Sports Supply Group issued a statement regarding recent volatility in its shares, including a sharp rise in short interest in the stock. The company blamed the stock's inclusion since December 2007 in the S&P Retail Select Industry Index. Sports Supply also said its board approved a $10 million stock  buyback program.



Adam Blumenfeld, chairman and CEO, said, “Many investors have asked us about recent increases in the trading range, volumes, and short interest associated with the company’s stock. Short interest is reported to have increased markedly from less than 100,000 (or less than 1%) of our outstanding shares on December 14, 2007 to over 4.4 million shares as of January 15, 2008, representing approximately 36% of all outstanding shares. The company currently has 12,267,760 shares of issued and outstanding common stock. Based upon publicly available filings, eight of the company’s shareholders beneficially own more than 9,000,000 of the company’s issued and outstanding shares of common stock. Daily trading volumes have increased from a typical average of approximately 25,000 shares per day to a recent rate sometimes exceeding 600,000 shares per day.


“We have just recently gained a greater insight into what we believe to be the factors affecting our stock, and we wish to use this press release to discuss our perspective with our investors as well as raise awareness of these issues for all market participants. It has come to our attention that, beginning in December 2007, Sport Supply Group was included as one of just 58 members of the S&P Retail Select Industry Index. This appears to be the primary index by which Standard & Poor's tracks and measures the stock performance of public US retail companies, as described by standard US government industry classifications. Members of this index include WalMart; Target; Costco; Sears Holdings; Nordstrom; Best Buy; Borders Group, Inc.; PETsMART, Inc.; Tiffany & Co.; Whole Foods Market, Inc.; CVS Corp; Urban Outfitters and other consumer-focused, brick-and-mortar, mid- to mega-cap retailers.


“Normally, we believe inclusion in such an index would be considered beneficial to a company’s stock, as it implies a higher degree of investor awareness and typically increases the liquidity of a company’s shares. However, we believe that many trading strategies that are currently associated with this particular index and its retail, consumer-oriented components include a substantial series of hedges or 'bets' shorting consumer retail companies in the United States. Furthermore, because each member of this particular index is given equal weight, despite the massive differences in market capitalizations, we believe that trading strategies which would have little effect on the price of a liquid, large-cap stock like WalMart or Target will have an out-sized effect on a smaller capitalization stock like 'RBI.'


“We now believe, therefore, that trading activities related to the S&P Retail Select Industry Index and the SPDR S&P Retail Exchange Traded Fund, whose objective 'is to replicate as closely as possible…the total return performance of the S&P Retail Select Industry Index,' suddenly began to affect our shares when RBI was included in the index, and that since much of the investment community was apparently positioned 'short' this index and its components, they are now shorting our shares in a fashion completely removed from any fundamental developments at our company. We recognize that this situation is unlikely to continue forever, and at some point we believe the forces which are leading market participants to short companies related to this index may eventually reverse and cause the very same traders to cover their short exposures, and repurchase shares in the very stocks they had been shorting.


“On the positive side, we are pleased that our Board has approved a $10 million share buyback plan, and should unrelated trading strategies continue to depress the price at which our stock trades, we will happily continue to execute our repurchase plan, subject to appropriate timing, price and availability of shares. As always, we will remain focused on operating the business and growing the long term value of the company for our shareholders.”