In 2020, there were at least one-hundred and twenty (120) special-purpose acquisition companies (“SPAC”) created. For explanation purposes, a SPAC is a large amount of cash collected into a special-purpose acquisition for the purpose of targeting an investment into another company or venture. SPACs are sometimes referred to as “blank-check” companies because the nature of their purpose is to seemingly use unlimited cash for future investment in another company.
SPAC’s have been around since the 1980s, but the structure today by law and practice has made it easier to invest in new companies and ventures without the regulation and publicity attached to a traditional initial public offering (“IPO”). SPACs are allowed to collect funding from multiple investors and the company has two-years (24 months) to acquire or merge with another company. There is still an IPO involved, but it tangential to the process of collecting investors and funding.
Some examples of SPACs in 2020: RedBall Acquisition (RBAC.U) that includes the Executive Vice President of the Oakland Athletics, Billy Beane (memorialized by actor Brad Pitt in the film Moneyball), is working on a merger with Fenway Sports Group, LLC (“FSG”), which controls a Premier League club and of course Fenway Park and the Boston Red Sox. The purpose is to seek out investments in sports properties similar to talks of Liverpool and Red Bull teaming up. The Boston Celtics and San Francisco 49ers owners are also seeking funding to invest in sports health and technology. Flying Eagle Acquisition Corp (FEAC) has also made SPAC headway with its DraftKings investment.
Why are SPACs so popular in 2020? Here are three reasons:
1. Pandemic: the global pandemic has caused fans to retreat along with sports team revenues. Sports franchises are looking for ways to bring in more funding and diversify their assets without having to go through a traditional and sometimes lengthy and difficult IPO process. Limited in-person meetings and opportunities also led to more business leaders seeking an entrepreneurial approach. A SPAC investment was the perfect vehicle of investment in 2020.
2. Rise of Sports Betting: when the Supreme Court of the United States removed PASPA as a prohibition against sports betting across the states, sports franchise owners looked for ways to invest and again SPAC was the preferred avenue. With revenues down in 2020 without fans in the stands, sports brands and investors were that much more motivated to find good buys and returns on investment. As people spend more time at home, it leaves more time for sports betting and integration.
3. Avoiding WME’s IPO process: William Morris Endeavor (“WME”), the talent agency and content production company is currently negotiating a deal with the Writers Guild of America (“WGA”) to put an end to a lengthy dispute over major deal points with the writer’s union. However, earlier in 2020, Ari Emanuel and Patrick Whitesell’s WME sought a traditional IPO process that unfortunately did not end well and the IPO failed at first launch. With the WGA dispute set to be history soon, maybe WME seeks a second IPO, or more likely a SPAC in the entertainment space. Increasing production post-pandemic will certainly help valuation and funding investment. All in all, SPACs are easier to manage and more diverse and that is the lesson to be learned.
SPACs provide flexibility and diversification in funding investments that IPOs cannot because they are so targeted. SPACs look at industry broadly and make a commitment over time. For 2020, SPACs might as well have been call ‘Sports-Purpose Acquisition Company’.