by What do Conn’s, Badcock, Sports Illustrated and Shaquille O’Neal have in common? You’re going to need a beer for this answer, and maybe a finger or two of bourbon.
You might remember that back in the summer of ’21, I wrote a column marveling at the doublespeak of corporate America and, principally, of Authentic Brands Group. Like the proverbial emperor wearing no clothes, ABG likes to boast to Wall Street that it doesn’t actually make anything. “Asset light” is the descriptive of choice here.
This is the ABG that owns the brand names Thomasville, Henredon, Drexel Heritage, and, as we learned last month, Sports Illustrated. ABG doesn’t publish magazines any more than it makes furniture; it just owns the names. As registered trademarks, ABG also owns the names of Elvis, David Beckham, Marilyn Monroe and Shaq, among many, many others.
“We are brand owners, curators and guardians,” ABG CEO Jamie Salter authentically “wrote” in a press release that Covid summer. “We don’t manage stores, inventory or supply chains.”
All told, ABG owns more than 50 brands and generates more than $29 billion in annual sales with a presence in 150 countries. According to Footwear News, it also operates nearly 13,000 stores, and its brands are carried at 370,000 points of sale.
Arena Group Holdings is the company that produces and publishes Sports Illustrated, even though ABG owns the hallowed name that once was a jewel in the Time Inc. publishing crown. And it is Arena Group that last month laid off all SI staff, adding to the woes of the journalism industry. (More than 3,000 editors, reporters and journalism professionals have lost their jobs over the past year, according to estimates by Bloomberg News.)
B. Riley Again?
Our own Clint Engel spotted the connection between ABG and B. Riley Financial, an investor in Franchise Group and a major player in the moves that launched FRG in 2019, took it private in August last year and sold off Badcock to end the year. B. Riley also advised FRG on its sale-leaseback of 35 Badcock retail locations and three distribution centers, and it is the firm handling the closing sales of Z Gallerie locations nationally in the Direct Buy bankruptcy. Clint saw the link in a “Money Stuff” column written by Bloomberg’s Matt Levine and passed it on.
Like FRG, B. Riley is the subject of growing attention on Wall Street for its possible connections to a $300 million fraud scheme that brought down Prophecy Asset Management in March 2020, as recent columns in this space have explored.
According to Levine, as recently as last summer, about 40% of Arena Group stock and most of the company’s debt was owned by B. Riley and its affiliates. Then, in August last year, or the same month that B. Riley helped FRG’s senior management team led by CEO Brian Kahn take FRG private, Arena Group merged with Simplify Inventions. This is the company founded and run by Manoj Bhargava of 5-hour Energy fame.
Bhargava bought all of B. Riley’s Arena stock in November, paying 70 cents on the dollar, according to Levine. In early December, just before Conn’s agreed to acquire Badcock, two B. Riley-appointed directors stepped down from Arena’s board and were immediately replaced with Bhargava’s picks. A month later, Arena announced that Sports Illustrated was being shut down.
‘Can I see your license?’
To make a long story even longer, last month Arena Group failed to make its payment to ABG for the license to use the Sports Illustrated name, an IOU of $3.75 million. ABG, presumably “curating and guarding” one of sports journalism’s most respected titles, terminated the licensing agreement, triggering another $45 million due from Arena. Ouch!
ABG must have relented, because Arena is still publishing SI under a 60-day grace period as it attempts to negotiate a lower licensing fee and somehow beat competing bids for the SI license, according to a report in the New York Post. Right now, you can buy Arena stock for less than a dollar, which is to say much less than a copy of SI.
Valued at more than $20 billion last year, ABG has also been in the news recently for acquiring the Sperry footwear brand name from Wolverine. This, at least, makes sense. Snapping up brand names with declining sales and then re-configuring those brands by licensing the right to use them is what ABG specializes in, as the case studies of Thomasville and Broyhill demonstrate. You can get Thomasville at Costco and Broyhill at Big Lots.
Shaq still gets to use his name to sign royalty checks, but as a trademarked entity, his colorful moniker belongs to ABG. Fortunately for the (really) big man, Shaq is the second-largest shareholder of ABG, as well. Shaq and erstwhile-competitor Allen Iverson are, respectively, president and vice president of the basketball division of Reebok, another ABG property.
In short, it’s virtually impossible to track who actually manufactures anything these days, obfuscated as that is by the layers of licensing, fees, shell corporations and intermediaries.
But Wall Street loves it.
In 2022, ABG’s licensing deals netted more than $21 billion, according to a Global Licensors Report. This makes the company the third-largest licensor in the world after Disney and Dotdash Meredith. (Dotdash Meredith is one of the world’s largest digital publishing companies with brands that include People magazine, About.com, Brides and Ask.com.)
To circle back to Arena’s layoffs of SI employees, this new year still very much in its infancy already is sending conflicting signals as just what sort of ride we’re in for with respect to disposable income. The stock market has thus far set a series of new records for all-time highs, but a series of layoffs at companies as disparate as UPS, Salesforce, PayPal, Amazon, Google and the Los Angeles Times certainly give pause.
Roaring economy
Fortunately, the consensus remains that the labor market is strong after 9 million new job openings reported in December. It’s likely that the rounds of early-2024 layoffs are getting a lot of attention because of the big names involved and because they are concentrated in tech and publishing.
It’s also likely that the two seemingly conflicting phenomena — layoffs and a hot stock market — are linked, at least for the tech sector. The so-called “Magnificent Seven” technology stocks (Alphabet, Meta, Microsoft, Amazon, Apple, Nvidia and Tesla) all set records. And since the S&P 500 hit a low in October 2022, this group has seen their collective stock value rise nearly 120%. Microsoft’s worth now tops $3 trillion. Wall Street seems to appreciate the “right-sizing” that the tech sector continues to pursue.
It’s a different story in the news industry.
Hundreds of jobs disappeared last month at Time, Conde Nast, Forbes, The New York Daily News, National Geographic and the L.A. Times. This isn’t “right-sizing”; this is carnage, pure and simple. Changes in habits among audiences, fierce competition for ad dollars from social media entities, and, perhaps most inexorable of all, apathy among the people formerly called readers have added up to an existential crisis for journalism in America, particularly at the local level, where news deserts are multiplying.
For this recovering journalist, it’s time for some more bourbon. A lot of bourbon.
