By Thomas J. Ryan 

Sports Authority reached an agreement that will allow it to sell pre-bankruptcy goods bought on consignment as part of its ongoing liquidation efforts.

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. The vendors wanted to stop the sale of their products and have them returned, but Sports Authority argued it had the right to sell the merchandise.

Vendors felt that they should be paid under the terms of the consignment arrangements. Some consignment agreements restricted Sports Authority’s ability to discount the goods without approval from the vendor. In some cases, Sports Authority would be liable to cover the difference if any goods were sold below cost.

As part of the settlement, vendors are being paid under a “vendor carveout” that represents a percentage of the vendor’s entitlement under former consignment agreements. The payments range from 25 to 49 percent. The amounts may be adjusted based on sell-throughs during liquidation sales.

The settlement involved 73 of the 96 currently contested consignment claims and represented 84 percent of the value of the consignment merchandise. Besides maximizing the value of the sale of such merchandise earlier rather than later in the liquidation process, the settlement avoids substantial shipping and storage costs that would otherwise likely have been incurred if the goods in question could not be sold.

Sports Authority filed for Chapter 11 bankruptcy in March, planning to close only about one fourth of its 463 stores. Failing to reorganize, however, Sports Authority chose in early May to liquidate instead. Going-out-of-business sales at its remaining 320 stores have been taking place since Memorial Day and are scheduled to be completed by the end of August.

Photo courtesy Sports Authority