Gerry Cardinale and Billy Beane are now on the clock.
RedBall Acquisition Company, the duo’s blank check company, completed its IPO and started trading today, giving it $575 million dollars and two years to complete an acquisition in the sports business.
Cardinale is known for RedBird Capital, which recently bought the XFL with Dwayne “The Rock” Johnson and Dany Garcia and is a minority investor in the YES Network through a 2019 deal valuing the cable TV channel at $3.47 billion. Beane is best known for Moneyball, the Michael Lewis novel-turned-Brad Pitt movie that detailed Beane’s analytical approach to player evaluation. The duo formed RedBall earlier this summer as a special purpose acquisition company, or SPAC, with the intent of targeting “Sports franchises, including European football clubs, with intrinsic brand value that could be enhanced by our management team through improvement of (a) on-field performance through an analytics-based approach, and (b) business and revenue operations,” according to its prospectus.
The team filed for a $500 million IPO and raised $575 million as underwriters exercised an option to sell additional shares to meet demand.
The company also states it could buy a sports, data and analytics business or businesses that could benefit from “more efficient capital allocation”—a catch-all to give RedBall flexibility. According to one asset manager who spoke not-for-attribution, RedBall’s presentations to institutional investors to drum up buying for the IPO made clear the primary goal is finding a major sports franchise to buy.
“It’s a big SPAC, and I suspect they’ll be looking for a big property to buy,” said Charles Baker, co-Chair of the Sports Industry Group for the law firm of O’Melveny & Myers. “I would expect that they’ll look in Europe, where the rules are a little bit less restrictive in terms of the type on entity that can own a team.”
SPACs, which have flocked to market this year, hold an IPO and then find a business that wants to go public without the time and expense of holding its own IPO. Some of the year’s hottest new issues, including DraftKings, space travel outfit Virgin Galactic and clean-tech vehicle company Nikola have come public by blank check. The amount of capital a SPAC can spend can be magnified, since a company needs only to sell a portion of itself to a blank check acquirer to gain a public listing. That means in theory RedBall could acquire a team at a much higher valuation than $575 million.
By rule, a SPAC can’t have negotiations with potential targets ahead of their IPO. If a blank check company can’t complete a purchase using at least 80% of the funds raised at the IPO within two years, it returns the IPO investment to investors and disbands. The shot clock is now running for RedBall, which trades on the New York Stock Exchange under the ticker RBAC. The company also issued one warrant to buy an additional share at $11.50 for every three shares owned. Shares were priced at $10 each for the IPO and opened the day at $10.15.
As if Cardinale’s business expertise and Beane’s sports acumen weren’t enough, RedBall is paying four former U.S. national security experts $300,000 a year and 30,000 in shares to help conduct their search. Former U.S. Secretary of State Condoleezza Rice, one-time U.S. National Security Advisor Stephen J. Hadley, former Secretary of Defense Robert M. Gates, and one-time state department official Anja Manuel make up RGHM, an overseas business consulting firm retained by RedBall. That further hints RedBall is focusing on Europe’s pitches for a team.
“I think values there have been hurt even more than in the U.S., and therefore, from my perspective, I think the upside may be even stronger in Europe than in the U.S.,” added Baker. Beane is already part owner of second division English soccer club Barnsley and a consultant for Dutch club AZ Alkmaar. Cardinale’s RedBird Capital acquired 85% of FC Toulouse in July.
RedBall is the second sports-team SPAC to come to market. In 2008, Sports Properties Acquisition Corp. raised $200 million in a quest to buy a major sports league team. Led by New York City taxi medallion tycoon Andrew Murstein, former senator and football pro Jack Kemp, baseball legend Hank Aaron and former New York governor Mario Cuomo, that SPAC bid on the Chicago Cubs and the Florida Panthers. It wasn’t successful in acquiring either. Sports Properties liquidated in 2010.