Chilli Says It’s Business As Usual When It Comes To The ASP TV Deal

Sportsworld Media Group, the television company that signed a 12.75-million-dollar media and marketing deal with the Association Of Surfing Professionals back in November 2000, has been fighting off rumors of its imminent demise after its stock plunged 87 percent in the past few weeks.

The decline was prompted by two profit warnings in less than three weeks. According to the Financial Times Sportsworld blames the startling decline on a dramatic slowdown in the market for sports sponsorship, which the Chief Executive Geoff Brown says is the worst in twenty years.

According to a company press release, “As a precaution, the board has initiated discussions with the company’s principal banker regarding its ongoing funding requirements.”

Sportsworld also announced that it would be reviewing its investment in programming and the carrying value of goodwill “in the light of the current trading environment. According to the Financial Times article, “This would point to an asset write-down.”

But according to Stuart Sawyer, head of Chilli Industries — SMG’s dedicated freesports division that’s responsible for the ASP’s television shows and news feeds — it’s business as usual when it comes to producing the WCT television shows.

“Our parent company, SMG, has been under the kosh a bit after announcing a profits warning,” says Sawyer. “This has affected their share price. Then a few vultures circled with rumors of a possible hostile takeover which also prompted a dirty tricks/bad press campaign on the group and CEO — anyway that’s our parents and not us.”

“With regards to the ASP and Chilli, it really is business as usual,” continues Sawyer. “We will be in Australia for the Quiksilver Kirra and Rip Curl Bells events as normal with full crews.”

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“Media coverage for 2002 will be up on last year with broadcasters happy with our productions and the vision of Pro Surfing. We have just completed the end-of-year video and the DVD is almost done — and they look great, so it’s business as usual for us at Chilli.”

If this is the case, it’s good news for the surf industry. When TransWorld SURF Business visited the ASP’s main office in Coolangatta last week, Chief Operating Officer Peter Whittaker said the ASP was monitoring events closely. But the severity of SMG’s financial difficulty has left some pondering what might happen if things continue to fall apart.

“I think the ASP has a bit of a crisis on its hands when it comes to SMG,” says Matthew Perrin, CEO of Billabong International. “The company SMG has a lot of issues and no one knows how it will all turn out, but it doesn’t look promising at the moment. And that’s disappointing for our whole industry — full stop. Because if SMG folds that’s going to place the ASP under increased financial pressure.”

If things aren’t worked out, Perrin says it’s likely the brands will have to pony up more money. “That’s probably where our frustration comes from,” he says. “At times, it’s basically, ‘Well, if it doesn’t work out, we’ll just go back to the brands and ask for more money.'”

“We certainly don’t have an ax to grind with the ASP or anyone in particular,” continues Perrin. “Our position is that we’d just like to see some real planning go in — not just from the ASP, but from the brands, the ASP, and the surfers. We all need to sit down and say, ‘What is achievable and what do we need to do it?’ We all need to lock that in.”

“Unfortunately, with regards to the SMG deal, we had some reservations about it,” says Perrin. “Now they have these financial problems — which isn’t good for anyone. We don’t have a problem, it’s more that we feel a lot more thought needs to go into the tour and where it’s going, rather than just presuming there’s always going to be brands or sponsors that will look after increases in prize money, increased fees, etc., etc.”

So what does Perrin expect will happen?

“I hope SMG is okay, but I think it looks a bit doubtful for the tour in 2002, so I think the next ASP meeting will need to be a complete rethink of how the 2002 program will fit together. All the brands and companies who support the tour have budgets. We have budgets too and we’ll spend our dollars this year. The events themselves will have to be rethought in terms of whether they will go. If SMG isn’t tipping in for part of the cost, there will be a hole there. We have Tahiti, which is an expensive event to run. I think we’ll have to rethink that, and that probably means that the ASP, the surfers, the brands — everyone — needs to cop a little bit of the pain, which is unfortunate for everyone, but part of the reality.”

If Perrin sounds grim, he’s not alone in his assessment. Even if SMG is able to work out its current financial difficulties, Dynocomm President Alan Gibby says SMG will still need to find a major sponsor for the tour for the ASP/SMG deal to make sense.

“The SMG deal was made with the best of intentions, but economic conditions have obviously changed,” he says. “That was a dot-com-era deal back when it was okay for some companies to endure burn rates — probably one of the most unique times in all of history. In my opinion, the ASP-SMG deal was based on reality only if a major sponsor (or sponsors) were to be secured within a reasonable amount of time. And I mean a major seven-figure-plus sponsor! Without that in place most any professional sport is in trouble in this day and age.”

Gibby is in a unique position to know. Dynocomm was the ASP’s media partner from 1987 to 1998. “At its height, we had the ASP tour in 300 million homes in 105 countries around the world,” he says.

But Gibby says the industry shouldn’t rely on SMG to land a major sponsors and keep those sponsors excited about surfing. In the past several years Gibby has seen other sports gain a greater prominence on television — partly because those sports have done a better job catering to the needs of sponsors.

“Other sports have done a much better job than us in preparing and packaging for major sponsors,” says Gibby. “Other successful sports consistently take care of their sponsors once they get them. Surfing has sadly lost some excellent sponsors along the way. The promoters in pro surfing events simply have to kiss up once in awhile in order to close and keep deals. Sometimes we act as if we feel we are doing these outside sponsors a favor. It will be interesting to see how Surfing America handles the new Fosters sponsorship for North America. If Fosters re-ups at the end of this deal it’ll tell me everyone did a good job.”

But is this all a tempest in a teacup? Is surfing on television really that important to both the ASP and the surf industry in general?

“My answer is that if the industry wants to expand as they say they do, if they want to reach out to a virtually untapped audience, if they want perceived legitimacy for their existing and potential stockholders, then yes TV is definitely a critical component to industry growth and always has been,” says Gibby.

TransWorld SURF Business will update this story as it develops.