Alpha Entertainment LLC

April 13, 2020

“This is the future. And the future moves fast.”

Whoa boy does it move fast.

Connecticut-based Alpha Entertainment LLC — the legal entity behind the XFL — is now a chapter 11 debtor, an unfortunate blemish on the creative and investment record of Vincent K. McMahon (100% Class A equityholder, 75.5% Class B) and the World Wrestling Entertainment Inc. ($WWE)(23.5% Class B equityholder). Was this idea destined to fail?

The debtor paints an unfortunate picture. This thing was doing great, they assert, until that pesky COVID-19 thing had to come in and decimate anything and everything involving crowds. They note:

Prior to the Petition Date, the XFL provided high-energy professional football, reimagined for the 21st century with many innovative elements designed to bring fans closer to the players and the game they love, during the time of year when they wanted more football. The league debuted on February 8, 2020 to immediate acclaim. Nearly 70,000 fans attended the opening weekend’s games, and more than 12 million viewers tuned in on television. Just weeks after the first XFL games were played, however, the worldwide COVID-19 pandemic forced every major American sports league to suspend, if not cancel, their seasons. On March 20, 2020, the XFL canceled the remainder of its inaugural season, costing the nascent league tens of millions of dollars in revenue.

Man, how’s that for sh*tty timing? The post-Week 1 numbers reflect some initial success. Week 2 attendance rose from approximately 70k to 76.2k and Week 3 attendance hit 81.9k. The XFL was actually showing signs of promise until, in late February, attendance took a dive down to 70.2k in Week 4 and to 64.2k in Week 5.* Were people already beginning to hunker down? Given that Seattle and St. Louis proved to be the largest markets and Washington State was the first state in the union to get pummeled by COVID, that seems fairly safe to presume.

Frankly, nobody on the PETITION team has ever watched a minute of XFL football but … to be honest … it sounds like a whole lot of degenerate fun! Quicker games? ✅ In-game access to participants on the field? ✅ Encouraged gambling? ✅ Sounds awesome. What else are we gonna watch in February? Hockey? Please. This actually sounds like it was not, actually, destined to fail. Like a startup it needed time to build a brand and grow. Absent, say, a worldwide once-every-blue-moon pandemic that literally shuts down the world economy, it might have actually made great strides to do so. Alas:

It is estimated that cancellation of the final five weeks of league’s regular season “negated approximately $27 million in fan spending on gameday-related items” such as ticket sales and food, beverage, and merchandise purchases, to say nothing of the revenue from playoff games or the lost opportunities for sponsorship revenue and brand development. With the league shuttered and no games being played (or revenue being generated), the COVID-19 pandemic left the Debtor facing near-term liquidity issues. With the duration of the pandemic uncertain and the Debtor’s operating expenses continuing unabated, the Debtor was left with few viable alternatives outside of chapter 11.

Mr. McMahon provided the company with a $9mm secured bridge loan but, once it became clear that there was no end in sight to the shutdown, he and his advisors concluded that building a bridge without knowing where the end is probably doesn’t make for good business. Per the the chapter 11 filing papers, the bankruptcy, therefore, is intended to find a buyer for the assets — which include all of the teams (this is not a franchise model), equipment and intellectual property. Revenue for the business was $14mm with a net loss of $44mm. Mr. McMahon has committed to provide a $3.5mm DIP credit facility to fund the cases/sale. Given that the debtor has several million of cash on hand, however, Judge Silverstein did not approve the DIP at the debtors’ first day hearing. Likewise, she shelved the debtor’s plan to issue refunds to season ticket holders.

No sale-related pleadings are yet on file. Per the DIP — which, again, was not approved — a sale motion is required to be on file by April 21 and a sale conducted by July 15, 2020. The debtor has already filed motions rejecting all of its player contracts and practice facility and venue use agreements. McMahon, a billionaire, is well-positioned to credit bid his debt here, wipe out all unsecured creditors, and shelve the IP for a time in the future if he wants.

*There is some question as to whether “attendance” is the proper metric given that there were suspicions that the numbers reflect tickets “distributed” rather than tickets “sold” or actual attendance. Whichever way you measure it, the St. Louis BattleHawks “had reportedly sold 45,000 tickets to their next game before the league shut down due to the coronavirus outbreak.”

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $9mm pre-petition secured note (Vince McMahon)

• Professionals:

  • Legal: Young Conaway Stargatt & Taylor LLP (Michael Nestor, Matthew Lunn, Kenneth Enos, Travis Buchanan, Shane Reil, Matthew Milana)

  • Independent Manager: Drivetrain Advisors LLC (John Brecker)

  • Claims Agent: Donlin Recano & Co. Inc. (*click on the link above for free docket access)

• Other Parties in Interest:

  • Pre-Petition & DIP Lender ($3.5mm): Vince McMahon