Sports gear retailer Sports Authority will put its operations up for sale May 16, without any intent to reorganize under Chapter 11 bankruptcy protection, Sports Authority attorney Robert Klyman told Judge Mary Walrath Tuesday at a U.S. bankruptcy hearing, the Denver Post reports.
The move means that while there’s still an opportunity for a major bidder to acquire Sports Authority's assets, the process will more likely essentially gut the organization through liquidation.
Sports Authority, its vendors and its lenders still must settle issues regarding who will supervise the liquidation: The retailer's management team under Chapter 11 reorganization, or a trustee under Chapter 7. Under Chapter 11, Sports Authority is responsible for its rent payments and other administrative costs, while under Chapter 7 reorganization, creditors must assume those costs. Walrath warned that Chapter 7 reorganization could still be on the table, according to the Post.
Although Sports Authority went into its bankruptcy process expecting to reorganize, battles with suppliers probably doomed the company. Sports Authority sued its vendors to be able to keep selling goods on consignment, while suppliers feared that the retailer would be able to get out of paying them once it was through the bankruptcy process. Meanwhile, lenders were hesitant to extend much credit for Sports Authority to keep its shelves stocked.
The Denver Post reports that Sports Authority landlords also felt robbed of $27 million when the company filed for bankruptcy a day after rents were due.
"They didn't get very far into this before they hit snags with their suppliers. That tells me they weren't that close to getting the reorganization done," Denver Investments credit analyst and retail specialist Dan Schniedwind told the Post.
Meanwhile, Sports Authority has kept up its payments to continue securing naming rights to Sports Authority Field at Mile High, the stadium where the NFL's Denver Broncos play. Sports Authority is at least $643 million in debt, according to reports, and observers have noted that naming rights contract has compounded it.
Details of Sports Authority's struggles emerged earlier this year. News of missing payments to suppliers and a failure to make a $20 million interest payment soon followed, culminating in store closings and employee layoffs.
Experts say that Sports Authority's immense debt exacerbated its failures to weather market fluctuations and to compete online with the likes of Amazon, sporting goods rivals such as Dick's and general merchandisers like Target.
“[Sports Authority's] revenues were flat from 2013 to 2014, but also, they were trying to invest heavily in e-commerce and store remodels," Reshmi Basu, associate editor at Debtwire, an intelligence service that researches and reports on corporate debt situations," told Retail Dive earlier this year. "It’s a very over-leveraged company, and it had $1 billion in debt coming due over the next two years."