This is Buying Sandlot — the only newsletter that focuses solely on the business of youth sports.
A dedicated Thursday send given the announcement of the Let Kids Play Act yesterday— seeking to ban private equity in youth sports. Be sure to answer our poll question at the end of the newsletter.
Let’s get to it.
In the email today:
🏛️ A Quick Explainer
The Let Kids Play Act was introduced yesterday by Sen. Chris Murphy (D-CT) and Rep. Chris Deluzio (D-PA).
This is a bicameral bill to stop Wall Street from pricing kids out of sports by banning private equity firms from youth sports, shutting down the vulture practices they use to jack up costs, and getting money back to the families who have been ripped off. — press release from Deluzio’s office
Sen. Cory Booker (D-NJ), Rep. Angie Craig (D-MN), Rep. Pramila Jayapal (D-WA) and Rep. Pat Ryan (D-NY) are co-leaders.
The bill is built on two main pillars: 1) identifying “vulture practices” deployed by private equity, and 2) enacting policy to remove those practices and investors from the industry.
“This bill is not just a polite suggestion,” Deluzio said. “It has teeth.”
Vulture Practices?
The bill’s language defines this as “any practice, term, condition, tactic, instrument, method, or act that causes harm or creates long-term risk of harm to an acquired entity in order to extract profit, assets, or other value for the benefit of a covered firm or its affiliates.”
Stay-to-play policies were the most prominent example given. Others were take-it-or-leave-it terms, junk fees, and mining kids’ data for profit (tech platforms were cited here, but no specific examples were given).
Covered firm is important here, and it’s defined as: (A) a private equity fund; or (B) a company that is owned or controlled by a private equity fund.
Everything in the bill applies only to that capital structure. Anyone who sits outside it is not a target.
Hit The Road
The bill automatically classifies ALL private equity firms as “vulture investors” and bans them from involvement in youth sports.
Firms can then — under penalty of perjury — prove they have never engaged in vulture practices to remain in the industry. A false application comes with a minimum $1M fine and the risk of criminal prosecution.
Firms that cannot clear the bar then have two years to divest, transfer and unwind all holdings.
Other conditions of the bill:
Refunds for all junk fees
Cancelation of predatory contracts
Wipe out all debts, interest, late fees
Liability for debts, infractions, judgments, violations, etc.
PE forfeitures, penalties go toward fund that invests in youth sports
States, parents have rights to sue, receive compensated
A lot to unpack here! At first blush, the bill seems purposely designed as a personal grievance against Black Bear Sports Group (perhaps it is!), but the actual language is much more broad than the PE-backed facility-league-tech consolidation tactics it purports to go after:
1) Consolidation alone is considered a vulture practice. It’s not just bad actions within the consolidation that make PE-backed rollups vulture-like.
2) There is no path to the light. If you’ve committed any of the “vulture” like practices in the past, the certification path is closed to you. Or, as a wise Jedi warrior once said to Luke Skywalker, once you start down the dark path, forever will it dominate your destiny, consume you it will.
3) Vulture practices are incredibly broadly defined, and even include things like licensing video rights— which essentially every streamer has already done through their terms of service. What’s crazy to me is that this would mean a PE-backed tech platform (like TeamSnap) is in violation whereas a strategically-owned company (like GameChanger) would not be, even though they do essentially the same thing when it comes to streaming. Again, covered firm does all of the work here.
4) The mandate for vultures to sell their stake begs the question: To whom? Sure, strategic buyers, independent investors, and anyone operating outside a fund structure would be eligible, but the PE opportunity drives what I’d imagine is a substantial portion of the value of these assets even for non-PE investors. Even if nothing is enacted, PE now has to price in the political tail risk, which will impact valuations regardless unless another clarifying bill gets passed. The race to regulatory capture is on.
Last one: But for real, the covered firm language targets one specific capital structure and one alone. I bet a really good lawyer could make some sort of discrimination or equal protection argument here that the bill makes a distinction between economically identical activities.
🤔 Tipping The Hand
It is very unlikely — if not impossible — for this bill to pass with Republicans controlling both the House and Senate.
And even if Democrats take both chambers in the midterms — they would not be able to override a veto by President Trump.
Murphy seemed to acknowledge this — and pull the curtain on perhaps the real strategy.
“There’s a bully pulpit effect here as well. Until we can get private equity out of sports, we want to do whatever is necessary to curb the most abusive practices. As we shed more light on how these companies are hurting families, I think we have a decent shot at curbing some of those abusive and predatory practices. We’re going to fight to get this bill done, but the public relations effort here may have a shaming impact on the industry which will help kids and families.” — Sen. Chris Murphy (D-CT)
Translation: Lawmakers will call it a win if anyone in the industry that is currently offsides takes the opportunity to get back onside.
🐻 Bullseye On Black Bear Sports Group
The embattled youth hockey company was the only private equity-tied player mentioned by name during the lawmakers’ press conference — and repeatedly.
Murphy has taken aim at BBSG before. His son plays in a BBSG-associated league and the streaming brouhaha originated with him. The recent USA Today report touched on a decades-old nonprofit in Deluzio’s Pittsburgh area that claims BBSG put it out of business.
“If you listened to the list of abusive practices that [Deluzio] gave, Black Bear is engaged in almost every single one of them,” Murphy said.
BBSG is not backing down. It recently put out a press release touting expanded free and low-cost access at its facilities with an emphasis on Michigan locations, where the state’s attorney general has opened an antitrust probe that includes BBSG. And it told USA Today it welcomes the chance to engage on this bill.
🗣️ Embrace Debate
A slew of advocacy groups endorsed the bill, as did former FTC chairwoman Lina Khan.
Project Play was not among that crowd.
PP czar Tom Farrey commended the effort, but said the bill has “fundamental flaws” that will not fix youth sports’ accessibility and affordability issues.
"PE is a convenient punching bag, but like it or not it’s here to stay," he wrote on LinkedIn. "Private investment is everywhere in youth sports today – facilities, clubs, registration platforms. And some of it’s beneficial, like pro teams running low-cost local leagues. Do we really want the public to cover everything?"
American Economic Liberties Project’s Katherine Van Dyck — an endorsee — countered Farrey with her own LinkedIn post.
"The bill spells out a certification process for private investors to attest they don't engage in those practices and keep operating," the former FTC attorney wrote.
"Good actors are in. The low-cost local league run by a pro team has a clear path forward. ... PE in youth sports is widespread today, but 'here to stay' is a choice we make, not a law of physics. Markets take the shape we give them. Decades of ignoring competition laws and accepting the inevitable, letting extractive capital flow into youth sports the way it has, is how we got here. We can re-write the rules today to stop it and correct course."
ICYMI: We recently dug in deep on the data that Project Play and others use to frame the prevalent narratives around youth sports — narratives that are now driving federal legislation that seeks to make a sizable change to how the economy operates. We found the situation is far more nuanced than typically presented.
🪖 A Literal Arms Race
New York Rep. Pat Ryan acknowledged something we have written about in the past — the “cold, calculating national security case” for youth sports participation.
“Less than half of Americans right now are fit enough to serve in our military,” he said. “This is a way to make sure our kids are exercising, they’re learning these values of teamwork. For those who may not take the parent argument, we can make a national security argument. But not that that’s the main impetus here.”
The national security case for youth sports is a compelling one. So is the idea that youth sports should be a sort of public utility that society enjoys protected and somewhat guaranteed access to — a stance the lawmakers did not explicitly take, but danced around a great deal.
But if so … isn’t it the responsibility of Congress to go beyond directing penalty payments into a fund and start infusing billions — and maybe trillions? — into the industry?
I am not discounting the myriad political and practical complications, concerns and unintended consequences that significant federal government involvement would bring — especially if the Pentagon suddenly has a seat at the table.
But youth sports needs capital. And if PE is off the board or demonized and diminished, there is really only one other place with the means to get it in a sustainable manner — especially if Washington is adamant about its importance.
📊 Poll: How Will This Impact Youth Sports Valuations?
To what extent do you think the Let Kids Play Act will impact youth sports valuations?
🤳 Follow Buying Sandlot on Social
We’re new— help us build up our social media accounts by following along:
Good game.