At about 4 p.m. on Thursday, January 25, the board of the media conglomerate the Arena Group met after the company had blown up its license to publish Sports Illustrated. Earlier in the month, Arena had defaulted on a $3.75 million quarterly licensing payment, resulting in the termination of its SI deal. In the wake of the decision, Arena’s stock plummeted, and the venerable sports magazine announced it was laying off its entire staff — a bloodbath in a notably bad month for the media industry. “I don’t understand how you lose the primary asset of a business,” one prominent shareholder said. “I don’t understand how a board could allow that to happen.”
At this meeting, the board was in possession of a takeover offer from James Heckman, one of its former CEOs. Heckman had negotiated the SI licensing deal back in 2019. The board also had to decide how to respond to a resignation email by another ex-CEO, Ross Levinsohn, who had accused them of actions that were “illegal, riddled with self-dealing, and will almost certainly lead to shareholder lawsuits.”
Arena has never explained why it stopped paying to publish Sports Illustrated, but interviews with shareholders and current and former employees suggest that Arena missed the licensing payment by choice, not because it didn’t have the money to make it. The company had about $10 million in cash in December, enough to pay its debts, its licensing fees, and make payroll, according to two people directly familiar with the numbers. Public documents and interviews with other employees show Arena wasn’t running out of money, and the missed payment occurred during the football and holiday season, typically when its revenues were highest. The company is now “in continuing discussions” to regain the license, according to a public filing.
When Arena announced the mass layoffs at Sports Illustrated, the news was met with shock — including from managers directly familiar with magazine’s financial situation. “The business was growing, and there was no need to miss a licensing payment and cashier the SI staff,” Rob Barrett, the former Arena Group president who’d been dismissed from his job hardly a month earlier, said on LinkedIn a few days later. “A magazine that had faced existential threat was stable, preserved, and profitable.” Among Arena’s large recurring expenses were its quarterly licensing payments and a $2.8 million debt payment — together amounting to about $6.5 million at the end of December. Arena met its obligations the previous quarter, when it had less than $8 million in cash on its books, public filings show. The company typically got cash payments on a monthly basis and had a line of credit — there would have been no holdup on accessing that cash, a former company executive said. (A spokeswoman for Arena declined to comment on the company’s financials prior to the release of its quarterly earnings.)
Since the layoffs were announced, former Sports Illustrated employees have been left to speculate on what happened. The roots of the debacle appear to go back to the summer, when Arena Group’s management started looking for an investor who could inject cash into the company. Arena was facing financial trouble: More than $100 million in debts were coming due at the end of 2023, and by the fall, crypto billionaire and company investor Brock Pierce was suing them for allegedly blocking him from selling his shares. (The suit is ongoing, and the company denies doing anything wrong.) Under the Sports Illustrated licensing agreement, Arena paid $15 million a year to Authentic Brands Group, a management company led by Canadian billionaire Jamie Salter that owns many well-known clothing and sports brands and likenesses, including Reebok and Eddie Bauer. The deal was expensive — it also came with a 10 percent annual interest rate — but Arena and Authentic Brands were able to make it work, one person familiar with the deal said. Salter’s company had a good relationship with Arena, and the two companies had previously cooperated to make sure that Arena could continue to pay to publish the magazine, the person said.
Enter Manoj Bhargava, owner of 5-Hour Energy, a onetime Forbes billionaire who owns a network of local television stations throughout the U.S. In August, Bhargava offered a deal that would pump $50 million into Arena and require him to spend an additional $60 million in advertising over the next five years. In return, he would become the majority shareholder and Arena would merge with his broadcast company, Bridge Media Networks. Under the new structure, Sports Illustrated, the financial-news outlet TheStreet.com, and other Arena outlets would be a source of proprietary content for the television stations.
The deal temporarily solved Arena’s immediate debt problem. With Bhargava’s backing, the creditor on the $100 million in debts agreed to push back the maturity date for two years — giving the media company breathing room to keep operating while looking for ways to increase their profitability.
Over the fall, however, negotiations on the Bhargava deal dragged. A due-diligence process in which each company inspected the other’s financial health took longer than expected. One reason for the delay was that Bridge Media Networks, Bhargava’s privately owned television company, didn’t provide audited financial documents to Arena for months, one person directly familiar with the process said. The acquisition was supposed to close by December 31, but in early November, Levinsohn was telling investors that it could get pushed back into early 2024.
It was around this time that Bhargava was offered an opportunity that would allow him to gain control of Arena more quickly. The company’s then-largest shareholder was B. Riley, a Los Angeles financial-services firm. Bhargava bought B. Riley’s position out at a discount, another person said, making him Arena’s largest shareholder — even as he was still waiting to buy the company outright. Almost immediately, the morale at Arena Group plunged, former employees there said. In early December, after the deal with B. Riley had closed, Bhargava gave a speech at an all-hands meeting in which he told employees, “The amount of useless stuff you guys do is staggering,” according to two witnesses. Within days, most of Arena’s top executives would leave, including Levinsohn, and the board installed Bhargava as interim CEO. The arrangement led to Bhargava becoming Arena’s top executive, its most important shareholder, and its creditor all at once (Arena’s debts had also been wrapped into the B. Riley deal). It was an extremely unusual situation for a corporate executive, potentially putting his interests in conflict with those of the company.
Cutting expenses became a top priority, ex-employees said. Managers were told to cancel holiday parties and keep costs low. When it came to the Sports Illustrated license, Bhargava told Arena executives he believed he could force Authentic Brands to negotiate a new price with him by withholding payment, according to one person familiar with the conversation. By early January, not only had Arena failed to make a payment on the licensing agreement, it had also skipped a $2.8 million payment on debt now held by Bhargava. Again, no reason was given, but two people familiar with Arena speculated it was part of a broader plan to lower costs, which could possibly include corporate bankruptcy.
Within weeks, it looked like Bhargava might lose control not only of Sports Illustrated but of all of Arena. Heckman, the former CEO, offered $120 million to take over the company, including buying the debt off Bhargava. The deal, however, wasn’t a financially superior one to Bhargava’s and wouldn’t necessarily make Arena any more likely to get Sports Illustrated back and save the jobs of the employees who have been laid off. On January 25, the board passed on Heckman’s offer — without addressing it in a filing made later that night. (Heckman was ousted as CEO by the board in 2020.) Overall, the board held ranks, siding with Bhargava, including insisting that the decisions that led Arena to lose its flagship publication had “followed thoughtful process and deliberation and were determined to be in the best interest of the Company and its stockholders.”
What comes next for Arena isn’t clear. The News Guild of New York and the Sports Illustrated union filed an unfair-labor-practices lawsuit and called Arena’s default an “engineered dispute over the SI license as a cover to union-bust and unlawfully target our members.” (Levinsohn, in his resignation email, also accused the company of “union-busting.”) Arena has said in filings that it is in talks with Authentic Brands over the default, as well as other costs — including a $45 million penalty triggered by the default on the licensing deal.
But Bhargava’s Arena is now just one bidder to publish Sports Illustrated, and his competition reportedly includes much larger, better-financed media and private-equity companies. “It’d be really hard for Jamie [Salter] to lower the licensing fee to Arena versus a new party,” one of those people told me. “If he does that, every other licensee he has would play this card, and he doesn’t want to be in that position.”
