Thursday, January 19, 2017

(Sport) Boxing: Is Al Haymon's boxing empire unravelling?

As things currently stand, Al Haymon is by far the most powerful man in the sport of boxing but with his NBC outfit Premier Boxing Champions bleeding money, Waddell and Reed (his financial backers) in turmoil, and rival promoters taking turns to file damaging and costly antitrust lawsuits against him, it seems like it's a matter of time before Haymon's dream of bringing order to the chaotic sport of boxing unravels in the most dramatic fashion possible. 

However, you won't get far betting against possibly the most skilled and ruthless business figure in American sports who has so far managed to successfully get a dying American institution back on TV after years in the wilderness and snap up its most promising stars which has made him one of the most polarizing figures in a sport full of them. 

When you look at most American sports, they're highly centralized and regulated in just about every facet of the game from how contracts are negotiated to rules players and coaches abide by even down to on and off field conductHowever boxing, the grand old wizard of American sporting entertainment, is anything but as everything from what network a match may air on to who enters the ring first is up for grabs which makes boxing a very chaotic yet strangely very predictable sport to follow.  

In this environment, the guy with the biggest purse often wins and more often than not that guy in recent years has been Al Haymon and rival promoters, principally Bob Arum's Top Rank and boxing legend Oscar De La Hoya's Golden Boy Promotions, can’t stand the power former music promoter Haymon has managed to amass in a sport almost designed to eat outsiders alive. 

Haymon earned his dominant position in boxing by playing by the rules set by promoters: cornering money divisions (in this case, the welterweight division)  by signing champions, top contenders and prospects then securing relationships with networks to sell fights. He effectively managed to do that in one fell swoop by securing a relationship with by far the most gifted fighter of his generation, Floyd "Money" Mayweather who at the time was smarting from a tumultuous relationship with Arum. However, what rankles rival promoters is that he effectively cornered the lucrative welterweight division by raiding Golden Boy's promising stable of fighters that included stars such as Danny Garcia, Amir Khan and Adrien Broner signing them up to contracts which recognised him as their "adviser". 

Haymon would then use his relationship with former Golden Boy CEO Richard Schaefer as well as other promoters such as Lou DiBella and Gary Shaw to promote fights featuring boxers under contract then sell their fights almost exclusively to Showtime sports. To this day Golden Boy aren't even half the force they were six years ago because of Haymon's ruthless tactics and since then have joined forces with former enemies Top Rank who had also been locked out of a number of lucrative fights with the notable exception of the underwhelming Mayweather Pacquiao money bonanza.  

With Haymon now the undisputed king of boxing with a heavyweight champion in the shape of Deontay Wilder, promoters and fans for a whole year were forced to grit their teeth or complain impotently on the sidelines as Haymon continued to acquire talent to add to his already large stable of boxers. Promoters and fans justifiably quibbled about quality of the matchups (the infamous Garcia v Salka mismatch still rankles fight fans to this day) and his tendency to protect his fighters from real competition but fans largely praised Haymon for returning boxing to television after years in the wilderness. However, the damning irony is  that while getting boxing back on television will stand as the crowning achievement of Haymon's rule, it may just bring his empire crashing down around him. 

The ink barely dried on Haymon's exclusive time buy deal with NBC  before Golden Boy and Top Rank cried foul accusing Haymon of anti-competitive market practices as Haymon was effectively buying air time instead seeking a licensing fee. Haymon's plan to buy air time to get boxing on free television wasn't cheap and was largely bankrolled by mutual fund Waddell and Reed as NBC didn't believe in boxing enough to pay for it outrightHaymon then secured similar time buy deals TV deals with CBS, ESPN, Fox Sports and Spike  which angered  Top Rank and Golden as they saw Haymon's exclusive time buy deals (with the exception of CBS which was a non exclusive and short lived time buy deal) as a way to shut them out of potentially lucrative content licensing deals with networks. 

Seeing Haymon's exclusive TV deals as threat to their business, both Top Rank and Golden Boy have launched antitrust cases with Top Rank filing a lawsuit back in 2015  and Golden Boy filing against Haymon and Waddell and Reed also in 2015 claiming Haymon violated the Muhammad Ali act which prohibits promoters from moonlighting as managers of boxers. While Top Rank settled their 10 month case against Haymon last may, Golden Boy's case against Haymon is still going strong and could go to trial this March.   

While the chances of Golden Boy winning aren't great as antitrust cases are notoriously hard to prove and Haymon's advisory contracts with his boxers and relationships with other promoters side steps but doesn't exactly breach the Ali act, Golden Boy's case has definitely succeeded in piercing the veil masking Haymon's shadowy business dealings and possibly bring Haymon's PBC boxing series to its knees 

Haymon's PBC series has been losing millions throughout it's three year run inspiring apoplectic Waddell and Reed's shareholders to file a lawsuit against them for pouring a reported $925 million into what they described as a "potentially criminal company". The lawsuit also revealed just how unprofitable PBC has been for Waddell and Reed so far as according to Bloody Elbow, the alleged $925 million investment funneled into Haymon companies has a market value of $357, 747, 414 which means PBC has allegedly  lost Waddell and Reed and its shareholders well over $500 million in three years.  
While most investments involve making losses initially, losing that amount of money in such a sport space of time suggest it's only a matter of time before Waddell and Reed either stop backing Haymon entirely or sternly encourage him to devise a path to profitability and fast. That time may come quicker than Haymon planned as Wallace and Reed are in freefall as the company had a nightmare 2016 where it had to lay off staff, suffered three losing quarters in a row (the fourth yet to be reported but likely to follow suit) and suffered downgrades and sell ratings by a slew of credit rating agencies and banks including Moody's and Citigroup. 

Waddell and Reed have been in decline for the last three years as it has gone from managing  $123 billion in assets to only $86.4 billion in just over 15 months as the company continues to lose investors hand over fist. Haymon is no fool and must know that sooner or later Waddell and Reed will pull the plug on PBC which would almost instantly bring all of Haymon's interests in boxing to a halt. 

Should Waddell and Reed pull the plug in Haymon, Haymon would be forced to seek funding from other sources but thanks the lawsuits filed by Waddell and Reed shareholders, Top Rank and Golden Boy, the pool of funds and investment firms looking to invest into Haymon's plan to bring order to boxing is shallow to say the least. 

The biggest losers other than Haymon should Waddell and Reed cut their substantial losses will be the fighters he advises as they'll no longer be exposed to a large network television audience and because Haymon's relationship with other promoters have been less than copasetic over the years, may find it hard to get their fights promoted.  

In sum, while Waddell and Reed may not cut its losses and Haymon improves his relationship with other promoters, it's quite clear the uncrowned king of boxing of sits upon a throne that could fall apart at any minute.   

Saturday, January 14, 2017

(The Big Disrupt) IPO: Why 2017's IPO market may look similar to 2016's

2016 was a dud year for the IPO market but Wall Street is particularly bullish about the prospects for IPO's in 2017 as they expect a number of unicorns (companies with a private valuation over $1 billion) to go public but Wall Street's expectations of a better 2017 seems based on hope than anything else. 

Who could blame Wall Street analysts and banks for hoping for a better IPO market this year as last year banks resorted to spending a whopping $85 billion in risky block trades  in the face of the worst IPO market since the crisis.  

Investment bankers and analysts  point to a number of companies planning go public next year as well as markets stabilizing after a turbulent year in 2016. However, Wall street's hopes for a better IPO market in 2017 are almost certainly going to be disappointed. 

While there is a steady stream of IPO ready companies and a strong demand for new blood in public markets, these companies have other options available to them to raise money under terms that are an awful lot more favorable than a IPO. A company going public means it becomes more subject to external scrutiny and more importantly, pressure from shareholders and analysts to meet quarterly expectations and focus on increasing shareholder value. Companies like Uber who can raise billions of dollars in the private market are prepared to wait before they IPO as they've seen  the pressure to meet quarterly expectations and increase shareholder value ruin many exciting startups in recent years from Groupon to Twitter. 

With this in mind, founders are more than happy staying private as they're not strapped for cash and the focus among VC's is growth based rather than current or future profitability. The only reason that unicorns like snapchat and Spotify look almost certain to go public in this year is because they're both in competitive markets and need the cash to compete in their marketplace due to presence to players considerably larger than they are. 

This should be bad news for VC's as traditionally IPO's have been a way to for VC's to make bank on their investments but with the IPO market in bad shape, M&A has been a solid market for VC's as tech M&A's made up for most of the activity in the total global M&A market for the last two years running.    

This run is likely to continue as companies, particularly in the tech sector, are flush with cash and are willing to use it to buy startups that helps them enter into new markets, improve or add to their current product or service, or simply consolidate their position in the market. Another and particularly important reason why this run is set to continue is that the tech M&A market is nowhere near as regulated as the IPO market which means there are less obstacles in the way of large exits for VC's 

The upshot of all this means that save the very possible IPO's of Snapchat and Spotify,  2017 will look a lot like 2016 as the IPO market spends another year in the doldrums. 


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