Updated Jan 20, 2024 - Business

Sports Illustrated mess spells trouble for the Arena Group

Illustration of various digital cursors pointing downwards.

Illustration: Gabriella Turrisi/Axios

Most of Sports Illustrated's unionized staff were laid off Friday after its parent company, the Arena Group, failed to make a $3.75 million quarterly payment to the group that it licenses Sports Illustrated's brand from.

Why it matters: The Arena Group executives were hoping to gain leverage over Authentic Brands Group (ABG) — the company that controls the Sports Illustrated brand license — by withholding the payment, sources told Axios. ABG called that bluff, and now dozens of people are out of jobs.

The big picture: The disagreement likely won't end Sports Illustrated's brand, but it does seriously destabilize the company following years of ownership transitions and more recent challenges.

  • The company had a restructuring in early 2023 that resulted in 17 layoffs and the removal of several top editors. It faced blowback in late November after being accused of publishing articles written by artificial intelligence.

State of play: While the Arena Group says it's still in active discussions with ABG to renew the license, it acknowledged that ABG is already in discussions with other companies about licensing the Sports Illustrated brand.

  • "Even though the publishing license has been revoked we will continue to produce Sports Illustrated until this is resolved," The Arena Group said in a statement.
  • "We hope to be the company to take SI forward but if not, we are confident that someone will. If it is another business, we will support with the transition so the legacy of Sports Illustrated doesn't suffer."
  • ABG said it's "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."

Be smart: Sports Illustrated is one of the most popular brands in the Arena Group's portfolio.

  • The Arena Group is a publicly traded digital media holding group that owns dozens of publishers, including Parade and Men's Journal.
  • In August, a venture firm called Simplify Inventions announced a deal to buy a majority stake in the Arena Group.

Between the lines: The decision to withhold the payment came from executives currently running the company and its board, sources told Axios.

  • Consultants from FTI Consulting are leading the Arena Group's team right now, two sources familiar with the company's leadership structure told Axios.
  • Simplify Inventions founder Manoj Bhargava is the largest shareholder of the Arena Group and sits on its board. He resigned as interim CEO a few weeks ago.
  • Bhargava made his fortune selling the popular caffeine brand 5-Hour Energy. He has a strong reputation for branding but is not known as a media executive, although he does own some TV assets.

What they're saying: In response to the news, former Arena Group CEO Ross Levinsohn said he resigned from his position as a board member at the Arena Group and pointed fingers at the company's board for the missed payment.

  • "The actions of this board and the actions against Sports Illustrated's storied brand and newsroom are the last straw. An incredible team spent years rebuilding great brands like SI through very challenging times."
  • "To watch in horror what is transpiring now is one of the most disappointing things I've ever witnessed in my professional life."

What to watch: Simplify Inventions' deal to buy a majority stake in the Arena Group — which was expected to be finalized late last year — has yet to close.

  • A source familiar with the deal told Axios that Simplify could explore ways to back away from the deal if the ABG deal isn't resolved.
  • If the deal between Simplify Inventions and the Arena Group were to fall through, it would leave the Arena Group in a perilous position.
  • Its stock has plummeted from around $10 a share a year ago to under a dollar this week, and it currently has a market cap of $26 million.
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