Unable to find a PE firm or rival willing to tackle another attempt to resuscitate the chain, Sports Authority appears headed for a full-scale liquidation and the shuttering of all its doors.
On May 16, a group of liquidators won the right to conduct going-out-of-business sales at the bankruptcy auction for the assets of Sports Authority. The winning trio was made of Tiger Capital Group, Hilco Global and Gordon Brothers. According to court documents, the closing sales for the remaining stores will commence on or about May 25 and will terminate on or about August 31, subject to Sports Authority’s rights to seek extension.
Tiger Capital and Gordon Brothers were already retained earlier in the case to handle ongoing liquidation sales at 140 stores Sports Authority had initially decided to close. It owns a total of 463 stores.
The winning bid amounted to 101 percent of the cost of Sports Authority’s inventory, plus a $1.8 million augment guarantee. The fund raised are only expected to be able to repay Sports Authority’s two top lenders. These cover an asset-backed loan worth $345 million when Sports Authority filed bankruptcy in early March as well as a separate $95 million secured loan.
In the initial Chapter 11 filing, Sports Authority listed $1.1 billion in debt, including more than $717 million in bank loans, and about $179 million in trade debt, or debt owed to suppliers. The top-three holders of unsecured trade claims were Nike Inc., owed $47.9 million; Asics America Corp., $23.3 million; and Under Armour Inc., $23.2 million.
According to documents filed in Delaware’s bankruptcy court, the second-highest bid came from a joint venture of another group of liquidators: SB Capital Group, The Great American Group, 360 Merchant Solutions, and Yellen Partners.
Rival sporting goods chains were also expected to be competitive in the bidding but their actual bids were minimal. Prior to the auction, Dick’s Sporting Goods reportedly submitted a bid for less than 20 stores, while Modell’s was seeking just a handful of locations, according to the Wall Street Journal. On Tuesday, Dick’s Sporting Goods increased the number of stores on which it would bid to about 30 locations, sources told the Journal.
Academy Sports & Outdoors, which also was touted as a potential major bidder, apparently didn’t make a formal bid.
The Journal reported that in total, about 80 store leases received bids, with other retailers such as Bob’s Discount Furniture LLC and Orchard Brands Corp. also seeking small sets of locations. An auction for the retailer’s remaining store leases will be held on June 29. Bids are due by June 23.
A week before the auction, Modell’s walked away from a deal that would have kept some of Sports Authority’s stores open as the two sides couldn’t agree on a price. Term-loan lenders had pushed the company to liquidate its stores since they felt their recovery potential would be better than with Modell’s offer.
Sports Authority Inc.’s name, and its naming rights for the Denver Broncos stadium went unsold at the auction Monday and will also be available at the second auction for remaining assets. Bloomberg said the Sports Authority name and all of its other intellectual property may be assumed by secured lenders who won’t be cashed out by the inventory liquidation. Those lenders, owed $277 million, include Blackstone Group’s GSO Capital Partners, Wellington Management and Columbia Management Investment Advisers.
The Denver Broncos team is contesting the transfer or sale of those stadium-naming rights and sponsorship without its consent.
Other assets for sale could be its various private labels: Tommy Armour (golf), RAM Golf (golf), Alpine Design (outdoor), Aspire (yoga), Bloom (yoga), Classic Sport (athletic), Oxide (surf & swim), Slalom (snow sports) and Trayl (bike).
Sports Authority has also accumulated shopper data from its customer loyalty program, which was launched in 2012 and currently boasts 28.8 million members. Approximately 20 percent of the Sports Authority’s customers drive 62 percent of its sales, the company noted in court documents.
When it initially filed for bankruptcy, Sports Authority’s lenders gave the company has until the end of April to reorganize or find a buyer for some or all of its assets to avoid liquidation. The deadline was subsequently extended to mid-May.
The struggling sports retailer, backed by private-equity firm Leonard Green Partners & Co., has been weighed down by more than $1 billion in debt. Leonard Green acquired the company in a $1.3 billion leveraged buyout in 2006.
Other causes of the bankruptcy included heightened competition from traditional and internet retailers, an underdeveloped online platform, outdated information systems, underperforming retail locations encumbered by expensive leases, a decision to exit the hunting and fishing markets in all new and remodeled stores, and reduced demand in the golf category.
The chain’s many mergers and acquisitions also resulted in “inconsistent store formats across the chain,” according to court documents. The current Sports Authority is result of the 2004 merger of Gart Sports, which was based in Denver, and The Sports Authority Inc., based in Fort Lauderdale. Gart Sports expanded rapidly through acquisition, including Oshman’s in 2001 and Sportsmart in 1998. Sports Authority also bought Copeland’s Sports after the California chain in 2006 filed for bankruptcy. Gart Bros. started out in Denver, CO in 1928.
The bankruptcy process has been hurt by tensions among vendors, landlords and creditors. Soon after filing for bankruptcy in early March, Sports Authority filed lawsuits against some 160 of its suppliers over consignment sales totaling $85 million worth of merchandise. Vendors have argued that they should be paid when items are sold under consignment arrangements rather than lenders getting first priority over such funds. Vendors had been accused of witholding shipments to the chain and undermining reorganization efforts.
Sports Authority’s imminent shut down would represent the largest disruption in the sporting goods space since Herman’s Sporting Goods exit in the mid-nineties. Dick’s Sporting Goods and Academy Sports are expected to particularly benefit but the industry overall if facing more pressures from non-traditional sellers such as Amazon and other online retailers as well as more department stores and other mainstream stores stocking more active offerings.