On Monday, Sportico EIC Scott Soshnick broke the news that Dany Garcia, Dwayne Johnson (aka ‘The Rock’) and RedBird Capital Partners had acquired substantially all of the assets of Alpha Entertainment LLC for +/- $15 million (pending bankruptcy court approval). In essence, the group bought all of the XFL’s I.P., free and clear of any liabilities (there really are no physical assets left, as they were all sold off to satisfy creditors and the vast majority of personnel was let go). The bankruptcy auction scheduled for Aug. 3 was scrapped after it was determined that the triumvirate was the only qualified bidder. One could certainly argue that the lack of interest in Alpha Entertainment’s assets is indicative of their true value. But a source familiar with the new ownership group’s thinking called the purchase a “relatively cheap option to acquire a business which had $200 million of capital already deployed into it; and in the absence of COVID-19, had shown some real green shoots.”
Our Take: As the insider we spoke to pointed out, the new ownership group is not just acquiring league and team marks. They are getting all of the equity that has been built to date within eight major media markets (including New York and Los Angeles)—and they’re getting it for cents on the dollar. The $15 million price tag also satisfies an existing debt owed to former owner Vince McMahon and ensures COO Jeffrey Pollack and several other executives (a group that does not include Commissioner Oliver Luck) remain in their seats until the league’s new owners make a determination on how they are going to proceed.
Garcia, Johnson and RedBird are all convinced that spring football is a viable product. But the group has no intention of funding losses for an extended period of time (as McMahon was willing to). In fact, the new owners are viewing their acquisition as an option play. The hope is they’ll be able to land a big enough media rights deal to make the league financially viable. And they’ll willingly fund the short-term losses associated with getting the league up and running again knowing there is a clear path to profitability.
Given that COVID-19 continues to run rampant throughout the country, it seems unlikely fans will attend sporting events for the foreseeable future. That’s not a problem for the XFL’s new ownership group, which could employ a ‘made for TV’ approach through at least the 2021 season—as long as they can find a broadcast partner willing to pay for the content. While the league won’t wait for fans to relaunch, if it were to gain traction amongst fans and a vaccine were to emerge the group certainly would not be opposed to selling tickets to games.
By creating a cash-flow positive asset, the new ownership group won’t be reliant on the NFL eventually bailing them out (as McMahon’s XFL strategy was predicated on). But the business of private equity requires selling assets eventually, so it reasons to believe the trio of investors have hopes of exiting one day—even if it’s not necessary for the venture to be a success. Of course, the NFL would be the most logical acquirer (or potential equity partner) for the spring football league.
With an ownership group that may not be as focused on reach, the XFL has the potential to be the first U.S. sports league to sell core broadcast rights exclusively to a non-linear provider. Our source confirmed the group would “look beyond traditional distribution [channels].” Expect the league to try to leverage access to ‘The Rock’—a valuable proposition for both traditional and nascent platforms—when negotiating its media rights pact.
It’s reasonable to suggest the absence of competing bidders indicates the market doesn’t believe XFL I.P. has much value. It’s not as if there were no bids greater than $15 million; there were no other bids, period. The new ownership group clearly believes the groundwork for success is in place and that they have an ability to monetize the media and content opportunities better than other bidders might have been able to do. While that remains to be seen, if the assets acquired really do hold limited value there’s a strong argument to be made that the group would have been better off saving the $15 million and starting their own league from scratch.
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