It was a year ago that sports SPAC mania sparked, as Gerry Cardinale and Billy Beane brought their RedBall blank check company to market. Since then, another 143 special purpose acquisition companies with a sports focus, or led by a sports figure, have formed. Less than a third of the group have closed deals or announced an acquisition, according to the Sportico Sports SPAC Tracker.
RedBall priced its upsized, $575 million IPO on Aug. 12 last year, becoming the first sports-focused SPAC since a Hank Aaron, Jack Kemp and Mario Cuomo-led vehicle failed to buy the Chicago Cubs, Florida Panthers and Montreal Canadiens between 2007 and 2009.
SPACs, long a little-used design that raises money then finds a business, took off after the largely unexpected success of DraftKings’ going public by SPAC in April 2020. After that, blank checks exploded in popularity and then seemingly imploded amid heightened regulatory scrutiny. The latter development suggests a difficult road ahead for sports SPACs. But there is reason to hope, said Will Braeutigam, a partner at Deloitte and head of the SPAC execution group for the consulting group.
“With deal announcements and deals closing, my anticipation, [we’ll] see a much stronger PIPE market at the end of August, leading into a strong pipeline for deals in September,” explained Braeutigam in a phone call. “We’ve seen cycles where PIPE deals are really strong and they last 10 to 14 weeks.” Essentially, SPAC deals slow down because a lot of investor money is already tied up in pending SPAC deals. Investors who fund PIPEs (private investment in public equity), which are often needed to bring additional cash to close a SPAC acquisition, end up recycling their capital into new deals once their investment is freed up.
According to Braeutigam, the SPAC market has shown this cyclicality over the past year. The market was vibrant last August into October, then slowed around the presidential election as deals got worked through, followed by another burst of activity starting in December that slowed down significantly by this spring and early summer. Even with some investors leaving the PIPE market due to a fear of getting caught with losses, there remains plenty of institutional interest, Braeutigam said. “If you’re ready as a target company with your management team and financial readiness, you will be able to access and get a deal done with a SPAC because PIPE capital will be available.”
That would be a welcome development for the eight sports SPACs that formed last summer and are at or near the halfway market to get a deal done (14 of the 22 sports-related SPACs on the market the end of last summer have announced or closed mergers.)
The absence of deals hasn’t been for lack of trying. RedBall, for instance, reached an agreement with John Henry to bring Fenway Sports Group public in late 2020, a deal that fell apart when PIPE financiers balked at Fenway’s $8 billion valuation. Horizon II doggedly pursued Sportradar, another deal that fell through with PIPE backers due to a $10 billion valuation. Yet attempting deals doesn’t change the deadline SPACs face. By rule, SPACs can raise money from investors at an IPO but in exchange have to submit to a window in which they either complete a transaction or return the IPO money to shareholders and disband. Most SPACs chose 24 months as their window, though some are as short as 18 months and others choose to go up to 36 months. The big losers in the event of a SPAC disbanding: the sponsors, executives who fronted millions of dollars in underwriting and legal fees to bring the blank checks to market.
Right now, it appears SPACs with better-known executives and a lot of corporate funding to bring to a deal without PIPE funding appear to have the advantage.
“It’s gotten harder to get combinations done because the PIPE market is particularly difficult and the discounts from fair trading value are probably widening,” Liberty Media CEO Greg Maffei said on a call with analysts Friday. Liberty Media formed its own $500 million media-focused SPAC in late 2020, with the wrinkle the Atlanta Braves and Formula One owner would buy $250 million in shares to support the entity at merger time. “Weaker players have probably been washed out. We know of deals proposed at X price that didn’t get done at any price. I think that trend favors us.”
Still, Deloitte’s Braeutigam expects the SPAC market will continue to appeal for sports businesses, especially in sports betting and digital content delivery.
“Frankly, with all new forms of technology [it’s] an arms race for capital to get market share. We’ve see that in health tech, fintech, electric vehicles and I think we're going to see it in sports,” Braeutigam said. “They're going to need capital to garner that market share, and they’re going to need quick access to that capital. The sports arena is going to continue to look at SPACs for that reason."