Two of investing and sports’ best minds are jumping into the red-hot market for SPACs – blank check companies that have brought some of 2020’s hottest stocks to market.
Gerry Cardinale’s RedBird Capital and “Moneyball” GM Billy Beane have teamed up to offer the first sports SPAC, called RedBall Acquisition Corp. The group plans to raise $500 million in an initial public offering “to focus on businesses in the sports, media and data analytics sectors, with a focus on professional sports franchises” according to an SEC filing this morning.
RedBall is the first SPAC formed with the stated purpose of buying a company in sports, including stakes in franchises.
Cardinale and Beane are co-chairmen of the RedBall SPAC and will lead the effort to identify a purchase target. RedBall will sell 50 million shares at $10 a piece in an IPO and issue additional warrants – rights to buy shares – at the rate of one warrant for every three shares, according to the filing. By regulation, RedBall can’t have acquisition discussions with any company until the SPAC has gone public.
Cardinale didn’t return an email seeking comment.
In recent months some of the market’s hottest stocks have come to the stock market by SPAC, including space travel outfit Virgin Galactic, alternative fuel vehicle maker Nikola and fantasy league and betting website DraftKings. Sports data firm Sportradar is believed to be exploring an IPO of its own by SPAC, as Sportico first reported. SPACs – special purpose acquisition companies – are an alternative to IPOs for privately held companies.
“Why is it attractive for a private company like DraftKings to be merged with a SPAC as a backdoor way of going public? Partly it reflects the excessively high cost of doing a traditional IPO with their investment banking fees,” said Jay R. Ritter, an IPO expert at the University of Florida’s Warrington College of Business.
On top of that, big institutional money is increasingly turning its eye to sports. As Sportico detailed yesterday, private equity investors are targeting franchises as a source of long-term, market beating growth. In recent months MLB, NHL, NBA and MLS have changed their ownership guidelines to allow investment firms to take equity pieces of clubs. With fewer games and lack of fans in the seats, it’s likely a good time for buyers like RedBall to be on the hunt, as sports teams and sports-related start-ups start to face a cash crunch.
Cardinale’s RedBird is known for making some big-splash acquisitions in the sports world. Last year it partnered with the Yankees, Amazon and Sinclair Broadcasting in acquiring YES, the regional cable channel that shows the bulk of Yankee games and in July RedBird acquired French soccer club Toulouse FC. It has also worked with the NFL to form On Location, an experiential hospitality firm that was sold for about $700 million in January.
A long-time well-respected general manager of the Oakland A’s, Beane emerged in pop culture consciousness through the Michael Lewis book Moneyball, which detailed Beane’s analytical approach to player development and acquisition, a style that has since come to dominate the baseball landscape.
Beane has extended his gaze beyond baseball in recent years. Since 2015 he has been a consultant to Dutch football club AZ Alkmaar. The club has improved from sixth to second place in the Dutch Eredivisie, the top league, while also doubling its roster value and boosting net transfer proceeds, according to the SEC filing. Beane also owns a minority stake in English soccer club Barnsley.
Like other SPACs, shareholder money will be kept in trust for up to two years until Beane and Cardinale find an acquisition target, at which time shareholders can get their money back or elect to continue to hold the shares. Money is also returned if no acquisition is made in two years. The $12.5 million expected to be raised by the warrants will cover the cost of bringing RedBall public, leaving the duo $500 million to deploy in an acquisition.
RedBird Capital has an agreement to buy $100 million of the SPAC shares, meaning Cardinale will control 20% of the equity once RedBall is public. The issuers will control the voting power of the company through Class B shares until an acquisition is made, according to the filing. Helping bring RedBall public is investment bank Goldman Sachs as the book runner, and Rice, Hadley, Gates & Manuel as adviser. The four co-founders of that firm, including former U.S. Secretary of State Condoleeza Rice and former U.S. Secretary of Defense Robert Gates, will be special advisers to RedBall.
RedBall management consists of Lewis Wolff, part owner of the Oakland A’s MLB squad and the San Jose Earthquakes of pro soccer, Alec Scheiner, formerly a top executive with the Dallas Cowboys, Luke Bornn, a sports analytics expert, Deborah Farrington, venture capitalist co-founder of StarVest, former Premier League CEO Richard Scudamore, Nobel Prize-winning economist Richard Thaler, RedBird CFO David Grochow and Volkert Doeksen, co-founder of private equity firm AlpInvest. RedBall is a portmanteau of RedBird and Moneyball.
(This story has been updated with a headline, details of the offering in the third paragraph, a quote from an IPO expert in the sixth paragraph and details of RedBall Acquisition Corp. throughout.)