deposed Issa Hayatou as CAF president in March 2017.

Questioned by analysts about whether all cash receipts had been received for the 2019 Africa Cup of Nations, Lagardère’s chief financial officer Gérard Adsuar said that the “vast majority of revenues and profits have been booked in the first half” and that he does not expect the CAF situation to lead to “a major deterioration of cash estimates compared to our internal forecasts”.

On the sale of Lagardère Sports and Entertainment, Arnaud Lagardère admitted that this week’s development has “had an impact on the business prospects”.

The Lagardère chief decided to keep his counsel on any of the interested parties given recent comments from analysts and shareholders that the group is “under pressure to sell”.

He remarked: “We are under pressure to do the new strategy [carry out disposals and focus the business around the Publishing and Travel Retail units] for sure and we will achieve that. We will do it as soon as we can but we are not under pressure to sell at a bad price.”
Lagardère had initially targeted a sale of the sports division by end of the second quarter of 2019.

Wasserman, the sports marketing company and talent agency, and Mediapro, the Spain-based production and media rights group, are among those to have been interested in a purchase. However, Mediapro’s interest is said to have cooled of late and the loss of the CAF rights could make any intensification of its interest very unlikely. Other aspects of Lagardère’s sports business, including Lagardère Plus, its developing brand consulting and activation business, will, however, doubtless retain their appeal with the likes of Wasserman.

Arnaud Lagardère also refrained from discussing any impact on the sale price. Speaking a year ago, analysts suggested a “sum of its parts” value of between €200m and €300m for the sports division. That range valuation was described by Arnaud Lagardère at the time as “quite low” and aimed “to go much higher than that”.

Third-quarter revenues

It was announced today that third-quarter revenues at Lagardère Sports and Entertainment totalled €82m, down 8.6 per cent year-on-year on a consolidated basis.

Lagardère said: “The favourable calendar effect related to the Total Africa Cup of Nations football tournaments failed to offset the scheduled end of the Citi Open tennis tournament in the United States and the Nordea Masters golf tournament in Scandinavia.”

The revenue for the nine months ending on September 30 was €402m, a 32.3-per-cent jump on a consolidated basis and largely thanks to the favourable calendar effect. Events such as the Africa Cup of Nations, AFC Asian Cup and IHF World Men’s Handball Championship all contributed significant revenues during the period.

In 2018, the sports and entertainment division reported recurring Ebit of €30m and revenues of €438m.

Lagardère today reported overall third-quarter group revenues of €2bn, up by 5.5 per cent on a consolidated basis.