The PTO's Kona Gambit: Nothing or SomethingBurger?

The Professional Triathletes Organization (PTO) announced today a “proposal to enter into discussions for the acquisition by the PTO of all the assets of the Wanda Sports Group Company Limited (“WSG”) related to its worldwide triathlon and mass participation business.” It further stated that it is, “prepared to consider an all-cash transaction.”

The PTO also announced that Sam Renouf, former head of Active Network’s endurance sports silo, and current president of Motiv Sports (large-scale mass participation running events, along with Malibu and Wildflower Triathlons), will transition into the lead executive role at the PTO (its animating leader, Charles Adamo, will become its Chairman). Two documents were issued that describe the aforementioned, a release announcing the appointment of Mr. Renouf as CEO of PTO, and that organization’s letter to the Wanda Group’s board of directors announcing its interest in purchasing its triathlon assets.

That is the news. Now for the analysis.

Here’s how this came about, to the best of my ability to construct a lucid narrative. I wrote about the 20-year history of professional triathletes trying to organize themselves. And I wrote about it 20 years ago. Has anything happened in the last 20 years that didn’t in the first? Kind of. A number of today’s high profile pros have coalesced around the Collins Cup which is, as well as I can tell, this sport’s version of tennis professionals’ own tour. To the best of my knowledge the Collins Cup and the PTO are expressions of the same effort, same organization, same leadership.

The PTO, according to my reporting, commenced work on a round of funding for the Collins Cup, and it sought help from North Point Advisors, a San Francisco-based investment banking firm. The amount to be raised was a small fraction of what it would take to buy Ironman, based on conversations I’ve had with Mr. Renouf and others. Nothing like amounts needed for this contemplated purchase announced today.

Concurrent with this effort was the Wanda Group’s launch of WSG, its packaged subsidiary of sports properties, notably InFront and Ironman. Two things became apparent: Wanda obviously wanted to recoup a portion of its investment in Ironman, and to strengthen its balance sheet by a well-publicized divestiture throughout its business portfolio; and the IPO underperformed, creating an opportunity that the PTO (along with investors funding the project) could leverage.

Accordingly, on the releases, if you download them, you’ll find a name of and contact info for a person at North Point, though my emails and calls (starting early this morning) have not been returned (it’s late-afternoon as of this writing).

In its releases and letters of today the PTO highlighted what it calls the “excessive debt load” which, the way I decode it, means the PTO wants bigger prize purses and health benefits for its athletes, rather than Ironman's operating profits used for servicing debt. About the debt: While I’m not a finance guy, it seems to me there’s debt that WSG owes back to its parent company, Wanda Group. My best assessment – acknowledging my lack of sophistication in this arena – is that the Wanda Group is treating WSG as sort of a leveraged buyout of its own property: it plopped a $400 million note on top of WSG, through which Wanda Group can recover a chunk of its investment. If I can be permitted an uneducated guess, this note is one reason for the depressed share value of Ironman, otherwise a 5-star brand. (There are other reasons, such as the discount typical of a company operating under Chinese law.) Anyway…

If the share price is so low, why doesn’t the PTO (or more accurately, the PTO’s yet-to-be-identified financial partners) simply buy the shares, that is, the share price is now trading at $4.75, “Here’s a premium of $6.50 for all outstanding shares.”? Because Wanda has only floated 20-something percent of the company’s shares; and because the shares are subordinate to the “A” shares still held by the Wanda Group.

The share price is irrelevant, except to possibly help establish a fair price for the brand. The PTO would need to make the purchase directly with the Wanda Group, for the shares it still holds. Furthermore, the PTO would not want the InFront part of WSG. It might take the rest of the mass endurance properties (e.g., Rock ‘n’ Roll), and a close reading of its press release indicates this. But the share price reflects the entirety of WSG, which includes InFront, a sports marketing agency like IMG, but smaller and quite soccer-focused. So, for the offer to work, it would likely require the dissolution of WSG.

While the PTO wrote to Wanda’s board that it was, “prepared to consider an all-cash transaction,” my reporting is that no price was specified; no offer based on a multiple of earnings; simply an offer to enter into a discussion. My sense tells me the money isn’t there, more like, North Point feels that there’s money parked on the sideline ready to deploy. Still, whenever I’ve purchased a business or a brand I’ve had to show earnest money, or sufficient money for the transaction in the bank. A discussion with North Point might help illuminate this.

In any case it would be other peoples’ money so I can't see how this is a purchase of Ironman by the PTO. Rather, the PTO is hoping to replace Ironman's current owners with those whose views aligned with its own. The PTO would need investors who: 1) wouldn’t leverage the company with debt, extracting repayment; 2) would agree to significantly raise the prize purse at is races, which is the prime reason the PTO wants Wanda out and another owner in.

Is this offer to negotiate from the PTO a nothingburger? Or it is a quarter pounder? My best guess? It’s somewhere in between. It's a veggie patty. We’ll see if it sizzles.

[PHOTO: Ingo Kutsch]