It's break point in Octagon versus IMG

Frank Lowe has built the world's second largest sports marketing company from scratch but catching up with arch rival Mark McCormack will be tough, unless he finesses that too

When Martina Hingis, the number one seed, steps out at Wimbledon this week, one avid tennis fan will be cheering her on more than most. Frank – Sir Frank since last week's birthday honours – Lowe will hope to cap one of the best months in his long career.

The advertising veteran has not only garnered a gong, but has unveiled plans to back the redevelopment of the Formula 1 racetrack at Silverstone as well as holding court at the tennis event he created, the Stella Artois at Queen's Club in South London. Octagon, the sports marketing company he built from scratch four years ago, has (albeit by default) cemented its position as number two in its field, behind Mark McCormack's IMG, which, after all, has a 30-year start on Octagon. Sir Frank's portfolio of stars includes Hingis, Anna Kournikova, the England fast bowler Darren Gough and the boxer Audley Harrison.

But there is a cloud to go with Sir Frank's silver lining. The business has cost its parent, Interpublic Group, an estimated £500m to create and many in the industry are wondering whether it has been worth the money.

The genesis of Octagon can be traced back 25 years to when Mr Lowe was the head of the advertising agency Collett Dickinson Pearce (CDP) and persuaded one of his clients, Stella Artois, to back a tennis tournament two weeks before Wimbledon. Though branded sports events existed in the US, nothing like that had ever been tried in the UK. Its success spawned scores of imitators – such as the Whitbread Round the World Race and the Benson & Hedges Matchplay golf.

Mr Lowe left CDP in 1981 to form his own agency, selling out to Interpublic three years later and joining the US giant's board. Despite a successful and colourful career in advertising – best remembered for the moment he set himself on fire while dressed as a lion at a party hosted by The Lowe Group – he hankered after returning to the sports arena.

Until Mr Lowe persuaded Interpublic to bankroll Octagon, there were two types of sports marketing firms. Some – such as IMG or the much smaller First Artist and Jerome Anderson Associates – grew out of artist agencies. Mark McCormack originally represented golfers and through this came to own sporting events and represent sponsors.

The others were offshoots of advertising firms – seen as a "below the line" function such as media buying or public relations. Indeed, Alan Pascoe Associates (APA), which now forms part of Octagon, was owned in the early 1980s by Aegis Group, which could not see the potential of the business.

Mr Lowe decided he wanted to build the first "marketing-led sports agency". Interpublic bought two sports agencies – APA and Advantage International – in 1997 and Octagon was born. APA represented some top athletes, notably in athletics, where its eponymous founder had started out, but was better known for its work for events and sponsors. Advantage was a specialist in tennis, and was known for working both for the players and the sponsors. The deals immediately put Octagon in the first rank of sports marketeers – although well behind IMG and the other market leader, ISMM/ISL, the Lausanne firm which had almost incestuous relationship with the big Swiss-based sports bodies, the football organisations Fifa and Uefa and the International Olympic Committee.

ISMM/ISL collapsed earlier this year after ruinous deals to buy the rights to ATP Tennis and two Brazilian football teams. Though a new force in the business is being created with the merger of the sports businesses owned by European media giants Vivendi Universal and RTL, Octagon's rising stock in this market has been cemented by ISMM/ISL's demise.

Matthew Wheeler, Sir Frank's right hand man at Octagon, admits the group is likely to benefit from its Swiss rival's demise. Big clients will be looking for new advisers – though Fifa has just announced it will not do its marketing in house – and the fact that Octagon has Interpublic behind it will reassure people that it will be around next year.

But Mr Wheeler counsels caution. "I don't think it is good for the industry when one of the leading companies manages itself into the ground."

The two deals that created Octagon were followed by further purchases – the television production company CSI (which sells the rights to the Premier League outside the UK) and, more controversially, Brands Hatch Group. Octagon paid £120m for the motor racetrack group – whose main asset was the eponymous Kent circuit. Central to the deal was the agreement which Brands Hatch's chief executive, Nicola Foulston, had made with Formula 1 impresario Bernie Ecclestone, to move the British Grand Prix from Silverstone to Brands Hatch.

However, there was a problem. To move the Grand Prix meant substantial rebuilding at Brands Hatch, and that needed planning permission. When Octagon bought the business, it was not clear whether planning permission would come through. It didn't.

"Nicola Foulston saw Frank Lowe coming," says a marketing rival.

Few disagree that Octagon overpaid for Brands Hatch but last week's deal on Silverstone goes some way to finessing the situation. Octagon struck a deal with the British Racing Drivers Club, which owns Silverstone, and Mr Ecclestone, to invest £40m in improving the racetrack, so securing the Grand Prix at the course, but under Octagon's control. It means that it has a piece of one of the premier sporting events in the world calendar.

The trouble is, says a leading sports agent, this is the only one. "They have some good athletes, and some good TV deals, but they have nothing that stands out as a big international property," says a leading sports agent. "They cannot claim to stand toe to toe with IMG."

But IMG is not impregnable. Mr McCormack is close to 70 and has no obvious successor. Rumours that the business might be up for sale surface every few months, and the denials become harder to believe. It would be Sir Frank's greatest coup to bring IMG into the Interpublic stable. More than a knighthood, more than Martina Hingis winning Wimbledon, more than securing the British Grand Prix, this would be Sir Frank's crowning glory.