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.
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