By Gary Symons
TLL Editor in Chief
Authentic Brands Group says it will throw its prodigious financial weight behind Sports Illustrated to ensure it survives its current financial crisis.
The future of the venerable sports publication was put in doubt after publisher Arena Group failed to make a quarterly license payment to brand owner Authentic Brands.
Authentic Brands (ABG) purchased the world’s best known sports magazine in 2018, and appointed Arena Group to manage its operations, but Sports Illustrated has suffered a number of setbacks over the intervening five years, and in early January ABG warned Arena that it could terminate the contract “absent a cure” after Arena failed to pay a licensing fee payment for $3.75 million.
However, while Arena Group has been terminated as the licensee for the Sports Illustrated brand, Authentic Brands says the company is 100 per cent dedicated to ensuring the company’s long-term prosperity.
“The Arena Group’s license to serve as the publisher of Sports Illustrated was terminated as a result of the company’s failure to pay its quarterly license fee despite being given a notice of breach and an opportunity to cure the breach,” ABG said in a written response to questions posed by TLL. “Authentic is here to ensure that the brand of Sports Illustrated, which includes its editorial arm, continues to thrive as it has for the past nearly 70 years. We are confident that going forward the brand will continue to evolve and grow in a way that serves sports news readers, sports fans, and consumers.
“We are committed to ensuring that the traditional ad-supported Sports Illustrated media pillar has best in class stewardship to preserve the complete integrity of the brand’s legacy.”
As ABG has confirmed, it had first threatened to yank Arena’s license, but also offered to extend it if Arena could assure the company it would make good on its licensing contract.
That ‘cure’ apparently did not happen or didn’t satisfy ABG, as the company pulled the plug on Jan. 19, resulting in either all or almost all of the magazine’s staff being laid off. As of now, the seven-decade-old publication has essentially ceased functioning. Authentic “issued the Company a notice of breach with the intent to exercise its right of termination,” Arena said in the filing, adding that they are “in discussion” with the licensor.
For its part, Authentic Brands said in a statement that it was forced to act when Arena failed to live up to the terms of its licensing agreement.
“As the second largest brand owner and licensor in the world, a key to Authentic’s success has been and will continue to be the support of our nearly 2,000 best-in-class partners around the world,” ABG said. “When they win; we win. In exchange for this trust and support, we simply expect our partners to honor their contractual commitments—financial or otherwise. These arrangements help ensure that the brands they are licensing from us continue to grow and prosper.
“While we ordinarily don’t comment on the specific details of our relationships with our licensees, these aforementioned expectations unequivocally apply to The Arena Group, the current license holder of the Sports Illustrated brand whereby under such license they operate a traditional ad-supported sports media business. Following a failure to make their quarterly license fee payment on January 1, we have put The Arena Group in breach with an intention to terminate the license absent a cure.”
Part of ABG’s decision likely had to do with the fact Arena also failed to meet a scheduled loan repayment.
Arena Group confirmed in a filing to the Securities Exchange Commission that it has failed to make the ABG payment, and is also involved in trying to meet loan repayment demands from lender Renew Group Private Limited. The company failed to make an interest payment of $2.8 million on its outstanding principal of $110.7 million. Arena has thus defaulted on both the loan and the licensing agreement, creating a current shortfall of $6.5 million for this quarter.
Arena is currently in discussions with Renew Group to restructure the debt, but as ABG has pulled the license, it is difficult to see how Sports Illustrated will earn the revenue needed to meet that debt obligation.
There are some indications a rescue plan is in the works, if you read between the lines in the SEC filing. To allow for refinancing talks, Renew Group agreed in writing on Jan. 5 to a forbearance period through March 29, 2024, while reserving its rights and remedies. The forbearance period is subject to Arena retaining a third-party financial restructuring firm acceptable to RGPL.
At the same time, Arena announced its board had accepted the resignation of its interim CEO Manoj Bhargava, who stepped down from this role “to avoid any conflicts of interest which may arise as part of the pending transactions with affiliates of Mr. Bhargava including the Proposed Transaction.” On that same day, Jan. 4, the board engaged FTI Consulting Inc. to assist Sports Illustrated with its turnaround plans.
However, all of that preceded ABG’s decision to yank the license. Right now, the only way Arena can successfully restructure the company is if the Sports Illustrated license is restored; something that would likely only happen if the company’s lenders agreed to pay the outstanding licensing fees.
Authentic clearly wants the operations at Sports Illustrated to continue, as the brand remains very valuable within the sports industry, but it may be more likely to find another publisher to carry the ball, so to speak.
Sports Illustrated has suffered a number of setbacks recently that add to ABG’s concerns over the Arena Group’s management.
The most public of those issues had to do with the recent controversy over Sports Illustrated using articles generated by artificial intelligence.
Ross Levinsohn, the CEO of the Arena Grouup, was terminated in December, 2023 as the scandal made headlines around the world, which led to Bhargava being named interim CEO. The company also fired COO Andrew Kraft, media president Rob Barrett, and corporate counsel Julie Fenster.
A recent article by the tech blog Futurism alleged that stories on the Sports Illustrated web site “were churned out using AI,” and that the contributor profiles on many of them were also AI-generated, right down to the author photos, which Futurism’s researchers claim they found on sites selling AI-generated images.
The site also said it found similar content on The Street.com, which Arena Group bought from co-founder Jim Cramer in 2019. There was also a controversy earlier this year when Men’s Journal, another Arena Group publication, published an Ai-generated medical article reportedly riddled with “inaccuracies and falsehoods.”
However, a spokesperson the The Arena Group said that “the articles in question were product reviews and were licensed content from an external, third-party company, AdVon Commerce. A number of AdVon’s e-commerce articles ran on certain Arena websites. We continually monitor our partners and were in the midst of a review when these allegations were raised.”
That wasn’t the only controversy at Sports Illustrated after the license was acquired by Arena, which at the time was known as Maven. In a bid to cut costs and boost profits, The Maven had laid off a significant number of SI staff members, including some of its best writers. In 2019 SI laid off more than one-third of its staff, with the idea of creating an SEO-heavy content farm that would post content alongside the writers of the classic Sports Illustrated writers and photographers.
In one case, Maven ran a story on the Bengals football team that was later discovered to have come from a high school senior. The company’s critics, many of them avid sports fans, began criticizing Sports Illustrated for running poorly researched articles, and that was before SI laid off another six per cent of its remaining staff.
Authentic Brands Group is known for supporting its brands, and it would be beyond unusual for ABG to allow one of its brands to fail outright, so most analysts in the licensing and publishing world expect ABG is serious about having a rescue plan is in the works. As one of the publishing industry’s most valuable brands, it’s expected ABG will have plenty of suitors for the license.
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