Why Some Analysts Saw Sports Authority’s Bankruptcy Filing Coming

Photo: Sports Authority store in New York (AP Photo)
A woman leaves a Sports Authority store, in New York, Wednesday, March 2, 2016. Sports Authority is filing for Chapter 11 bankruptcy protection. The Englewood, Colo., company has 463 stores in 41 states and Puerto Rico. 

Sports Authority, the Englewood-based sporting goods chain with more than 400 stores, filed for bankruptcy protection Wednesday. It plans to close 140 of those stores in the next three months,  including the iconic Sports Castle in downtown Denver. Molly Armbrister, a reporter with Denver Business Journal, offers some context on the news.

What happened:

"It’s been a hard March for a lot of retailers as the landscape has changed, particularly with regard to online retailing and just trying to keep their footing in the face of increased competition. Sports Authority is no different. They had a lot of the same issues as a lot of the other companies we’ve seen in recent years such as Sears and JC Penney, stores that rely on brick and mortar. They are struggling. and they had to retool their business model. So that’s what we’re seeing here."

Analysts saw this coming:

"We’ve been expecting this for a while, at least since the beginning of the year, if not before that. They did miss an interest payment on a loan, and store closures and layoffs are indicative of only one thing. Analysts have been predicting for a while that a Chapter 11 filing was imminent and today we found out they are correct."

Naming rights for Mile High Stadium are not clear:

"That is the big question that everybody is asking. As of right now it’s too soon to tell what’s going to happen with Mile High and the naming rights. There are two different camps on that subject.

"One says this is really great marketing. Sports Authority has their name on the home of the Super Bowl champion football team, and they need to let people know they still exist, know that they are still out there if they ever want to ever come back.

"Then there’s another camp that says they are running really low on cash right now and they are spending $6 million a year on those naming rights and are they getting their return on investment that they want."

Whether the Sports Castle in downtown Denver closing matters:

"The Sports Castle was an iconic store and it might be a little less convenient for shoppers who live in that area, but Sports Authority has more than 460 locations nationwide and a lot of those are in metro Denver. So I think there probably will be another Sports Authority store within a decent drive for most people in the metro area."

The next step:

"They’re going to have to work with their creditors and work their way through the bankruptcy filing. They did file a motion to see if the court will approve more than $500 million in financing from an assortment of lenders that will help them maintain liquidity as they work through the process."

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