By Thomas J. Ryan
Sports Authority’s remaining key execs have come up with a new plan calling for $1.53 million in bonuses as incentives to optimize the wind-down of its bankruptcy process. But the U.S. Justice Department’s trustee has called the bonuses “unseemly” given how many creditors won’t receive any money back in the bankruptcy reorganization.
The revised bonus plan comes after a bonus package calling for up to $2.85 million in enhanced pay for four top executives, whom Sports Authority declined to name, was rejected by Judge Mary Walrath. Following objections from lenders and landlords, the judge called the bonuses “inappropriate” in the face of job losses.
The Wall Street Journal reported that one of the three Sports Authority executives set to receive bonuses under the former plan had quit since the bonus program was axed. The revised bonus plan, first proposed on August 10, covers the remaining three executives.
“Prioritizing Insider Executives”
In arguing against any bonus plan, U.S. trustee Andrew Vara in court papers this week noted the new bonus plans come after the sale of substantially all of Sports Authority’s assets and when the retailer is proposing to pay certain administrative creditors and not others while providing no payments to unsecured creditors.
“The debtors appear, once again, to be prioritizing insider executives above all other parties in interest, including unsecured creditors and the thousands of employees who have already lost their jobs,” Vara states.
The trustee said part of the bonus tied to the success of liquidation sales doesn’t qualify as an “incentive” since the liquidation sales at all stores were completed by July 31. He also points out that there’s no information on whether the execs “had any influence over store-level inventory liquidation.”
As far as a bonus tied to “controllable” wind-down costs as the case enters its final stages, the trustee said the metrics were “too vague to be a meaningful, aspirational target,” with the retailer providing no information on how the execs’ services are aligned with such goals.
“The scant information provided by the debtors indicates that a large portion of the insiders’ fiduciary duties and job responsibilities already include items for which they are supposedly receiving ‘incentive’ bonuses, such as reconciliation of accounting issues, minimizing costs to the estates and maximizing value,” wrote Vara. “The debtors have failed to demonstrate why it is fair and prudent to give three insiders over a million dollars to complete tasks for which they are already responsible or for work that other people will actually be doing (presumably while the insiders ‘manage’ or ‘supervise’ the process). Here, the proposed bonuses are indeed unseemly.”
The trustee also continued to object to the executives’ names being confidential.
Sports Authority’s Defense
For its part, Sports Authority noted in its initial filing on August 10 arguing for the revised bonus plan that the execs must manage the remaining tasks related to the going out of business (GOB) sales process, including the final reconciliation and recoveries. A “sizeable amount of non-inventory assets,” including credit card holdbacks, letters of credit, utility deposits, vendor debit balances and miscellaneous personal property and equipment located at its corporate headquarters and data center also need to be monetized before the Chapter 11 process is complete.
Other final wind-down steps include filing tax returns, implementing a health care plan for remaining employees, archiving data, rationalizing the IT systems to a platform appropriate for the wind-down process, erasing personally identifiable customer and employee information from internal computer systems and terminating the retailer’s 401 plan.
“If the debtors are successful in these efforts, there is potentially a significant amount of additional proceeds that will come into the debtors’ estates,” Sports Authority’s counsel wrote. The retailer is also facing an “extremely constricted wind-down budget,” the retailer argued.
Stadium Naming Rights
In other news around the case, the court approved the transfer of naming rights at Sports Authority Field at Mile High from the retailer to the stadium’s main tenant, the Denver Broncos.
Sports Authority owed $3.6 million on August 1 and missed that payment. The estate of Sports Authority must pay the Broncos $50,000 to be free and clear of all naming right debts. Under the agreement, the Broncos will take over the naming-rights contract, which expires in 2021, that calls for total payments of $19.9 million.
For now, the Sports Authority name will remain on the stadium despite no Sports Authority stores remaining in operation. Some Bronco fans have been clamoring for the name to revert back to Mile High Stadium, the moniker of the Broncos’ pre-2001 home field. But the team is seeking a new sponsor to ensure upgrades to the stadium over time.
Photo courtesy Sports Authority
