The SPAC attack has reached the sports industry.
If Spotify in 2018 popularized the direct listing—a method of going public with no roadshow, less hype, and no new shares created—Virgin Galactic, DraftKings, and Nikola have ushered in the era of the SPAC (special-purpose acquisition corp), in which a private company merges with an already-public “blank check” company to raise capital and become publicly traded.
Virgin Galactic went public on Oct. 28, 2019, by merging with IPOA, an SPAC from venture capitalist Chamath Palihapitiya’s Social Capital Hedosophia. Under its new ticker (SPCE), the stock is up 75% since then. Electric carmaker Nikola (NKLA) went public on June 4 by merging with the VectoIQ SPAC, and it’s down 27% since then amid an SEC investigation into alleged fraud.
DraftKings (DKNG) has been the biggest success of the bunch.
The daily fantasy sports and sports betting operator became public on April 23 by merging with the Diamond Eagle SPAC at a time when all live sports were shut down due to the pandemic; shares are up 185% since then.
The sports industry has taken note.
According to the Wall Street Journal, John Henry, CEO of Fenway Sports Group, the parent company of the Boston Red Sox, is in advanced talks for a deal with RedBird Capital’s RedBall SPAC that would bring the team public and land RedBird a minority stake in the team.
RedBird is the firm that teamed up with Dwayne “The Rock” Johnson and his business partner Dany Garcia to buy the XFL last month. RedBird teamed up with former Oakland A’s manager Billy Beane, of “Moneyball” fame, for the RedBall SPAC.
Fenway Sports Group (FSG) owns a lot more than the Red Sox: the portfolio also includes the Liverpool soccer club; Roush Fenway Racing, a NASCAR team; NESN, the sports network that airs Red Sox games; and historic Fenway Park.
RedBird reportedly values the portfolio at around $8 billion; the firm raised $575 million in its RedBall SPAC IPO in August, and plans to raise another $1 billion for a minority stake in FSG.
FSG declined to comment on the WSJ report.
It’s uncertain whether the deal will actually go through, but just the fact that the talks are happening reflects the growing thirst for SPACs. What began in tech is now crossing into pro sports.
Activist hedge fund titan Bill Ackman has an SPAC that went public in June. SoftBank is looking to launch an SPAC. Opendoor, a real estate tech platform, will be brought public by Chamath Palihapitiya’s second SPAC. October saw the arrival of the first ETF (exchange-traded fund) for SPACs, which will invest only in stocks resulting from SPACs.
The SPAC method has obvious appeal for sports properties.
Sports franchise valuations are always inexact and very roughly ball-parked estimates; when teams have fully sold to new owners in the past decade, they have almost always sold for more than their most recent Forbes valuation. They are also one of the rare assets that are practically guaranteed to gain value each year—or they were before the pandemic called the value of sports franchises in the next few years into question.
The only truly publicly owned franchise in the “Big Four” leagues (NFL, NBA, MLB, NHL) is the Green Bay Packers, which has fan shareholders.
The Atlanta Braves are majority-owned by Liberty Media (BATRA), a publicly traded broadcaster whose own majority shareholders are financial firms like Vanguard and Janus Capital. The New York Knicks and New York Rangers, is publicly traded in three forms, the teams (MSGS), the physical venues (MSGE), and MSG network (MSGN), but majority owned by James Dolan. Nintendo of America previously owned the Seattle Mariners for more than 20 years until the sale in 2016; Nintendo still holds a 10% stake.
The idea of a storied franchise like the Red Sox becoming publicly traded would make its valuation clearer and less murky, and would also, hypothetically, tie market valuation more directly to on-the-field success.
On the other end of the deal, the SPAC process allows a group that can’t afford to buy a whole team outright to get a sizable stake in a team worth much more than the SPAC raised, since the SPAC brings its target company public through a merger. (In the potential Fenway deal, RedBall, which only raised $575 million in its IPO, would be “merging” with an $8 billion company.)
As Axios wrote of the Fenway-RedBall report, “If this deal goes through, expect it to open the stargate between SPACs and Major League Baseball teams, creating all sorts of new financial transparency.”
Shaq has an SPAC; Shaquille O’Neal has teamed with former Disney execs on an imminent offering. Mat Ishbia, who won a national college basketball title with Michigan State in 2000 and is now the CEO of mortgage lender United Wholesale Mortgage, just cut a deal to bring his company public at a $16 billion valuation by merging it with the SPAC of Alec Gores, brother of Detroit Pistons owner Tom Gores.
Expect to keep seeing deep-pocketed names from the sports world launching SPACs.
Daniel Roberts is an editor-at-large at Yahoo Finance and closely covers sports business. Follow him on Twitter at @readDanwrite.