Madison Avenue has long known that athletes can sell almost anything. From soft drinks to sneakers to car insurance, consumers eagerly snap up whatever their favourite sweat-drenched star is pitching.
Now a growing number of big-name athletes are taking their talents to Wall Street. Super Bowl-winning quarterbacks such as Patrick Mahomes and Eli Manning, tennis champion Serena Williams and basketball Hall of Famer Shaquille O’Neal are just a few of the stars lining up to sell SPACs – the so-called blank-cheque companies that are surging in popularity as an alternative way for buzzy startups, often with little or no profits, to go public.
But they are not just there to draw in dollars; athletes provide star power that can be a crucial asset when SPACs – special purpose acquisition companies – are courting startups for a merger deal.
“Certain athletes carry a certain weight that gives them the ability to generate exposure and create buzz, whether it’s in the sports world or in the finance world – and so I think that that’s the ultimate motivation behind a lot of it,” said Ryan Nece, who had a seven-year career as a linebacker in the NFL. Now he is a managing partner at the investment firm Next Play Capital, which has been approached about starting a SPAC but has no plans to do so – yet.
SPACs are in a race against the clock from the moment they make their shares available in an initial public offering. They generally have just two years to close a deal for a target company, or they must return the money raised from investors. And with SPACs being formed at a record pace, athletes can be useful partners when trying to close a deal – or simply getting a foot in the door.
Last year, 256 special purpose acquisition companies went public, raising US$83-billion from investors, which was more than five times the record of US$15.5-billion in 2019, according to Dealogic, a data provider. The competition has grown only more heated; as of Wednesday, 295 SPACs had gone public in 2021, raising US$93-billion and breaking last year’s record in a matter of months.
About one-fifth of the SPACs launched since the start of last year involved a sports figure or focused on acquiring a sports-related business, according to the trade publication Sportico, which is keeping tabs on every new SPAC filing.
Kristi Marvin, founder of SPACinsider, which collects data on the market, said adding an athlete to a board brought marketing clout. “It’s really not geared to the retail investor, but it’s geared to getting meetings with target companies to do deals,” she said.
Consider a US$300-million financing deal to complete the merger of NewHold Investment, a SPAC, with Evolv Technology. It included a number of hedge funds but also several famous athletes, such as tennis power couple Steffi Graf and Andre Agassi and soon-to-be Hall of Fame quarterback Peyton Manning. NewHold’s backers hope that adding star power to the deal will help attract customers for its crowd-screening technology, which is aimed at stadiums, arenas and schools, said a person who was briefed on the matter but not authorized to speak publicly.
Often, an athlete can be added to a SPAC’s board or advisory committee at little cost to the management group running it. Directors are usually compensated with shares, and some advisory board positions are unpaid until a deal gets done.
But some athletes are not content to merely add their names to someone else’s SPAC.
They include Colin Kaepernick, the former San Francisco 49ers quarterback, who is trying to raise US$287-million for a SPAC with a focus on social justice, and Alex Rodriguez, a three-time most valuable player who retired from the New York Yankees in 2016 at No. 4 on the career home run list.
Mr. Rodriguez is chief executive of his own SPAC, Slam Corp., which he established in February, and may sit on the board of whatever company it acquires. He said he and his partners had already seen more than 70 potential targets after raising US$500-million.
Raising money through a SPAC allows his investment firm, A-Rod Corp., to take on opportunities that were out of reach before, he said.
“What has been the barrier for entry for us has been capital – and this levels out the playing field,” Mr. Rodriguez said.
He and his partner in Slam Corp., hedge fund manager Himanshu Gulati, are looking to acquire a business in the sports, media or health and wellness industry – but not a sports team, he said. (Mr. Rodriguez was also an investor in the telehealth company Hims and Hers, which went public in a SPAC transaction valuing the firm at US$1.6-billion last year.)
Rich Kleiman, manager and business adviser to Kevin Durant, the All-Star forward for the Brooklyn Nets, said having an athlete on an advisory board of a SPAC might help get a meeting with a company. Mr. Durant, he said, had been approached about such an arrangement but decided against it because he would have little control over the company’s direction.
While Mr. Durant, who with Mr. Kleiman runs a growing media and investment company, Thirty Five Ventures, has fielded suitors, other athletes are reaching out on their own.
Forest Road, an investment firm, was the entry point for Mr. O’Neal, who was already an investor there when he contacted its chief executive, Zachary Tarica, about getting involved in its growing SPAC business. Mr. O’Neal was an adviser on its first SPAC, which last month announced plans to buy Beachbody, a digital fitness company, at a US$2.9-billion valuation. He is now an adviser on a second Forest SPAC.
Kevin Mayer, a former Walt Disney and TikTok executive who advised the first SPAC and is helping lead the second, described Mr. O’Neal as “a real businessman,” although he cautioned against investing in a particular venture just because a famous person was involved.
“If anyone were to ask me, I say you should definitely not invest in this SPAC because there’s a sports star or any single person,” he said. “They should look at the totality of the investment.”
Securities regulators have taken notice of the celebrity-endorsement trend, which has also attracted non-athletes ranging from Sammy Hagar to Jay-Z. The U.S. Securities and Exchange Commission put out an investor alert March 10 cautioning retail investors not to buy shares of a SPAC simply because some boldface names are attached to it.
There is reason for healthy skepticism.
SPAC investors buy in, usually for US$10 a share, not knowing what kind of business they could ultimately own a piece of. The company could prove itself not ready for prime time – a problem that some in the financial industry see as a function of too many blank cheques chasing too few startups in Silicon Valley and elsewhere.
A forthcoming study in the Yale Journal of Regulation by professors at the Stanford and New York University law schools found that the “circuitous two-year process” from IPO to merger “creates substantial costs, misaligned incentives and, on the whole, losses for investors who own shares at the time of SPAC mergers.” Investors who bought shares in the IPO and sold them before the merger tended to fare best, the study found.
Adewale Ogunleye, who spent 10 seasons in the NFL and now heads the sports and entertainment group at the wealth management division at UBS, said he advised athletes to be cautious with their money and not jump into every hot investment trend. He said they – and any investor, for that matter – should approach a SPAC with open eyes and a desire to get as much knowledge as possible.
And any athlete lending his or her name to a SPAC must think about potential legal exposure if something goes wrong with a deal, he said.
“You have to be okay with other people winning and sometimes just sitting on the sideline,” Mr. Ogunleye said. “It’s the hardest thing you’ve got to tell an athlete.”
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