It has been a bittersweet return for sports. Let’s begin with the MLB. Its start has been rocky, to say the least. The Toronto Blue Jays were ‘homeless’ for a while, finally settling in a minor league stadium in Buffalo. Then the Coronavirus. First, Marlin’s home opener against the Orioles was canceled. Some positive cases with the Phillies followed. Then the Cardinals. Now, the entire season seems to be in doubt.
We have expressed concerns in our previous issue and warned against putting short-term interests above players’ health. We noted that “a hasty restart would likely result in an even bigger economic loss for the leagues in the long term.” For baseball at least, it increasingly looks like we are right on this one. We believe that this whack-a-mole of ‘start, stop, restart, stop’ is worse than drawing a line in the sand and saying “You know what, we won’t be back until 2021. Let’s sort out the health matters first.” It gives people false hope, sets the wrong expectations and breaks people’s hearts more with every setback. Fans are not ready to go back, either, even with a mask.
The NBA has gone in a different direction. Its bubble structure is not without risk, but it has a better chance of avoiding major disruptions. So far, it has been clean and we hope it stays that way.
The big story of the month was the SPAC boom. Special Purpose Acquisition Companies (“SPAC”) are old tools with newfound fame. Partly because of a couple of high profile SPAC moves that look good early, one of which is DraftKings, SPACs have become, almost overnight, the new shiny toy.
What are SPACs and how do they fit into the broader financial ecosystem? At a very high level, it is one of three ways to go public. In a traditional IPO, a company raises capital by issuing new shares to the investors and investment banks assist with the process. It can be a great way to raise capital and raise awareness at the same time; however, the downside is that companies may be leaving money on the table. A typical IPO may pop, meaning that it can increase substantially on the first day of trading, but that money goes to those investing, not to the company.
What if raising capital is not an urgency, and the bigger objective is to raise the profile of the company and/or provide an opportunity to early investors who want to cash out? Then, the direct listing may be the best option. Spotify and Slack have gone public this way.
The IPO market, of course, is becoming increasingly difficult to navigate and direct listings are not for everyone. Enter the SPAC. People often say a VC mostly invests in a team, rather than the idea. A SPAC is the most literal implementation of that concept; SPAC investors give money to a team they trust and the team’s job is to find a company or a business combination they can merge with in a specified period of time. If the team cannot close a deal, investors get their money back. If everything works well, a company can go public much more quickly and get more money for their equity, the SPAC investors get a nice return and the SPAC sponsor also enjoys a nice return leveraging their brand.
This article by Alex Danco, who is writing on a lot of interesting topics, is a great intro into the SPAC world. Yahoo also covered the basics here. It remains to be seen whether SPACs will peak and go back into quasi-obscurity or whether they will chop away from IPOs. One thing is for sure, 2020 will be the year of the SPAC.
Sports & Money
Heading the SPAC is a list of who’s who of the sports world, including Billy Beane, of Moneyball fame. Richard Thaler, the Nobel Laureate in economics in 2017 is one of the directors (Side note: If you haven’t read Misbehaving, pick it up).
What will Redball do? A Euro sports franchise seems to be a likely option, but naturally, this could go in a number of different directions. They have a diverse team and board, so we’re watching closely where they will take the first sports SPAC.