SPACs: What A Special Purpose Acquisition Company Means For Sports

Brendan Coffey
·9 min read

What are SPACs? Companies that raise money in an IPO and then find another company to buy. For that reason they’re also called blank checks: Management is given a pile of cash to find something—anything—to buy. SPACs (pronounced “spax”) typically state what they want to buy—say, a technology firm or a mid-sized U.K. company—but they aren’t obligated to limit themselves. Think of them as Wall Street’s cult of personality: SPAC executives—called sponsors—are essentially saying, “Trust me, I’ll pull off a great deal.” The trade-off is the clock keeps ticking: SPACs usually have two years to find an acquisition, and can’t start looking until the IPO. If they fail, SPACs need to return the money they raised back to shareholders. Plus, if shareholders don’t like the proposed acquisition, they can demand their original capital back. It may sound involved, but SPACs have brought 2020’s most exciting companies to the stock market, including sports gaming firm DraftKings, space travel outfit Virgin Galactic and alternative-fuel truck maker Nikola.

Why do SPACs exist? Any company a SPAC buys could go public by its own IPO or perform a reverse merger, where it buys a company for its stock listing. IPOs demand a little more money and time than a SPAC, but mainly, companies tend to leave money on the table during an IPO, especially in bull markets. From mid-2009 to mid-2019, the average IPO gained 16% in its first day of trading, according to University of Florida’s Jay Ritter. That means companies underpriced their stock at the IPO. A reverse merger is quicker and cheaper, but it’s frowned upon as a move lesser-quality companies do. It also doesn’t drum up investor excitement for buying shares. SPACs can take time to pitch a proposed deal to institutional investors and raise commitments to buy stock and provide more financing.

What’s in it for everybody? For the SPAC, a lot. The sponsors get cheap stock when they close an acquisition. This stock, called the “promote,” often can be sizable, up to 20% of the new company. That incentivizes SPACs to buy something—anything—before their two years are up. (In higher-quality deals, the company being bought will demand SPACs slash their promote.)

For the company merging with the SPAC, it gets to go public at a market valuation it negotiates ahead of time. That means no runaway shares after an IPO that leaves company executives with the nagging feeling they’ve been cheated by the bankers.

For investors? A low-risk bet. Since you can demand the initial share price back (less expenses and with interest earned) until after the pending deal is announced, your downside is protected. You’re really just paying opportunity cost—the possibility that you could have invested in something else for those two years and made money. The upside is SPACs usually throw in three warrants for every share as incentive for investors to get in early (warrants de-couple from shares in a few weeks after the SPAC IPO). Shares are usually priced at $10, with the warrants executable at $11.50. That means a popular deal can pay off handsomely.

Why are SPACs appealing in sports business? One little-discussed wrinkle is the fact a company merging with a SPAC doesn’t have to do a lot of public posturing. For an IPO, executives go on a roadshow, where they travel to drum up interest for fund managers to buy shares. Quite frankly, a lot of successful leaders don’t want the retail politicking that comes with a roadshow, according to Don Duffy, CEO of ICR, an advisory firm that works with many SPACs. That may be a reason why sports teams and large private sports business companies are exploring going public by SPAC when they’d otherwise never consider an IPO. The downside is that if a company successfully goes public by SPAC, those executives will have to face the same attention every other public company does, Duffy noted.

Why am I just hearing about SPACs now? You’re not alone. SPACs have exploded in popularity in the past year. More companies will go public by SPAC than IPO in 2020, Ritter said. Although SPACs have popped up now and again since the 1980s, regulatory reforms in recent years have tamped down excesses by both SPAC sponsors and hedge funds that manipulated other investors. That’s made SPACs more appealing now, accounting for a lot of recent popularity—though some consider the spread of SPACs a sign of market excess. New SPACs are being formed nearly every day, with at least 164 having IPO’d in 2020. Overall, there are 215 SPACs that have filed for an IPO or held their IPO but haven’t acquired a business (an event known as de-SPACing, in Wall Street lingo). Those firms hold $62.3 billion in capital, according to data from Dealogic and compiled by Sportico.

Here is Sportico’s curated a list of current sports SPACs and SPACs led by sports executives. There are 33, with total capital of $13.7 billion:

Sports-Focused SPACs

Acies has its eyes on live events, including “sports, sports betting and iGaming.” Former MGM executive James Murren leads the firm, which includes on its board Zach Leonsis of Monumental Sports (Wizards, Capitals). They have $200 million to deploy.

BowX aims to use its connections in the “sports and entertainment world, including athletes and entertainers” to find a business in technology, media and/or entertainment. Sponsor and Sacramento Kings chairman Vivek Randavivé has $420 million to use.

Bull Horn IPOd for $75 million for a sports and entertainment business. Sports marketer Rob Striar, Como 1907’s Michael Gandler and NBA veteran Baron Davis are involved.

dMY Tech II is merging with Genius Sports in a deal valued at $1.5 billion. The deal should close by early 2021. dMY II collected $276 million from its IPO.

PTK is led by tech veterans who are looking to use $100 million they have raised to get a gaming or esports business, possibly in Asia pacific.

RedBall is Led by RedBird founder Gerry Cardinale and Oakland A’s executive Billy Beane, it raised $575 million for a sports team or related media or analytics firm. Maybe the Boston Red Sox?

Sports Entertainment features an NFL heavy team (Eric Shumway, John Collins, Natalia Shumway) which raised $400 million to pursue a sports-focused tech company.

Sports Ventures from Falcons’ limited partner Alan Kestenbaum, Rob Tillis of Inner Circle Sports and Daniel Strauss of SportBLX want $200 million for a sports media effort.

Tekkcorp is led by executives in the casino gaming and sports betting fields from Scientific Games and William Hill. They are seeking to raise $250 million to buy into digital media or sports, probably the betting side.

Vistas Media sees eSports, media or gaming as a potential field for an acquisition. Management, which has a background in India and crypto, has raised $100 million.

Sports Executive-Led SPACs

Altitude is a SPAC from Gavin Isaacs, a director of DraftKings and long-time gaming tech executive. Altitude specifies it’s not looking at industries its sponsors are in. Instead, it’s looking at travel with its $300 million.

Ascendant Digital is looking at the “attention economy,” including esports. U.K. video game developer Mark Gerhard has $414 million to deploy.

Avanti is a vehicle of billionaire Nasserf Sawiris, who owns part of Aston Villa. He’s searching for a European company with strong connections to the U.S. and raised $600 million for this SPAC.

Decarbonization Plus priced $200 million of shares to get into cleantech. It’s led by Erik Anderson, who is also chairman of TopGolf Entertainment, a driving range and golf tech company.

East Resources is Buffalo Bills owner Terry Pegula’s gambit to get back into domestic natural gas, where he made his billions. The firm has $345 million in capital.

FirstMark Horizon is a $414 million SPAC from Rick Heitzmann, who was involved ion StubHub, DraftKings and Riot Games. DraftKings CEO Jason Robins is on the board. They’re looking at technology acquisitions.

FG New America priced a $225 million IPO to seek financial services companies. It’s led by Joe Moglia, the former coach and current executive director for football at Coastal Carolina. Moglia also was chairman of TD Ameritrade until it was acquired by Charles Schwab in October.

Foley Trasimene I and II. Vegas Knights owner Bill Foley raised $1.035 billion in May and then $1.467 billion in August with the second SPAC, each looking for a “utility-like” company in financial technology.

Forest Road has Shaquille O’Neal as an advisor. The firm features a Hollywood-heavy team seeking $275 million to enter the media business.

Horizon is an offering from Dodgers limited partner Todd Boehly, who is an investor in a dozen other sports-related companies. The firm has $544 million to acquire a financial services business.

Lancadia III is the third SPAC from Houston Rockets owner Tilman Fertitta. It has $500 million looking for gaming or other consumer entertainment tech firms.

NewHold Investment is looking to spend $150 million in industrial technology. Long-time New York Jets president Neil Glat is on the board of directors.

Northern Star is the latest effort from Islanders owner Jon Ledecky, this one seeking to enter the beauty and wellness market with $300 million.

Omnichannel, led by Dolphins Vice-Chair Matt Higgins, is raising $350 million for cross-channel retail.

Social Capital Hedosophia IV, V, VI have raised $460 million, $805 million and $1.15 billion, respectively, seeking tech companies, possibly in sports data or streaming based on public comments by Chamath Palihapitiya, a minority owner of the Golden State Warriors.

Tailwind has $300 million for gaming, esports, and wagering deals. Wisdom Lu, a sports and media banker at Kobe Bryant-founded Bryant Stibel, is a director.

Trebia is another SPAC from Bill Foley, the owner of the NHL’s Las Vegas franchise. The company has $518 million to spend from its IPO, likely on a software or fintech company.

TPG Pace Tech has $450 million in a hunt for tech companies while TPG Pace Beneficial Finance has $350 million for ESG finance. David Bonderman, majority owner of the Seattle Kraken, is on the board of each.

Yucaipa Acquisition hasn’t a specific target besides wanting a turnaround project. Penguins co-owner Ron Burkle leads this $300 million effort.

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