Richard Hughes – First Artist
Thursday, 4th October 2007 by RealFD.net
Richard Hughes joined talent agency First Artist two years ago, just as it started to diversify away from its core football business. His first job? An acquisition spree. We went to find out how he's coping.
There are some places you’d expect to find one of Britain’s premier talent agencies. A plush, discreet mews in Knightsbridge perhaps, or an exclusive Georgian square in Mayfair. But First Artist is based on a ring road in Wembley. Granted, it’s only a stone’s throw from the National Stadium, but it’s hardly what you’d call salubrious.
But the slightly down-at-heel location of the office belies its lavish interior. Richard Hughes, having been here for a little over two years, is clearly comfortable. And he’s not shy about putting his stamp on the business. “First Artist started off in the 1980s as a sports promoter, founded by a guy called Jon Smith. It grew massively in the 1980s and 1990s,” he tells me.
But the football boom came to an end in 2003 with the collapse of ITV Digital and the introduction of transfer windows – a huge blow for agents. “The group had traded extremely well and made good profits in the previous years, and was the top football agent at the time,” Hughes says. “It therefore had to make a significant rationalisation in 2003, and the business went from a £2m profit to a £2m loss, and wrote off £13m of goodwill, so 2003 wasn’t a very good year.”
Enter the FD. Hughes was recruited after working on a project to acquire Brands Hatch (his group came second) to help Smith restructure away from the risky and volatile world of football. That effort, to build in stability and reliable business units that make money all year, has been Hughes’ preoccupation since he joined. And as we’ll see throughout the day, melding four businesses into one is no easy task.
10AM It’s a relaxed office here, with most of the staff in casual clothes. Indeed it’s the first time we've come across a financial controller wearing flip-flops. It suits Hughes, whose background is in marketing and media. He’s a little bleary-eyed, as the group’s latest acquisition was only completed at 4.31am that morning.
The FD tells me what opportunity he hopes to get from another business bought. “It’s a company called Sponsorship Consulting, that is very much at the strategic end of sponsorship. It looks at boardroom relationships and advises people on their sponsorship spend, rather than trying to flog them something,” he explains. “That’s something I learnt in my days in advertising: one thing you want to do in media and advertising is to get in the boardroom – don’t deal with the spotty brand manager, get in the boardroom.”
Hughes is busy putting the finishing touches to the paperwork for the acquisition. When I ask him how many businesses he has bought for First Artist, he does a quick count on his fingers. “I think that’s nine now,” he muses.
It’s all part of Hughes’ and Smith’s strategy. “The idea was to develop a much more broad group, with four or five operating divisions, with all of those divisions operating alongside each other,” he says.
So from being an agency purely for footballers four years ago, with all of its assets and attention tied up in representing players at all levels across Europe, First Artist now has interests in event management, wealth management, and an entertainment agency. All thanks to acquisitions.
Hughes takes the chance to catch up on a few calls and emails after last night’s completion. He’s expecting Mel Atkins, the managing director of First Artist’s event company, Finishing Touch, for a meeting with a pair of potential partners who are looking to set up a joint venture in Dubai. Hughes is hopeful that a successful entry into the Middle East could lead to other opportunities.
“We see Dubai as a significant market for events for the whole group. We already do football deals in the region and we did two or three last year in Saudi Arabia,” the FD says.
10.45AM Atkins arrives for a quick chat about the upcoming meeting. The issue here is how they structure any relationship with their potential partners. The joint venture route isn’t attractive for Hughes, and he’s determined to push through an alternative option. It’s an interesting lesson in how best to manage the potentially limitless growth First Artist is pursuing.
“This is the type of industry where there are a lot of partnership arrangements flying around,” he says. “You tend to get a lot of joint ventures going on, so in essence we will operate it but others will provide the leads, so over a period of time it might change its form.”
Hughes’ golden rule on these deals is, “if in doubt, don’t write it down in a contract”, because then you can sort it out between yourselves if you have a dispute. “The difficulties with these joint ventures are the ‘what ifs’. If a meteorite hits Venus, what happens then? It gets really silly. Lawyers are there to protect you, of course, but there are so many variables that you end up with a document several inches thick and a £15,000 legal bill for a joint venture that may not actually generate any money.”
The two go through their tactics for the meeting. Hughes has found the negotiations difficult to date. There have been clashes, and this meeting is designed to iron out the last few kinks in the structure of the business. That’s the theory at least.
What Hughes is determined to avoid is an unwieldy and expensive joint venture contract that could turn into an albatross. The group has completed one recently and the FD is determined not to make the same mistakes again. “We really learnt from the last one. We realised that the approach we took wasn’t quite right in the way that we structured it,” he says.
11.15AM The guys are here, so we troop up to First Artist’s swanky boardroom. The walls are covered with signed football shirts and gold discs – testimony to chief executive Jon Smith’s illustrious past. The meeting is rather tense. The two potential partners have a firm idea of how the tie-up should be structured. After Atkins has said his piece, it’s time for Hughes to lay out how he sees the arrangement working. There’s a lot of non-verbal communication going on, and there’s certainly tension in the air.
Hughes’ approach is interesting. He’s not one for laying down the law and is more of the “this is how we can help you” school. But for all his conciliatory noises, there’s a steeliness to his approach that communicates the message “this is what we are going to do, whether you like it or not”.
It’s a good illustration of how the FD can impose his ideas on how the business should be run. Smith is obviously happy to let Hughes grapple with the complexity of structuring First Artist’s third-party ventures.
The fact that the company is listed on AIM means that having any potentially troublesome offshoot arrangements would be a headache. Hughes lays out, with the aid of his trusty spreadsheets, just how he sees the venture working. He seems to be getting through to one half of the duo, but the other is proving more intransigent.
After more than an hour’s wrangling over clauses and subclauses, the potential partners decide to go away for a day and discuss their options. Hughes and Atkins seem happy with how it’s gone.
1PM We head out of the office to take some pictures and grab some lunch. It’s a chance for Hughes to tell me how the strategy of moving away from football as the core business is helping the group gain some stability and big-company discipline. Not that having some of the best contacts in the game is necessarily a bad thing.
“When I arrived, several discussions were had with the Board of Strategic Review, and we realised that actually First Artist Corporation is one hell of a brand, and you’ve got a business that, although it was in trouble, opens up more doors than any other business you can imagine. Go into any boardroom, into any major meeting with banks or investors, and if you mention football, all the boys’ eyes light up and all they want to talk about is Chelsea or Arsenal,” he says.
“That was a fantastic thing to fly our flag from, but because of the nature of football, on its own it wasn’t right for a public company, because you lose money for eight or nine months of the year and you make all your money in the last three or four months. Plus, it’s pretty unforecastable, because it’s on the whim of others.”
There’s also the issue of communicating the business to the City. Hughes says the image of football agents makes that a tough sell. How does he do it? “We have to rely on our track record for a start: we are as clean as a whistle. You will never find a dodgy word about First Artist being involved in anything: that just won’t happen,” he says.
“The other difficult thing about having football as one part of a larger portfolio of products is helping to make sure the City understands that there’s more to the group than football. At the end of this year it’s going to work out as being just 30 per cent of our business. We have to get that perception across, and we are working with the City to get them to understand the message of where we are and where we’ve gone as a business, because we are fundamentally different from what we were two years ago.”
As part of that, the entertainment side of the business – representing TV presenters with a focus on sport – has come to the fore, along with First Artist’s events and wealth-management services. Indeed, the annual report doesn’t feature a surfeit of footballers’ pictures. It’s the right strategy to make sure the group is taken seriously.
Of course, despite its relatively low market cap of just over £4m, the company does attract more than its fair share of headlines – all part of the massive influence of football in the UK.
2PM Having braved the rain to get some shots of Hughes in front of the new Wembley Stadium, we head back to the office to catch up on some paperwork. The business has completed three acquisitions in the past few months, so Hughes is still ironing out the organisational structure. It’s a big job, so what does the FD bring to it? He says it’s all about finding a balance.
“With the all the businesses we have acquired, we have retained the incumbent management, so that on a day-to-day basis, you don’t actually have to do anything, as they just carry on doing their job. It’s vitally important that you don’t rattle their cage: the whole reason you bought it was that it was doing well, so why change it? “My job is to take away all the crap they had to do when they ran the business themselves: the property, the insurance, the accounts, the administration, the PR and all that stuff.”
But keeping the right level of independence to allow the businesses to carry on bringing returns is also key. “There’s implementation of all our standard policies and procedures across the group’s companies,” he says. “We don’t go charging in there on the first day with a whole load of suits and say ‘you can run it this way’. So it’s about gradually chipping away the inefficiencies and making sure that each company has a financial controller who produces the accounts properly.”
Hughes has set up a system whereby each financial controller has an operational role and must ensure First Artist discipline and procedures are followed. “Finance people must be totally aware of how the company operates and what it does, and they must become embedded – ‘go local’ to coin a phrase,” he says.
“The group should be seen as an assistance rather than an Big Brother-like ogre. I would like to ensure that the group here is always seen to support and encourage the businesses, and is actually taking away all the administrative headaches and letting the people who make the money go and make the money.”
Hughes says that his previous experience at larger businesses has helped him impose levels of control into what is in essence a small business. “We’ve made sure that the financial reporting comes in standard form, and then we consolidate the figures. My financial controller and I review them and then we know where we are.”
Accounts are completed – with some plagiarism of WPP Group, where Hughes cut his teeth and where they must be finalised by the eighth working day – so there are good standard disciplines across the group. “We manage cash flow here with a central treasury function. And I look at the cash position every morning. So there is a strong and tight financial and administration control, as well as HR, all run centrally, but with local management.”
To that end, Hughes and Smith are in the process of interviewing for a company secretary role. The FD needs help on the consolidation of the group, and the more First Artist grows, the more work gets dumped on his desk. So he’s keen to bring in someone to help out.
3PM Hughes is happy with the position today, and things should get even better over the next couple of weeks. We’re in the last fortnight of August, when a lot of football business is done.
Chief executive Jon Smith drops into the office to update the FD on the latest news regarding various First Artist clients. RealFD.net grabs the opportunity to get some juicy transfer gossip – off the record of course – while Hughes makes notes on what kind of income the group can look forward to before the end of the transfer window.
But while our eyes light up with the news that Smith has just got off the phone with Real Madrid, Hughes takes it in his stride – in fact he’s more of a fan of the oval ball than the round one – and does a few rough calculations.
The chief executive also brings in an article from the morning’s papers that calls on football agents to publish all their figures. It’s not a problem for First Artist, which has been pushing for more disclosure for a long time – as a growing, listed business, First Artist can’t afford to be anything other than squeaky clean. But you sense the rest of the industry might not be so keen.
3.45PM Simon Bent, First Artist’s financial controller, comes in for a management accounts meeting. Having operations across Europe – Denmark and Italy are the two main hubs – means that Hughes needs to be on top of all the divisions’ operations. It’s another sign that, as Hughes says, First Artist is playing with the big boys.
“We’re at the funny stage of going from being a small business to suddenly being a corporate, and we have to adapt accordingly," he says. "We want to make sure that we’re penny right on the consolidation process. It’s a learning curve for everybody as we now employ about 80 staff, and last June we employed 20. We’ve taken on 30 in the past month alone. We’ve gone from a £4m to a £12m turnover in one year.”
And the bigger the business gets, the more strain on the reporting structures. So Bent has also been looking at a number of financial software packages. He gives the FD an update.
Hughes admits that the systems need attention. “Before, we used an Excel spreadsheet and had five spreadsheets linking into one. With all the companies we have now, and because we try to get a lot of information on each spreadsheet, the consolidation spreadsheet has become so cumbersome that we’re having to look around for a piece of software to make us more efficient.”
Having worked in larger corporates, the FD is clear on what he needs, so he talks Bent through what he should be asking prospective vendors. They’ve got two hours of number-crunching ahead of the them, so I decide to leave them to it.
Before I go, though, I ask Hughes to sum up his role as FD. He considers a moment. “On the negative side, you’re the policeman, the realist, the one who tells people when things can’t be done,” he says. “But on the positive side, and this is where you make the real contribution, you’re the one who understands the business better than anyone else. You can see the wood for the trees. And you’re the one who can contribute the most.”
Integration: the painless approach
Since acquiring nine businesses in the past two years, Richard Hughes has had to become an expert on ringfencing risks. How has the FD managed to integrate so many new businesses without jeopardising his corporate governance?
“Every single part of the First Artist group is standalone. The only thing we can’t avoid having is a cross guarantee with the bank. Therefore if one of the divisions goes down, and goes with a lot of cash, we’ll have a cross guarantee on that company.
“But if ABG, our financial management offshoot, is sued, then ABG is sued. It’s not really our problem and it won’t bring the rest of the group down. The way we’re structured ensures that.
“Particularly if we consider going to the US, which is next on our agenda, we will have to look at carrying that arrangement on. With the US being famously litigious, we have to make sure that the action doesn’t come across the water, because if it does, the consequences are sizeable. We will need to take the right advice from auditors and brokers.
“With a limited company you know where you are and you know what the risks are. But we don’t, and one of the joint ventures has asked the operating company to stand behind the operational costs of the business. It will stand on its own two feet. The only thing we’re cross guaranteeing is the bank.
“Any risk is protected, but there is always the opportunity to ‘lift the veil’. The holding company is becoming far less implicitly involved in the operational transactions, so there should be far less of an opportunity for risk, because we’re less involved so the risk factor actually becomes less.”
