Sports Authority’s Road to Filing Chapter 11 Bankruptcy

Making the news is another corporate bankruptcy. The Sports Authority announced a Chapter 11 filing for bankruptcy on Wednesday March 2, along with closings for a third of its approximately 463 stores. The company announced its intention to use the restructuring aspect of Chapter 11 to handle $1.1 billion in debt owed to creditors like Nike and Under Armour. The chain, spun off from Kmart, was acquired by private equity firm Leonard Green & Partners for $1.3 billion in 2006 and taken private. The firm holds such diverse retail brands as BJ’s Wholesale Club, David’s Bridal, Jo-Ann Fabric and Crafts, and Tourneau in a diverse portfolio of industries.

The company missed a $20 million interest payment on $343 million of its debt in January, but has arranged to borrow $595 million to handle its operations while the bankruptcy proceeds. CNN notes that the debt load from the leveraged buyout hampered Sports Authority’s ability to compete with location retailers like Dick’s Sporting Goods, as well as a multiplying field of online retailers, specialty shops, and resellers. The failure to anticipate fitness trends, anticipate the explosion of online shopping, and not modernizing stores dealt the Death of 1,000 Cuts to a once solid go-to brand.

Chapter 11 is not, however, a magic wand, and there are no guarantees that the company can bounce back. Even with restructuring their debt, selling stores, liquidating stock, and condensing, the chain may not be able to execute the changes quickly enough to make a difference. The lesson was graphically demonstrated by Circuit City’s Chapter 11 filing in 2008. The former electronics powerhouse was faced with many of the same problems being faced by Sports Authority – older stores, lack of internet presence, and heavy competition from a newer chain of stores called Best Buy. With $2.2 billion in debt, Circuit City was able to borrow $1.1 billion to continue operations while restructuring. Unable to find a buyer by January of 2009, the chain converted its bankruptcy to a Chapter 7, liquidated, and closed its doors.

Even Sport’s Authority’s CEO admits to the Denver Post that there’s no Magic 8 Ball on this one. He says that both paths are open – either restructuring or the sale of a portion or all of the company, and that they intend to have this concluded by the end of April 2016. On the whole, the interview is an upbeat piece that is largely conducted in CEO-speak, but does have some viable ways forward for the name. Brand names are always in demand, if not the operations that go with them. It’s possible that Sports Authority could return as its own brand of workout wear of exercise gear, but for now the clock is ticking down to April.

Even if you’re a small company, facing bankruptcy can be devastating in a very personal way. If you feel you’re in financial trouble, call us and come in for a free consultation, and we might just be able to help you emerge and thrive.