The past year has presented challenges never foreseen on the business plans of most entities with operations coming to a standstill. The finance side for a few has been a different story. This month we will look at the expansive growth of the equity markets and what they may entail for the sports and entertainment industries.

The live event and venue business has been shuttered for many months. Slowly returning with activities, the public health concern remains at the forefront. The increasing availability of vaccines points to a stronger second half of 2020.

Event revenue is typically the largest source of income for most facilities. Ticket sales, suite rental, concessions and sponsorship are dependent on spectators. Without people at the track, dollars will not flow.

Early season indicators point to smaller crowds back at the races, reflective of size adjusted capacities outlined by public health and governmental officials. Fans are still cautious about attending events, but are becoming more comfortable with social distancing and mask measures in place at the venue.

During the slowdown, businesses were able to supplement their operations thru various governmental initiatives – Paycheck Protection Programs, Economic Injury Disaster Loans and others.

The finance side of the economy reflected a different story for a few. Various stock market indices posted record gains as they reflected the outlook for a future rebound. More impressive they made up lost ground and then some, even after the rapid decline experienced at the start of the pandemic.

A unique trend started to strengthen mid-year, the use of a “blank check” shell corporation designed to take companies public without going thru the traditional IPO process.

These entities are called “special purpose acquisition companies” or SPAC’s. They are created to pool funds in order to finance a merger or acquisition within a set timeframe.

Different industries are using SPACs where companies that may want to go public is difficult and access to capital is scarce. They also provide another option for sellers, as well as an efficient way for private companies to tap public equity markets Sports and entertainment fits this description because it does not meet traditional lending criteria or ratings metrics.

Investors are pouring money into SPACs at record levels betting that management has the ability to succeed. There are unique combinations of experienced finance and hedge fund managers combining with influential athletes and entertainers to partner on sports related SPACs.

Raising money has not been a difficult for most SPACs, investors are looking to park money and the allure of sports and entertainment is appealing. There is a two year timeline to spend the money or return it to the investors.

The next step for SPAC is to identify acquisition opportunities. They represent a new type of investment vehicle and are shaking up the traditional ownership structure of sports properties.

There is debate whether there enough privately held sports entities that present a suitable public company. Chasing acquisitions may raise prices and bad deals may result.

Motorsports is part of the SPAC and reverse merger public company listing landscape.

Back in 2007, HD Acquisition Partners entered into an agreement to acquire NHRA. The plans were to utilize a SPAC to public list the entity. Shareholders did not approve the transaction and funds were returned to investors.

Recently, Motorsports Games part of the Motorsports Network went public thru a reverse merger. The share price rose at the offering and remains above its offering price. Management indicated they plan to explore opportunities with video games with e-sports competitions and develop content for racing fans and gamers around the globe.

NASCAR, which merged with International Speedway Corporation and Speedway Motorsports went private about eighteen months ago. There is the possibility that France and Smith families explore the SPAC process. This would allow them to access liquidity as their operations have been challenged. The public – private – public – lifecycle is not uncommon in business finance.

Will SPACs remain part of the sports finance landscape – only time will tell. Asset prices continue to rise and capital must be creative to participate. The goals are similar – investors want positive returns and owners and fans want championships.