It was two years ago this week that sports-focused RedBall Acquisition Corp. filed its draft prospectus with the Securities & Exchange Commission. The Gerry Cardinale and Billy Beane-led special purpose acquisition company wanted to raise $500 million to pursue a professional sports franchise. RedBall, formed just two months after DraftKings’ surprisingly successful stock market debut from its SPAC merger, did even better than that—its initial public offering in August 2020 raised $575 million on strong investor demand.
Now, with no target in hand and 61 days left until its self-imposed two-year limit to close a merger, RedBall probably will dissolve and return $10 per share in cash back to stockholders after dashed attempts to bring Fenway Sports Group and then SeatGeek public.
“From deal announcement to close, it takes an average of 110 days. A few deals get done in approximately 80 days and we’ve seen some go to 150 days,” said Will Braeutigam, Deloitte’s national head of SPAC execution. A SPAC like RedBall can ask shareholders to vote to give it more time, but “many of the SPACs that have needed extension in today’s market have been unable to do so.”
RedBall declined to comment through a spokesperson.
Dissolving would be an anticlimactic ending for the beginning of the much-ballyhooed wave of sports-related blank checks. Including RedBall, 160 SPACs with a sports focus and/or led by a team owner, executive or athlete came to market after DraftKings, part of a stampede of 1,049 SPACs that hit the stock market from June 2020 onward.
According to data compiled by Sportico, there are 66 active sports SPACs with $19.7 billion in cash seeking a target right now. Another 13 are trying to close announced mergers while a further 29 are still trying to price their IPOs. Dozens more have canceled their plans to go public due to the bear market. Of the 190 sports-related blank checks to ever form, only two have ever dissolved and returned money to shareholders: Sports Properties Acquisition Co., led by Hank Aaron, Jack Kemp and Mario Cuomo; and Omnichannel, led by Miami Dolphins vice chairman Matt Higgins.
Odds are, a lot more sports SPACs will be dissolving in the months ahead. SPACs, by rule, must set a deadline of their choosing when they go public, with the promise to investors that the money raised at the IPO will be returned if no deal is consummated—or if shareholders dislike the proposed deal. Most chose 24 months as their window. Over the past two years, of course, the bull market peaked and plunged into a bear market.
At the moment, there are 13 sports SPACs that have their deal windows closing within six months; 10 of those haven’t announced a potential merger, including East Resources, owned by Buffalo Bills and Sabres owner Terry Pegula. East Resources raised $345 million at its IPO two years ago to find a domestic natural gas business. It seemed an easy lift for Pegula, who made his billions in Pennsylvania fracking with a previous entity named East Resources. Pegula’s window closes July 27.
Shortly after Redball’s expiration in mid-August will come FAST Acquisition; all it has to show for its efforts is the participation of NFLers Ndamukong Suh and Todd Gurley and a failed merger with Tilman Fertitta’s restaurant chain. Following them will be billionaire team owners Nassif Sawiris, David Bonderman and Chamath Palihapitiya, each of whom has SPACs with autumn deadlines. Bull Horn, a sports-focused venture which includes NBA veteran Baron Davis and Legends’ chief revenue officer Michael Gandler, got an extension from shareholders till November to close a deal with Coeptis Therapeutics, a publicly traded biotech business that will be upgrading its listing to Nasdaq through the SPAC. The shift out of Bull Horn’s stated sector to focus on Coeptis came after a rumored deal with an esports business fell through earlier this year.
Generally speaking, there are incentives for SPACs to find any deal to avoid dissolution, even if the acquisition comes outside its target area. That’s because SPAC sponsors have to foot the bill for taking a SPAC public, usually about 3% of the amount raised at IPO (though often as much as half the fees get deferred by underwriters contingent on a merger closing). Many times, deals outside of a SPAC’s stated focus don’t perform well in the market. Black Ridge, an oil- and gas-focused SPAC, slapped together a merger ahead of its deadline in 2019 with Allied eSports Entertainment. The business subsequently sold off the World Poker Tour and has decided to exit esports, too. In mid-2020, a SPAC called Gordon Pointe, seeking a financial technology business, instead merged just ahead of its deadline with Hall of Fame Resort & Entertainment, a football-themed business that has been among the more volatile traded sports stocks of recent years.
However, deals just to do deals won’t necessarily be the case this time, Braeutigam suggested. That’s in part because regulator scrutiny of SPACs is more intense than it was in the past, plus there is the prospect that proposed SEC penalties for iffy SPAC mergers might apply retroactively to current SPACs. But primarily at play is the reputation of the SPAC sponsors, he said.
“It’s not only capital risk—it’s the reputation at risk,” said Brauetigam. “There is a lot more that goes into it than the $5 million or $10 million of capital that might be at risk. When you think about the VCs, investment management company sponsors or the serial SPAC companies, they all have something in common, which is their name and brand in the mergers and acquisition space. Those entities would rather not make a deal, than make any deal.”