DraftKings the Exception to Sports SPAC’s Dire Track Record

DraftKings, the company that sparked the sports SPAC craze in 2020, still stands as the best of the blank-check sports deals. The result for some 200 other sports-related special purpose acquisition companies is largely failure, as last week’s decision by football theme-park operator Hall of Fame Resort and Entertainment’s decision to sell itself for pennies on the dollar demonstrates.

If you buried your memories of SPACs along with your COVID-19 face masks, here’s a refresher: SPACs are so-called blank check businesses that raise money at an IPO with the stated intent of finding another business to merge with, taking it public. DraftKings wasn’t the first sports-related SPAC—Hank Aaron helped lead an unsuccessful one to buy a sports franchise in the 2007—but it easily was the most successful. Its April 2020 emergence as a publicly traded company was an unexpected and resounding success: Six months after debuting, DraftKings stock had run up more than 600% from its initial price.

Whether you consider SPACs part of the meme stock madness of the pandemic or just another cyclical market mania, DraftKings’ success nevertheless helped the sector boom: During 2020 and 2021, some 466 SPACs held IPOs, according to data from the University of Florida’s Jay Ritter, who tracks IPOs. Hundreds more registered to come public during that time. Sports, driven by DraftKings’ success, was at the forefront: 184 sports-related SPACs were formed after DraftKings’ stock market debut.

Sports SPACs, broadly defined, are entities seeking to merge with a sports business, such as a team or sports tech, or one that has the management or advisory participation of an athlete, team owner or sports executive. The names involved could form the basis of a dominant starting five: NBA veterans Shaquille O’Neal, Kevin Durant, Shane Battier and Baron Davis all were part of a SPAC. Or if baseball is your thing, anchor your lineup with Alex Rodriguez, Dave Winfield and Justin Verlander. Quarterbacks were particularly popular participants in SPACs: Roger Staubach, Eli Manning, Steve Young, Patrick Mahomes, Oliver Luck and Colin Kaepernick had theirs too. More common were the presence of team owners, leaning on their business background: Jon Ledecky, Todd Boehly, Vivek Ranadivé and Tilman Fertitta were among the dozens of owners in SPACs. One of the vehicle’s biggest (or notorious, depending on your view) cheerleaders during the boom was Chamath Palihapitiya, who was a minority owner of the Golden State Warriors.

Despite all that talent, sports SPACs were mostly flops. Of 200 sports SPACs Sportico identified as being formed since 2005, just 70 ever completed a merger while another 70 couldn’t close a merger after having their IPO—by rule they dissolved and returned their capital back to shareholders. Another 51 never got to hold their IPO: Most formed during the height of the SPAC craze and got stuck when the bubble burst. Nine sports SPACs continue to persist, having received shareholder approved extensions to locate or close deals. Among them, the A-Rod-led Slam Corp., which raised $500 million in 2021 to seek a sports or media business. It’s now trying to close a merger with satellite phone company it’s had in the works for 18 months now.

It’s probably unfair to hang sports SPAC failures solely at the feet of their participants: after all, the state of the overall market is a tide that’s hard to swim against. After a run of spectacular implosions of SPAC deals, like EV maker Lordstown Motors and WeWork, both of which went into bankruptcy, investor appetite dried up for even quality SPAC mergers.

But the decision by Hall of Fame Resort last week to accept a 90-cents per share take-private offer shines light on just how bad sports SPACs deals have been overall. Hall of Fame, which seeks to popularize a football real estate and entertainment development at the Pro Football Hall of Fame in Canton, Ohio, is one of 23 sports SPACs that now trade under $1 a share. Vegas Knights owner Bill Foley took internet ad platform System1 public with a SPAC, it’s now at 51 cents. Islanders co-owner Jon Ledecky’s deal for data software KLD Discovery now trades at two cents. Two of Palihapitiya’s are also penny stocks. Others trade at fractions of a penny after being delisted by their stock exchange.

Another 10 sports SPACs are total losses for investors, having gone belly up or been sold for losses over 99% from their $10 merger price, the typical SPAC share valuation. Seven SPAC deals trade below $10, but at less than a 50% loss, our arbitrary cutoff. They include Betway parent Super Group, bowling alley and PBA Tour owner Lucky Strike Entertainment and theme park developer Falcon’s Beyond. Most of the balance trade between $1 and $5.

In fact, only eight sports SPACs can be considered successes, meaning shareholders received or sit on a profit, according to data compiled by Sportico. Three were acquired at a premium, including Fertitta’s Golden Nugget Online Gaming, which DraftKings acquired for a stock swap, now worth $14 today. Another is bad credit lender OppFi, taken public through a Joe Moglia SPAC, while a third is cruise ship line Lindblad Expeditions, taken public by tennis executive Mark Ein. Betting related Rush Street Interactive and Genius Sports are two more. Still, the share prices of those seven have spent significant time underwater at some point since going public. By comparison, DraftKings stock spent a few minutes trading below $10 one single day three years ago. Having closed trading Monday at $37.93, SPAC investors sit on a 279% profit.

Last year, 72 SPACs had an IPO, according to Ritter. None of those were sports related. Despite hundreds of SPACs formed and billions of dollars raised, DraftKings remains the best of the sports SPACs. That likely means it’s also the last.